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Payola Probe Heating Up

New York attorney general investigating record labels’ links with radio stations

A new investigation into the issue of payola in the music industry
has been launched by New York Attorney General Eliot Spitzer. In
September, each of the four global record labels — EMI, Warner
Music Group, Universal and Sony-BMG — received subpoenas seeking
e-mails, contracts and other correspondence between the labels and
independent promoters, the middlemen who labels pay to push singles
to radio stations.

A source close to the investigation told Rolling Stone
that in addition to targeting labels, Spitzer’s office is expanding
the investigation to include prominent independent promoters and
Top Forty, urban and alternative New York radio stations.

The investigation, first reported by the New York Times
on October 22nd, revives debate about the nation’s payola laws.
Since 1960, it has been illegal for record labels to pay radio
stations to play specific songs unless the financial transactions
are disclosed to the audience. But plenty of money still goes back
and forth between labels and stations. According to several
sources, labels pay upwards of $150,000 to promoters to push a song
at Top Forty radio stations. In smaller markets, it is common for
that money to pay for items such as promotional T-shirts and bumper
stickers, or to directly feed a station’s budget. “I just got a
call from a promoter telling me they could add a Baton Rouge
station for $600,” says one prominent band manager. “I get these
calls all the time.”

In larger markets, broadcasting conglomerates such as Clear
Channel and Cox say they have stopped working with independent
promoters, but there are other questionable ways for radio stations
to make what they call nontraditional revenues, or NTR. Holiday
radio concerts can easily raise seven figures on the strength of
appearances by top musicians who are often expected to waive their
fees; sources say that bands who don’t perform risk losing
airplay.

Executives at all four global labels refused to comment
officially — EMI issued a statement emphasizing its innocence and
cooperation with Spitzer’s office — but off the record, several
admitted that they are uncertain what to expect. In the past,
Spitzer’s investigations have led to dramatic reforms in both the
investment-banking and mutual-fund industries, and some label
chiefs say that such regulatory guidance would be welcome in the
record industry. Still, no label wants to be the first to cut off
payments to independent promoters, for fear of losing access to
radio programmers. “The money that goes to radio would be much
better spent elsewhere,” admits one label executive.

Others wonder about the timing of Spitzer’s investigation,
noting that the most flagrant violations — such as direct
pay-for-play schemes — stopped in the late Nineties. “Five or ten
years ago, he might have really found something,” says one
executive.

The investigation has been developing behind the scenes since
the start of the year. In late February, two influential
music-industry executives met in Spitzer’s office to advise members
of the attorney general’s staff about the flow of money between
labels, radio stations and promoters. Radio conglomerate Clear
Channel was also a topic of discussion, says a source present at
the meeting, with investigators questioning whether artists were
coerced to play the company’s venues in exchange for airplay.

In June, Spitzer investigated a tip that Michelle Clark
Promotion, a California firm, may have violated payola laws in its
dealings with the highly regarded, independently owned WDST in
Woodstock, New York. Representatives from WDST and Michelle Clark
declined to comment.

The Spitzer investigation may have been prompted by his hiring,
last May, of Susanna Zwerling, an attorney whose previous job was
legal adviser to Democratic FCC Commissioner Michael Copps.
Zwerling led the February meeting and has spearheaded this
investigation.

“The question that the attorney general will have to decide is
whether it’s an extortion situation on the broadcast side or a
bribery situation on the label side,” says Michael Bracy of the
Future of Music Coalition, a broadcasting watchdog group and think
tank that has worked with the attorney general on the
investigation. “From our standpoint, it’s a little bit of
both.”

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