Payola

And the hits just keep on comin’!

Payola is the act of bribing radio stations in exchange for the

increased airplay of certain songs. The bribe does not have to be
monetary in nature; any form of valuable consideration will suffice.
Record labels and other companies have used this tactic because there is
a direct correlation between airplay and album sales. Simply put: the
more a song is played on the radio, the more copies of the song will be
sold.

In the late 1950’s, Congress began investigating reported incidents of

Payola. At the time, there was no law against Payola per se, but several
people were indicted on charges of commercial bribery for taking part in
Payola schemes. In 1960, Payola made national news when several men,
including famous disk jockey Alan Freed, were indicted for commercial
bribery in connection with the Payola scandal. Subsequently, Congress
passed 47 USC 317, a Payola statute. This law states that if any valuable
consideration is given in exchange for airplay, the arrangement must be
broadcast in a timely manner. This is known as PAY FOR PLAY, and is
legal. A failure by the broadcaster to disclose the arrangement may
result in criminal liability and is punishable by a fine of up to $10,000 or
one year in prison.

More recently, record labels believed that they had found a loophole in
the Payola statute. They thought that if they used an independent
promoter to bribe the stations rather than do so directly, they would be
insulated from liability under 47 USC 317. They were wrong.

In 2005, the Attorney General of the State of New York, Elliot Spitzer,
obtained indictments against Sony BMG, Universal Music and others for
Payola violations. The labels settled out of court and agreed to pay a
combined amount in excess of $25 million to help fund music education
and appreciation programs. The Federal Communications Commission
subsequently commenced an investigation whereby it undeniably
established that there is no such loophole.

Payola and Antitrust Analysis

Illegal monopolization can be established by proving the following

elements:

1. Intent to control prices or destroy competition;

2. Predatory or anticompetitive conduct; and
 3. A “dangerous probability of success” in achieving a monopoly.

When we look at Payola in the context of Antitrust, it seems as though

47 USC 317 is a redundant law. The activity of paying bribes in exchange
for increased airplay of songs seems to be evidence of the intent to
destroy competition since competitor’s sales would surely be affected by
their inability to get airplay. Likewise, this behavior can reasonably be
said to be anticompetitive conduct. So why did Congress feel that it was
necessary to pass another law to specifically address this? Perhaps it is
because, at the time, the labels had not yet consolidated to the point
where there were just a few majors competing against one another and
the independents (which don’t pose much of a competitive threat),
therefore, the probability of success in achieving a monopoly did not
seem very likely, much less dangerous.