CTQ-2016-00001
Court of Appeals
of the
State of New York
FLO & EDDIE, INC., a California Corporation, Individually
and on behalf of All Others Similarly Situated,
Plaintiff-Respondent,
– against –
SIRIUS XM RADIO INC., a Delaware Corporation,
Defendant-Appellant,
– and –
DOES, 1 THROUGH 10,
Defendants.
––––––––––––––––––––––––––––––
ON APPEAL FROM THE QUESTION CERTIFIED BY THE UNITED STATES
COURT OF APPEALS FOR THE SECOND CIRCUIT IN DOCKET NO. 15-1164-CV
BRIEF AMICUS CURIAE OF THE NATIONAL
ASSOCIATION OF BROADCASTERS IN SUPPORT
OF SIRIUS XM RADIO, INC.
RICK KAPLAN
SUZANNE HEAD
NATIONAL ASSOCIATION OF
BROADCASTERS
1771 North Street, NW
Washington, DC 20036
Tel.: (202) 429-5430
Fax: (202) 429-5410
STEPHEN B. KINNAIRD
PAUL HASTINGS LLP
875 15th Street, NW
Washington, DC 20005
Tel.: (202) 551-1700
Fax: (202) 551-1705
Counsel for Amicus Curiae National Association of Broadcasters
Date Completed: August 31, 2016
RULE 500.1(f) CORPORATE DISCLOSURE STATEMENT
Pursuant to Rule 500.1(±), amicus curiae National Association of
Broadcasters states that it has no parents, subsidiaries, or affiliates.
Dated: August 31, 2016
By:
LEGAL_US_E # 123412441.2
/te0~{~
Stephen B. Kinnaird
Counsel for National Association of
Broadcasters
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TABLE OF CONTENTS
Page
-ii-
RULE 500.1(F) CORPORATE DISCLOSURE STATEMENT ............................... i
TABLE OF AUTHORITIES .................................................................................. iii
INTEREST OF AMICUS CURIAE ......................................................................... 1
INTRODUCTION AND SUMMARY ..................................................................... 1
BACKGROUND ...................................................................................................... 3
A. Record Companies Are the Primary Holders of Copyright in
Sound Recordings................................................................................. 3
B. Record Companies Have Long Encouraged the Radio
Broadcast of Sound Recordings, Without Claim to
Compensation, So As To Maximize Record Sales. ............................. 4
C. Record Companies Have Reaped Enormous Economic Benefits
from Radio Airplay. ............................................................................. 9
D. Congress Has Denied Federal Copyright in Over-The-Air Radio
Broadcasts of Sound Recordings because of the Historical
Symbiosis of the Recording and Radio Industries. ............................ 11
ARGUMENT .......................................................................................................... 14
I. THERE IS NO NEW YORK COMMON LAW PROPERTY RIGHT
IN THE PUBLIC PERFORMANCE OF SOUND RECORDINGS. ........... 14
A. Common Law Copyright Is Limited To Reproduction. ..................... 14
B. Copyright and Performance Rights Are Distinct Property
Rights, and Creation of the Performance Rights in Modern
Technologies Is Properly the Domain of the Legislature. ................. 15
C. This Court Should Not Extend Common-Law Copyright to
Radio Broadcast of Sound Recordings. ............................................. 20
D. No Precedent Supports the Recognition of Exclusive Property
Rights in the Public Performance of Sound Recordings. ................... 23
II. THE CREATION OF PERFORMANCE RIGHTS IN PRE-1972
SOUND RECORDINGS SHOULD BE LEFT TO THE
LEGISLATURE. .......................................................................................... 27
CONCLUSION ....................................................................................................... 32
TABLE OF AUTHORITIES
Page(s)
-iii-
Cases
Bonneville Int’l Corp. v. Peters,
347 F.3d 485 (3d Cir. 2003) ............................................................. 10, 11, 12, 13
CA, Inc. v. Simple.com, Inc.,
621 F. Supp. 2d 45 (E.D.N.Y. 2009) .................................................................. 27
Capitol Records, Inc. v. Mercury Records Corp.,
221 F.2d 657 (2d Cir. 1955) ............................................................................... 28
Capitol Records, Inc. v. Naxos of Am., Inc.,
372 F.3d 471 (2d Cir. 2004) ......................................................................... 15, 27
Capitol Records, Inc. v. Naxos of Am., Inc.,
4 N.Y.3d 540 (N.Y. 2005) .................................................................. 3, 14, 15, 24
Chamberlain v. Feldman,
300 N.Y. 135 (1949) ........................................................................................... 27
Colt Indus. S’holder Litig. v. Colt Indus. Inc.,
77 N.Y.2d 185 (1991) ......................................................................................... 29
Dowling v. United States,
473 U.S. 207 (1985) ............................................................................................ 18
Ferris v. Frohman,
223 U.S. 424 (1912) ...................................................................................... 16, 19
Fisher v. Star Co.,
231 N.Y. 414 (1921) ........................................................................................... 26
Flo & Eddie, Inc. v. Sirius XM Radio, Inc.,
No. 13-23182-CIV, S.D. Fla. June 22, 2015) (rejecting
performance rights under Florida law), appeal pending, No. 15-
13100 (11th Cir.), question certified, 2016 WL 3546433 (11th Cir.
June 29, 2016) ..................................................................................................... 28
Fortnightly Corp. v. United Artists Television, Inc.,
392 U.S. 390 (1968) ............................................................................................ 22
TABLE OF AUTHORITIES
(continued)
Page(s)
-iv-
French v. Maguire,
55 How. Pr. 471 (N.Y. Sup. Ct. 1878)................................................................ 19
Gurnee v. Aetna Life & Cas. Co.,
55 N.Y.2d 184 (1982) ......................................................................................... 31
International News Service v. Associated Press,
248 U.S. 215 (1918) ...................................................................................... 24, 26
Jerome H. Remick & Co. v. Am. Auto. Accessories Co.,
5 F.2d 411 (6th Cir. 1925) .................................................................................. 28
Metro. Opera Ass’n v. Wagner-Nichols Recorder Corp.,
199 Misc. 786 (1950), aff’d, 279 A.D. 632 (1st Dep’t 1951) ....................... 19, 25
Metro. Opera Ass’n v. Wagner-Nichols Recorder Corp.,
279 A.D. 632 (1st Dep’t 1951) ..................................................................... 25, 26
Palmer v. DeWitt,
47 N.Y. 532 (2 Sickels 1872) ....................................................................... 16, 17
Roy Export Co. v. Columbia Broad. Sys., Inc.,
672 F.2d 1095 (2d Cir. 1982) ............................................................................. 19
S. Pac. Co. v. Jensen,
244 U.S. 202 (1917) ............................................................................................ 30
Tompkins v. Halleck,
133 Mass. 32 (1882) ........................................................................................... 19
United States v. Am. Soc’y of Composers, Authors and Publishers,
No. CIV.A. 42-245, 1950 WL 42273 (S.D.N.Y. Mar. 14, 1950) ....................... 29
United States v. Broad. Music Inc.,
No. 64 CIV. 3787, 1994 WL 901652 (S.D.N.Y. Nov. 18, 1994) ....................... 29
Waring v. WDAS Broadcasting Station, Inc.,
194 A. 631 (Pa. 1937) ............................................................................. 23, 24, 25
TABLE OF AUTHORITIES
(continued)
Page(s)
-v-
Statutes and Public Laws
17 U.S.C.
§ 101 .............................................................................................................. 20, 21
§ 106(4) ................................................................................................... 11, 18, 21
§ 106(6) ......................................................................................................... 12, 18
§ 110(1)-(7) ......................................................................................................... 18
§ 110(5) ............................................................................................................... 21
§ 110(9) ............................................................................................................... 18
§ 114 .................................................................................................................... 18
§ 114(d) ......................................................................................................... 14, 27
§ 114(d)(1)(A) ..................................................................................................... 13
§ 114(d)(2) .................................................................................................... 19, 21
§ 114(d)(3) .................................................................................................... 19, 21
§ 114(g)(2) .................................................................................................... 13, 29
§ 115(a) ............................................................................................................... 21
§ 301(c) ............................................................................................................... 11
Act of Aug. 18, 1856, ch. 169, 11 Stat. 138 (1856) ................................................. 17
Act of Feb. 3, 1831, ch. 16, 4 Stat. 436 (1831) ........................................................ 17
Act of March 4, 1909, ch. 320(d) & (e), 35 Stat. 1075 (1909) ................................ 18
Digital Millennium Copyright Act,
Pub. L. No. 105–304, 112 Stat. 2860 (1998) ...................................................... 13
Digital Performance Right in Sound Recordings Act of 1995,
Pub. L. No. 104–39, 109 Stat. 336 (1995) .......................................................... 12
Sound Recordings Amendment of 1971,
Pub. L. No. 92–140, 85 Stat. 391 (1971) ............................................................ 11
Legislative Materials
H.R. Conf. Rep. No. 105–796 (1998) ...................................................................... 14
S. Rep. No. 93-983 (1974) ....................................................................................... 12
TABLE OF AUTHORITIES
(continued)
Page(s)
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Sen. Rep. No. 104-128 (1995) ................................................................................. 13
Other Authorities
Calif. Setting The Tempo in Sounds, Song, Style, BILLBOARD (Apr. 9,
1966) ..................................................................................................................... 9
Coase, Ronald H., Payola in Radio and Television Broadcasting, 22
J.L. & ECON. 269 (1979) ....................................................................................... 6
Dannen, Fredric, HIT MEN (1990) ......................................................................... 6, 7
Denisoff, R. Serge, SOLID GOLD, THE POPULAR RECORD INDUSTRY
(1975) ................................................................................................................ 6, 7
Dertouzos, James N., Radio Airplay and the Record Industry: An
Economic Analysis (2008),
https://www.nab.org/documents/resources/061008
_Dertouzos_Ptax.pdf ........................................................................................... 10
Drone, Eaton S., A TREATISE ON THE LAW PROPERTY IN
INTELLECTUAL PRODUCTIONS IN GREAT BRITAIN AND THE UNITED
STATES (1879) ............................................................................................... 16, 17
Edison Research and Triton Digital, The Infinite Dial 2016,
http://www.edisonresearch.com/the-infinite-dial-2016 ........................................ 8
Eliot, Marc, ROCKONOMICS: THE MONEY BEHIND THE MUSIC (1989) ...................... 6
“Ex’s” Striking It Rich on W. Coast, BILLBOARD (Dec. 11, 1965) ........................... 9
Fratrik, Mark R., How Will the Radio Industry Be Affected by Pre-
1972 Music Performers’ Fees 7 (July 27, 2015,
http://www.biakelsey.com/pdf/ impactofpre72musicroyalties.pdf .................... 31
Hilliard, Robert L. & Keith, Michael C., THE BROADCAST CENTURY
AND BEYOND (2010) .......................................................................................... 4, 5
TABLE OF AUTHORITIES
(continued)
Page(s)
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In Re: Determination of Royalty Rates and Terms for Ephemeral
Recording and Digital Performance of Sound Recordings (Web
IV), Docket No. 15-CRB-0001-WR (Copyright Royalty Board),
Hearing Tr. (April 30, 2015) ................................................................................. 8
Keith, Michael C. , THE RADIO STATION (8th ed. 2010) ...................................... 6, 28
MacGillivray, E.J., A TREATISE UPON THE LAW OF COPYRIGHT IN THE
UNITED KINGDOM AND THE DOMINIONS OF THE CROWN, AND IN
THE UNITED STATES OF AMERICA (1902) ...................................................... 16, 17
Mol, Joeri & Wijnberg, Nachoem, Competition, Selection and Rock
and Roll: The Economics of Payola and Authenticity, 41 J. ECON.
ISSUES, 701 (2007) ............................................................................................ 5, 7
Nimmer, Melville B. & Nimmer, David, NIMMER ON COPYRIGHT
(2016) ........................................................................................................ 3, 15, 21
N.Y. C.P.L.R. 901(a)(2) ........................................................................................... 30
PBS Newshour, Music Revolt (July 4, 2002),
http://www.pbs.org/ newshour/bb/entertainment-july-dec02-
musicrevolt_7-4 .................................................................................................... 4
Peterson, Richard A. & Berger, David G., Cycles in Symbol
Production: The Case of Popular Music, AM. SOCIOLOGICAL REV.
158 (1975) ......................................................................................................... 4, 5
The Power of Radio: Nielsen Study Show Radio Drives Music Sales,
Inside Radio (Oct. 29, 2012 – Oct. 27, 2013), Nielsen, Radio
Airplay and Music Sales 2013,
http://www.nab.org/documents/newsRoom/pdfs/Nielsen_Airplay_
Sales_Study.pdf. ................................................................................................. 10
Press Release, FCC, Broadcast Station Totals as of June 30, 2015
(July 8, 2015), https://www.fcc.gov/document/broadcast-station-
totals-june-30-2016 ............................................................................................. 27
TABLE OF AUTHORITIES
(continued)
Page(s)
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Radio Advertising Bureau, Why Radio Fact Sheet (2016),
http://www.rab.com/whyradio/pdf/ Full_Fact_SheetJune2016.pdf ..................... 8
Rau, Nate, Sony Nashville CEO Talks Importance of Country Radio,
THE TENNESSEAN (Feb. 25, 2015), http://www.tennessean.com/
story/money/industries/music/2015/02/20/sony-nashville-ceo-
talks-importance-country-radio/23768711 ........................................................... 8
Renhoff, Adam D., The Consequences of “Consideration Payments”:
Lessons from Radio Payola (2010) ...................................................................... 6
Sidak, G. & Kronemyer, D., The “New Payola” and the American
Record Industry: Transactions Costs and Precautionary Ignorance
in Contracts for Illicit Services, 10 HARV. J.L. & PUB. POL’Y 521
(1987) .......................................................................................................... 7, 9, 10
U.S. Copyright Office, FEDERAL COPYRIGHT PROTECTION FOR PRE-
1972 SOUND RECORDINGS: A REPORT OF THE REGISTER OF
COPYRIGHTS (2011) ............................................................................................ 11
INTEREST OF AMICUS CURIAE1
The National Association of Broadcasters (NAB) is a non-profit,
incorporated association of radio and television stations and broadcasting
networks. NAB represents the American broadcasting industry before Congress,
the courts, the Federal Communications Commission, and other governmental
entities. Many NAB members are not large entities; they are local, independent
stations. The broad performance right sought by Plaintiff Flo & Eddie, Inc.
(“FEI”) is unfounded in law, and threatens substantial disruption to the radio
broadcasting and related industries and the viability of certain musical formats.
NAB and its members have a substantial interest in this Court’s resolution of the
certified question.
INTRODUCTION AND SUMMARY
The common law of New York does not recognize a right of the producers
of sound recordings to control their public performance, including radio broadcast.
This Court has recognized that common-law copyright protects only against the
unauthorized reproduction of sound recordings. At common law, performance
rights were distinct from copyright. Copyright has a distinctive rationale (that
reproduction and selling copies is an act of inherent bad faith depriving the author
1 No counsel for a party authored this brief in whole or in part, and no entity other
than amicus, its members, or its counsel has made a monetary contribution to fund
the preparation or submission of this brief.
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of the work’s value) that does not apply to performance rights, much less to radio
broadcast of sound recordings.
Plaintiff’s simplistic formulation that a person has an absolute common-law
property right in all of her intellectual creations, including the right to control
every performance of that creation, has never been the law. Performance rights
have been predominantly a creature of statute, and Congress has granted them
subject to statutory exceptions driven by public policy and particularized to the
authorial work at issue. Specifically, Congress has recognized only a narrow right
in the performance of sound recordings by digital audio transmission, excluding all
forms of over-the-air broadcasting and many other ubiquitous public performances.
Congress has generally denied owners the right to exclude others from performing
sound recordings, and required compulsory licensing. The broad performance
right sought by FEI trenches upon the personal property rights of record owners to
use their property, and upon the federal copyrights of musical composers, and is
irreconcilable with the economic structure of the recording and radio industries.
As Congress has long recognized in denying broad sound-recording public
performance rights under federal law, the recording and radio industries grow
symbiotically. Radio airplay creates economic value in sound recordings, which is
why record companies (the predominant holders of copyright in sound recordings)
have expended (and continue to expend) vast resources to promote free radio
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broadcast of their recordings. It would be ironic to award record companies
damages for a use—radio airplay—that those companies assiduously urged for
decades, without ever claiming a property right or demanding royalties.
The reconciliation of the competing interests implicated by the public
performance of sound recordings is a quintessentially legislative task. This Court
should not retroactively create amorphous common-law property rights in radio
broadcast of sound recordings, given that adaptation of New York common law in
light of technological and economic changes must “reach just and realistic results.”
Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 555 (2005) (Naxos II).
Granting FEI the exclusive performance right it seeks would invite chaos and
uncertainty and threaten reliance interests. This Court should limit any common-
law property in sound recordings to the reproduction rights recognized in Naxos II.
BACKGROUND
A. Record Companies Are the Primary Holders of Copyright in
Sound Recordings.
Although the district court conceived the original copyright here as
belonging to The Turtles, A-1680, record companies, not performing artists,
“[a]lmost invariably” hold copyrights in sound recordings. Melville B. Nimmer &
David Nimmer, 6 NIMMER ON COPYRIGHT § 30.03 (2016). Indeed, the Turtles
originally assigned their rights to White Whale Records, and FEI only recovered
those rights in a litigation settlement. A-1680; A-76. Although, depending on
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contract terms, some artists may receive residuals, in the main record companies
stand to profit from the expansive rule advocated by FEI.2
B. Record Companies Have Long Encouraged the Radio Broadcast
of Sound Recordings, Without Claim to Compensation, So As To
Maximize Record Sales.
Record companies have for decades given away sound recordings for free
and expended enormous resources to promote radio airplay, without ever
demanding licenses or compensation.
In the early days of commercial radio, networks broadcasted live musical
entertainment featuring singers, bands, and orchestras. See Robert L. Hilliard &
Michael C. Keith, THE BROADCAST CENTURY AND BEYOND 56, 101 (5th ed. 2010)
(Addendum Exh. A). But the emerging television industry soon eclipsed radio in
the early 1950’s as the medium for original musical entertainment. See Richard A.
Peterson & David G. Berger, Cycles in Symbol Production: The Case of Popular
Music, 40 AM. SOCIOLOGICAL REV. 158, 165 (1975) (Addendum Exh. B). Radio
stations increasingly turned to having “disk jockeys” play records on air. Id.;
Hilliard & Keith, supra, at 137.
2 Recording contracts often provide minimal compensation even to successful
artists. See PBS Newshour, Music Revolt (July 4, 2002) (Don Henley, The Eagles:
“Most artists don’t see a penny of profit until their third or fourth album because of
the way the business is structured.”), http://www.pbs.org/newshour/bb/
entertainment-july-dec02-musicrevolt_7-4.
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Beginning in 1955, coincident with the dawn of rock-and-roll, stations began
adopting the “Top 40” format that transformed the radio landscape and its
relationship with the record industry:
This would mark the intensification of the long and
intimate relationship (some would call it a marriage)
between the radio medium and the recording industry, as
both relied on each other for their well-being and continued
prosperity. The recording industry manufactured the
popular, youth-oriented music radio wanted and needed,
and the latter provided the exposure that created a market
for the product. From the perspective of the recording
industry, radio was the perfect promotional vehicle for
showcasing its established, as well as up-and-coming,
artists.
Hilliard & Keith, supra, at 151 (emphasis added).
Top 40 unleashed a competitive fury among record companies (including
smaller independents like White Whale Records) skirmishing for the airplay
necessary to succeed in the lucrative teenage market. See Joeri M. Mol &
Nachoem M. Wijnberg, Competition, Selection and Rock and Roll: The Economics
of Payola and Authenticity, 41 J. ECON. ISSUES, 701, 707-08 (2007) (Addendum
Exh. C); Peterson & Berger, supra, at 165. Local radio stations provided a
springboard for national popularity because other stations would pick up on
successful songs. Mol & Wijnberg, supra, at 709.
Record labels placed such high economic value upon airplay that they gave
“payola” to disk jockeys and others to play their music, leading Congress to outlaw
-6-
the practice in 1960 unless disclosed to the audience. See Adam D. Renhoff, The
Consequences of “Consideration Payments”: Lessons from Radio Payola 134
(2010) (Addendum Exh. D). Nonetheless, the economics of record sales remained
unchanged:
The average rack capacity in a department store was about
a hundred albums and the top 40 singles. To get on the
racks it was necessary to be on the charts. In order to be on
the charts, it was necessary to have rack space. The only
way onto this ever-revolving carousel was radio, which
became an increasingly critical factor in the manufacture of
hits.
Marc Eliot, ROCKONOMICS: THE MONEY BEHIND THE MUSIC 172-73 (1989)
(Addendum Exh. E).
As Nobel laureate Ronald Coase observed, “[t]o sell music on a large scale it
is necessary that people hear it,” and thus once Congress restrained payola, record
companies increased promotional activity. Ronald H. Coase, Payola in Radio and
Television Broadcasting, 22 J.L. & ECON. 269, 316, 317 (1979) (Addendum Exh.
F). Large record companies had “promotion men” on staff throughout the country
to urge radio stations to play new singles. Fredric Dannen, HIT MEN 7 (1990)
(Addendum Exh. G); R. Serge Denisoff, SOLID GOLD, THE POPULAR RECORD
INDUSTRY 260 (1975) (Addendum Exh. H); cf. Michael C. Keith, THE RADIO
STATION 106 (8th ed. 2010) (Addendum Exh. I) (“radio stations seldom pay for
their music” because “recording companies send demos of their new product to
-7-
most stations”). They also distributed mini-albums and mass mailings to station
personnel, and bought radio advertising spots featuring album cuts. Denisoff,
supra, at 264, 268-69 (spot advertising turned Don McLean’s “American Pie” into
1971’s top record). Record companies targeted highly rated stations to induce
airplay throughout the industry, as other stations would follow their lead. J.
Gregory Sidak & David Kronemyer, The “New Payola” and the American Record
Industry: Transactions Costs and Precautionary Ignorance in Contracts For Illicit
Services, 10 HARV. J.L. & PUB. POL’Y 521, 526 (1987).
The “buckshot” economic model of record companies—releasing many
records so that a few would attain commercial success—contributed to the
competitive frenzy for airplay. Mol & Wijnberg, supra, at 710; Denisoff, supra, at
97-98. Record companies showered radio stations with approximately 7,000
singles each year. Denisoff, supra, at 253. Radio promotional spending
accelerated throughout the 1970s, and companies increasingly retained powerful
independent promoters. Dannen, supra, at 11-17. Because record companies only
made money from hits, and “[p]eople did not buy pop music they never heard,”
“promotion, the art and science of getting songs on the air, drove the record
business.… Even the best A&R—artist and repertoire—staff in the world couldn’t
save you if radio gave you the cold shoulder.” Id. at 9.
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The same dynamic exists today. More than 246 million people (comprising
over 91% of those 12 or older) listen to radio each week. Radio Advertising
Bureau, Why Radio Fact Sheet (2016), http://www.rab.com/whyradio/pdf/
Full_Fact_SheetJune2016.pdf. Radio remains critical to music discovery. See
Edison Research and Triton Digital, The Infinite Dial 2016, at 33-34 (68% of
people aged 12 and older who said it was important to keep up-to-date with music
used AM/FM radio to do so, the highest percentage among public sources),
http://www.edisonresearch.com/the-infinite-dial-2016/; Nate Rau, Sony Nashville
CEO Talks Importance of Country Radio,” THE TENNESSEAN (Feb. 25, 2015) (“‘If
you’re not on country radio, you don’t exist.’”), http://www.tennessean.com/
story/money/industries/music/2015/02/20/sony-nashville-ceo-talks-importance-
country-radio/23768711/; In Re: Determination of Royalty Rates and Terms for
Ephemeral Recording and Digital Performance of Sound Recordings (Web IV),
Docket No. 15-CRB-0001-WR (Copyright Royalty Board), Hearing Tr. 966:16-23
(April 30, 2015) (testimony of Aaron Harrison, Senior Vice President, UMG
Recordings, Inc., characterizing “[t]errestrial radio” as “a platform where we can
break artists and get the DJs … to pump up artists” so that listeners “migrate from
terrestrial radio to actually purchasing” the music).
Unsurprisingly, White Whale Records engaged in extensive radio promotion
in developing The Turtles’ hits in the 1960s. Former Turtle, Howard Kaylan
-9-
testified that promotion “was everything when they came out. And radio was the
only forum for it at the time. So, yes, it was vital in the ’60s.” A-79 (Kaylan Tr.
70:21-24) (emphasis added). White Whale founder Ted Feigin attributed the
Turtles’ first hit single partly to his and his co-founder’s abilities, as “former
promotion men,” “‘to call on their collective experiences … with distributors and
disk jockeys.’” “Ex’s” Striking It Rich on W. Coast, BILLBOARD, Dec. 11, 1965, at
3; Calif. Setting The Tempo in Sounds, Song, Style, BILLBOARD, Apr. 9, 1966, at 1
(Turtles manager Bill Utley: “we still need disk jockey play on the East to get us
on the Top 10 nationally”) (Addendum Exh. J).
FEI and its predecessors have known for nearly fifty years that terrestrial
radio stations have played their songs, but have never demanded any license or
compensation to play Turtles songs. A-84 (Kaylan Tr. 99:1-100:4); A-99 (Cohen
Tr. 165:7-168:12); A-106-07 (RFA Response No. 10).
C. Record Companies Have Reaped Enormous Economic Benefits
from Radio Airplay.
The economic benefit of radio promotion to record companies is evident
from its duration. “Radio airplay is advertising for prerecorded music. It notifies
the consumer of the availability of a new product and enables him to sample that
product before purchase; it is generally believed to be the greatest stimulant to
sales of a particular pop album.” Sidak & Kronemyer, supra, at 526. “[A] primary
objective of record company promotion efforts is to induce some minimum
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sufficient number of highly rated radio stations to add a record to their playlists so
that the record is reported in the hit singles charts of weekly trade publications like
Billboard and Radio & Records.” Id. at 527.
Studies commissioned by NAB confirm the economic benefits of free radio
airplay to the record companies. A Nielsen Company study evaluating 2012-13
data reported a significant and immediate impact of radio airplay upon song sales.3
A study by economist Dr. James Dertouzos attributed a significant portion of
industry sales of albums and digital tracks (between 14-23 percent, potentially
$1.5-2.4 billion annually) to radio airplay.4 As the Third Circuit observed:
The recording industry and broadcasters existed in a sort of
symbiotic relationship wherein the recording industry
recognized that radio airplay was free advertising that lured
consumers to retail stores where they would purchase
recordings. And in return, the broadcasters paid no fees,
licensing or otherwise, to the recording industry for the
performance of those recordings.
Bonneville Int’l Corp. v. Peters, 347 F.3d 485, 487-88 (3d Cir. 2003) (footnote
omitted).
3 The Power of Radio: Nielsen Study Show Radio Drives Music Sales, Inside Radio
(Oct. 29, 2012 – Oct. 27, 2013); Nielsen, Radio Airplay and Music Sales 2013,
http://www.nab.org/documents/newsRoom/pdfs/Nielsen_Airplay_Sales_Study.pdf.
4 James N. Dertouzos, Radio Airplay and the Record Industry: An Economic
Analysis (2008), http://www.nab.org/documents/resources/061008_Dertouzos_
Ptax.pdf.
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D. Congress Has Denied Federal Copyright in Over-The-Air Radio
Broadcasts of Sound Recordings because of the Historical
Symbiosis of the Recording and Radio Industries.
Conscious of this mutually beneficial relationship, Congress has repeatedly
considered, but never granted, copyright in over-the-air broadcasts (analog or
digital) of sound recordings, and beginning in 1995 established only a narrow right
in certain other digital transmissions necessary to combat piracy and reduced sales.
Until 1971, Congress afforded no copyright protection to sound recordings,
despite repeated efforts of the record industry to secure it beginning in 1906.
Bonneville, 347 F.3d at 487; U.S. Copyright Office, FEDERAL COPYRIGHT
PROTECTION FOR PRE-1972 SOUND RECORDINGS: A REPORT OF THE REGISTER OF
COPYRIGHTS 7-10 (2011). In the Sound Recording Amendment of 1971, Pub. L.
No. 92–140, 85 Stat. 391, Congress established a limited copyright in the
reproduction of sound recordings to protect against piracy. Rather than act
retroactively, Congress applied the right only to recordings fixed on or after
February 15, 1972. 17 U.S.C. § 301(c).
Although musical composers had long enjoyed an exclusive right in the
public performance of their compositions, see 17 U.S.C. § 106(4), Congress
continued to rebuff the recording industry’s attempts to obtain the same. Congress
considered, and rejected, a sound recording performance right in 1976. Senators
who led the opposition to the bill explained:
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For years, record companies have gratuitously provided
records to stations in the hope of securing exposure by
repeated play over the air. The financial success of
recording companies and artists who contract with these
companies is directly related to the volume of record sales,
which, in turn, depends in great measure upon the
promotion efforts of broadcasters.
S. Rep. No. 93-983, at 225-26 (1974) (minority views of Messrs. Eastland, Ervin,
Burdick, Hruska, Thurmond, and Gurney).
In 1995, Congress first created a limited performance right in sound
recordings only for certain digital transmissions to prevent piracy and the erosion
of record sales by new technologies.
The advance of digital recording technology and the
prospect of digital transmission capabilities created the
possibility that consumers would soon have access to
services whereby they could pay for high quality digital
audio transmissions (subscription services) or even pay for
specific songs to be played on demand (interactive
services). The recording industry was concerned that the
traditional balance that had existed with the broadcasters
would be disturbed and that new, alternative paths for
consumers to purchase recorded music (in ways that cut out
the recording industry’s products) would erode sales of
recorded music.
Bonneville, 347 F.3d at 488 (footnote omitted). Congress accordingly enacted the
Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39,
109 Stat. 336, 336 (1995), which gave the sound-recording owner the exclusive
right “to perform the copyrighted work publicly by means of a digital audio
transmission.” 17 U.S.C. § 106(6). This Act provided a compulsory licensing
-13-
scheme distributing royalties 50% to copyright holders and 50% to three classes of
musical artists. Id. § 114(g)(2). Congress created multiple exemptions to this
novel digital performance right, including “nonsubscription broadcast
transmission.” Id. § 114(d)(1)(A). Congress granted only this “narrow” right to
avoid “upsetting the longstanding business and contractual relationships among
record producers and performers, music composers and publishers and
broadcasters that have served all of these industries well for decades.” Sen. Rep.
No. 104-128, at 13 (1995). It refused to impose “new and unreasonable burdens on
radio and television broadcasters, which often promote, and appear to pose no
threat to, the distribution of sound recordings” and which (unlike subscription
broadcasters) have public service obligations as a condition of their licenses. Id. at
15. Congress also ensured that all other analog performances—such as by
restaurants, hotels, retail stores, and night clubs—remained untouched by federal
copyright.
With the advent of Internet streaming and webcasting, “the recording
industry became concerned that technology would erode recording sales by
providing alternative sources of high quality recorded performances.” Bonneville,
347 F.3d at 489. In 1998 Congress passed the Digital Millennium Copyright Act,
Pub. L. No. 105–304, 112 Stat. 2860 (1998), expanding the class of transmissions
-14-
available for statutory licensing, but leaving intact the exemption for over-the-air
broadcasting. H.R. Conf. Rep. No. 105–796, at 80 (1998).
Thus, balancing public and private interests, Congress has woven a highly
reticulated scheme granting only a limited performance right in certain digital
transmissions with numerous exemptions. Congress has excluded not only over-
the-air broadcast transmissions, but many other transmissions, including
transmissions within or to business establishments. 17 U.S.C. § 114(d).
FEI now seeks a categorical state common-law property right in all public
“performances” of sound recordings that bulldozes those carefully crafted
distinctions, and sweeps in the playing of pre-1972 tracks not only on the radio but
in any business or public accommodation.
ARGUMENT
I. THERE IS NO NEW YORK COMMON LAW PROPERTY RIGHT IN
THE PUBLIC PERFORMANCE OF SOUND RECORDINGS.
A. Common Law Copyright Is Limited To Reproduction.
In Naxos II, this Court recognized common-law copyright in sound
recordings, but underscored that this exclusive right is strictly one to reproduce the
copyrighted work. In that case, the Naxos record company had reproduced records
of restored Gramophone classical recordings, even though Capitol Records owned
Gramophone’s rights. In extending common-law copyright to reproductions of a
sound recording, this Court emphasized that strict liability in copyright was
-15-
predicated upon the “view that bad faith was inherent in the act of copying and
selling a work without permission from a competitor because this would deprive
the true owner of the work’s value.” 4 N.Y.3d at 563 (emphasis added). This
Court noted that the 1786 New York copyright statute preserved “‘the rights,
which any person may have, to the printing or publishing of any book or pamphlet,
at common law, in cases not mentioned in this act,’” id. at 550 (citing L. 1786, ch.
54, § IV) (emphasis added), and accordingly held that “[a] copyright infringement
cause of action in New York consists of two elements: (1) the existence of a valid
copyright; and (2) unauthorized reproduction of the work protected by the
copyright.” Id. at 563 (emphasis added). Accord Capitol Records, Inc. v. Naxos of
Am., Inc., 372 F.3d 471, 479 (2d Cir. 2004) (a “‘common law copyright’ … means
protection against copying ….”) (emphasis added) (Naxos I); 2 NIMMER ON
COPYRIGHT § 8.02[A] (2016) (“[a]s the label ‘copyright’ suggests, it is the act of
copying that is essential to, and constitutes the very essence of all copyright
infringement.”).
B. Copyright and Performance Rights Are Distinct Property Rights,
and Creation of the Performance Rights in Modern Technologies
Is Properly the Domain of the Legislature.
The district court noted that New York common law also affords certain
protections to certain performance rights, and leapt to the untenable conclusion that
any form of intellectual labor gives rise to common law copyright. A-1682. But
-16-
this Court has taught that “[t]he right publicly to represent a dramatic composition
for profit, and the right to print and publish the same composition to the exclusion
of others, are entirely distinct, and the one may exist without the other.” Palmer v.
DeWitt, 47 N.Y. 532, 542 (2 Sickels 1872); see also E.J. MacGillivray, A
TREATISE UPON THE LAW OF COPYRIGHT IN THE UNITED KINGDOM AND THE
DOMINIONS OF THE CROWN, AND IN THE UNITED STATES OF AMERICA 120 (1902)
(“In a dramatic or musical work, the two rights—the copyright and the performing
right—exist side by side; but they are quite distinct from one another, and may
pass into different hands. The copyright can only be infringed by copying, the
performing right by representation or performance.”) (emphasis added)
(Addendum Exh. K). Furthermore, the law has never given blanket protection to all
forms of performance rights.
An author’s right to control performance of an unpublished dramatic work
came to be known as “playright,” as distinct from copyright. See Eaton S. Drone,
A TREATISE ON THE LAW PROPERTY IN INTELLECTUAL PRODUCTIONS IN GREAT
BRITAIN AND THE UNITED STATES 553-54 (1879) (“Playright defined”) (“The
exclusive right of multiplying copies is called copyright. But this does not
embrace the right of representation,” which is “wholly distinct in nature,” and
“playright means the right to play a drama,” and also “the right of performing a
musical composition”) (emphasis added) (Addendum Exh. L); see also Ferris v.
-17-
Frohman, 223 U.S. 424, 432 (1912) (enforcement of “playright”). Indeed, “[a]t
common law there was no performing right in the proper sense of the term, but an
unpublished manuscript was protected from performance as from any other
invasion of the author’s exclusive right to it.” MacGillivray, supra, at 122.
Publication extinguished both common-law copyright and playright. Palmer, 47
N.Y. at 543.
The legal paths of copyright and performance rights have long diverged, and
different protections have extended to limited types of works. The first English
copyright act, the Statute of Anne in 1709, did not protect playright. “Until the
passage in England of the statutes 3 and 4 William IV (chap. 15), an author could
not prevent anyone from publicly performing on the stage any drama in which the
author possessed the copyright. He could only prevent the publication of his work
by multiplication of copies of it.” Palmer, 47 N.Y. at 542. Indeed, Congress did
not vest a right of public performance of dramatic compositions in the copyright
owner until 1856, Act of Aug. 18, 1856, ch. 169, 11 Stat. 138, and even then did
not create a similar right for authors of musical compositions (despite having
granted them copyright a quarter century earlier, see Act of Feb. 3, 1831, ch. 16, 4
Stat. 436; Drone, supra at 90). Not until 1897 did Congress create a right of public
performance of musical compositions. MacGillivray, supra, at 287. In 1909,
Congress cut back on the public-performance right for musical compositions by
-18-
limiting it to performances for profit, thus drawing a distinction from dramatic
compositions. Act of March 4, 1909, ch. 320(d) & (e), 35 Stat. 1075 (emphasis
added). While Congress has now granted musical composers exclusive public-
performance rights, without a general for-profit limitation, 17 U.S.C. § 106(4), it
has done so subject to numerous statutory exceptions (including many
performances by educational, governmental, retail, veterans, fraternal, and
charitable organizations). Id. § 110(1)-(7), (9). “A copyright, like other
intellectual property, comprises a series of carefully defined and carefully
delimited interests to which the law affords correspondingly exact protections,”
and “has never accorded the copyright owner complete control over all possible
uses of his work.” Dowling v. United States, 473 U.S. 207, 216-17 (1985) (internal
quotation marks omitted).
Furthermore, as noted above, Congress has granted much narrower
performance rights to the owners of copyrights in sound-recordings: i.e., “to
perform the copyrighted work publicly by means of a digital audio transmission,”
17 U.S.C. § 106(6), with exclusions for nonsubscription radio broadcasting and for
transmissions within or to business establishments, among others, id. § 114; supra
at 12-13, leaving all other types of public performances untouched. Moreover,
even that right is not an absolute property right; given the compulsory licensing
-19-
provisions, the owner of the copyright in a sound recording generally has only a
statutory right to compensation. 17 U.S.C. § 114(d)(2) & (3).
In summary, the common law did not historically recognize performance
right beyond playright in unpublished manuscripts. The common law may afford
protection to creators against wrongful conduct, such as piracy, misappropriation,
breach of implied contract, and unfair competition. See Ferris, 223 U.S. at 437
(enjoining performance of a “piratical composition”); French v. Maguire, 55 How.
Pr. 471 (N.Y. Sup. Ct. 1878) (enjoining unauthorized performance of unpublished
play); Tompkins v. Halleck, 133 Mass. 32, 36-46 (1882) (performance violated the
spectator’s implied license and deprived the author of his rights); Metro. Opera
Ass’n v. Wagner-Nichols Recorder Corp., 199 Misc. 786, 796-97 (1950), aff’d, 279
A.D. 632 (1st Dep’t 1951) (finding unfair competition in the capture of broadcast
to make competitive recordings); Roy Export Co. v. Columbia Broad. Sys., Inc.,
672 F.2d 1095, 1098, 1105 (2d Cir. 1982) (upholding verdict of copyright
infringement for use of Charlie Chaplin film clips in a CBS Chaplin biography,
and unfair competition for CBS’s broadcast of that biography). But this does not
equate to an absolute property right against the world, and exclusive property
rights in performance do not ineluctably flow from intellectual labor, as FEI
maintains. Creation of such exclusive rights is the legislature’s domain, for it can
balance competing public and private interests as common-law courts cannot.
-20-
C. This Court Should Not Extend Common-Law Copyright to Radio
Broadcast of Sound Recordings.
There are multiple reasons why this Court should decline to declare an
absolute common-law property right in public performance of sound recordings.
First, the physical embodiments of sound recordings (“phonorecords” in the
parlance of federal copyright law, 17 U.S.C. § 101) are, unlike unpublished
manuscripts for which common-law playright was recognized, products that are
sold or distributed in commerce and are the property of their owners. Although
FEI has repeatedly claimed an exclusive common-law right of “use” of the sound
recording (including performance), such an exclusive right of use would pro tanto
diminish the separate right of the phonorecord owner to use his property. If FEI
truly held the exclusive right to “use” the sound recording, even after sale or other
transfer of the phonorecord, no purchaser could play his own CD or downloaded
copy of a Turtles track, even for private use. But even a more limited exclusive
right – the right to publicly perform a sound recording, see 17 U.S.C. § 101
(defining “publicly”) – has no common law roots. For decades, owners of
phonorecords – not just radio stations, but also restaurants, taverns, night clubs,
retail outlets, carnivals and festivals, conventions and tradeshows, colleges and
universities, amusement parks, and organizations or private persons holding large
social or charitable functions, among others – have used their property to perform
sound recordings publicly. Record companies have never asserted any common-
-21-
law copyright in those performances; never demanded a license; and never sought
compensation. This Court should not grant a novel categorical common-law right
of public performance that would declare all these established usages unlawful for
pre-1972 sound recordings.5
Second, a performance right in sound recordings would adversely affect
other copyright holders. Sound recordings generally involve either reproductions
of, or derivative works that are based upon, copyrighted musical compositions. Cf.
17 U.S.C. § 101 (definition of “derivative work”). Recording artists and
companies may have a license to use those compositions, 17 U.S.C. § 115(a); 2
NIMMER ON COPYRIGHT § 8.04 (2016), but composers are entitled to earn royalties
from radio broadcasting and certain other public performances, 17 U.S.C. § 106(4);
2 NIMMER ON COPYRIGHT § 8.14[A] (2016). Giving the sound-recording owner the
exclusive right to control public performances potentially restricts composers’
ability to profit from their creation. Congress mitigated the conflict for post-1972
recordings by requiring compulsory licensing, 17 U.S.C. § 114(d)(2), (3), but a
common-law court has no such power. This Court should reject FEI’s facile
conception of an exclusive state-law right that enables record companies to control
5 Indeed, under FEI’s proposed rule, business establishments would owe
compensation to sound-recording owners even when not owed to musical
composers. See 17 U.S.C. § 110(5) (excluding certain public performances by
businesses and restaurants from the composer’s statutory public-performance
right).
-22-
the economic returns of different copyright holders. The balancing of the
competing interests of different copyright holders in recorded music belongs to the
legislature.
Finally, recognition of a broad public-performance right encompassing radio
broadcasting would be particularly inappropriate. Radio broadcast is a
“performance” of a sound recording, Fortnightly Corp. v. United Artists
Television, Inc., 392 U.S. 390, 398-99 & n.23 (1968), but it cannot be equated with
common-law playright. Playright protected the dramatist from competitive
performances that might prevent or diminish economic gain from using the
unpublished manuscript in his own performances, or impair his ability to derive
revenue from other potential performers. But in the modern economic and
technological era of radio broadcasting of sound recordings, nothing of the kind
has existed. Record companies are not licensed to perform their own radio
broadcasts, and there is no market for licensing tracks to radio broadcasters. As
demonstrated above, the economic value of pre-1972 sound recordings lay in their
commercial sale; only hits generated profit; and no songs became hits without
radio airplay (i.e., “performance”). Radio stations in turn derived value through
the sale of advertising from the sound recordings freely provided (and ardently
promoted) to radio stations by record companies. Supra at 3-10.
-23-
The district court found it “inexplicable” that in this era record companies
never demanded broadcast royalties under common law, A-1683, but only because
it disregarded the economic nature and value of the putative right. Any such
demand would have destroyed the record companies’ investment in the sound
recording. As a practical reality, when FEI’s sound recordings were created, sound
recordings had little or no independent economic value, and gained value only by
their repeated performance by radio broadcasters. Congress has resisted ever
recognizing any exclusive federal property right in over-the-air radio broadcast of
sound recordings because of the unique, historical economic symbiosis of the radio
and record industries. Supra at 11-14. This Court should reach the same
conclusion under the common law.
D. No Precedent Supports the Recognition of Exclusive Property
Rights in the Public Performance of Sound Recordings.
No common-law case supports FEI’s claim to a broad and exclusive
property right in the public performance of sound recordings. In Waring v. WDAS
Broadcasting Station, Inc., 194 A. 631 (Pa. 1937) – a case predating the modern
practice of record promotion through radio airplay – Fred Waring’s orchestra had a
contract with the Ford Motor Company to give weekly live radio performances.
Id. at 633. It had also licensed a record company to produce and sell records, but
with a disclaimer on the label that the recorded performance was “[n]ot licensed
for radio broadcast.” Id. Waring sued to enjoin a radio station from broadcasting
-24-
its sound recordings. The Supreme Court of Pennsylvania held that musical artists
have common-law rights of property if they “elevate interpretations to the realm of
independent works of art.” Id. at 635. In addition to holding that the license
restriction against radio broadcast could be enforced in equity, id. at 637-38, the
Pennsylvania court held that the orchestra’s property rights in performance could
be protected under the doctrine of unfair competition. Id. at 638. The court relied
upon the U.S. Supreme Court’s holding in International News Service v.
Associated Press, 248 U.S. 215 (1918), that even though intellectual labor may not
give rise to an absolute property right against the public, it may give rise to a more
limited property right enforceable in equity against those who misappropriate it.
194 A. at 638-40. The Pennsylvania court found that the radio station engaged in
unfair competition because Waring’s orchestra performed live over the radio for
compensation, and that “the constant broadcasting of the records diminished the
commercial value of the orchestra’s performances.” Id. at 641 (footnote omitted).
Although the Waring court’s identification of a common-law right in public
performance of sound recordings was unfounded, and should not be followed,
there is a wide gulf between the limited right against misappropriation and unfair
competition recognized in Waring, and the exclusive property right sought by FEI.
See Naxos II, 4 N.Y.3d at 563 (distinguishing between strict liability action for
copyright and action for unfair competition). Nor has the factual predicate for
-25-
Waring’s court finding of liability – commercial competition between live and
recorded musical performances – existed at any time relevant to the Turtles’
recordings.
The Metropolitan Opera case also does not support FEI. That case did not
involve the performance of sound recordings. Rather, the Metropolitan Opera had
an exclusive recording contract with Columbia Records and an exclusive
broadcasting contract with the American Broadcasting Company. The defendant
pirated live opera performances that were broadcast over the radio. It sold
competitive unauthorized recordings of the performances, “with a consequent loss
of revenue to Columbia Records and Metropolitan Opera.” Metro. Opera, 199
Misc. at 789-90. Nothing in the decision suggests any exclusive right of the Opera
to control the public performance of its authorized sound recordings. Indeed, like
the Waring court, the Metropolitan Opera court relied upon the doctrine of unfair
competition. Citing International News Service, the court held “that property
rights of commercial value are to be and will be protected from any form of unfair
invasion or infringement and from any form of commercial immorality,” and
enjoined the defendant from continuing its piratical business. Id. at 795-96
(emphasis added). On appeal, the First Department affirmed this holding, and
upheld the injunction “against acts of infringement induced by defendants’ unfair
course of business.” Metro. Opera Ass’n v. Wagner-Nichols Recorder Corp., 279
-26-
A.D. 632 (1st Dep’t 1951). The Metropolitan Opera precedents, grounded in
unfair-competition doctrine, cannot be stretched to support FEI’s claim to
exclusive rights to the public performance of the Turtles’ sound recordings.
This Court has recognized the distinction between exclusive intellectual
property rights and more limited property rights that are merely protected against
unfair competition. In Fisher v. Star Company, this Court quoted approvingly the
U.S. Supreme Court’s ruling that, even in the absence of “‘any general and
absolute property’” right, courts of equity may nonetheless protect pecuniary rights
against unfair competition. 231 N.Y. 414, 429 (1921) (quoting International News
Serv., 248 U.S. at 236). Contrary to FEI’s conception, intellectual creation does
not necessarily yield an exclusive right of use of the creation, “‘even if it took
labor and genius to make it,’” and protection against unfair competition does not
depend upon exclusive property rights of use. Id. (finding that artist had unfair-
competition claim based on use of cartoons even in the absence of copyright)
(quoting International News Serv., 248 U.S. at 246 (Holmes, J., concurring)).
Accordingly, cases that rely upon unfair-competition doctrine do not support FEI’s
claim to an exclusive and absolute property right in the public performance of the
Turtles’ sound recordings, enforceable in strict liability. Thus, even if this Court
were inclined to create a limited property right against misappropriation, neither
-27-
the legal precedent nor the facts at hand provide any basis for fashioning such a
right or defining its scope.6
II. THE CREATION OF PERFORMANCE RIGHTS IN PRE-1972
SOUND RECORDINGS SHOULD BE LEFT TO THE
LEGISLATURE.
Determining new “performance rights” is an inherently legislative task. See
Chamberlain v. Feldman, 300 N.Y. 135, 139-40 (1949). Congress has grappled
with the intricacies of defining exclusive performance rights and crafted numerous
exemptions and compulsory licenses. 17 U.S.C. § 114(d); supra at 11-14.
Expanding the state common law into radio broadcast rights is especially
treacherous, given the diverse and increasingly interstate character of radio.
The United States has over 15,000 AM and FM radio stations, Press Release,
FCC, Broadcast Station Totals as of June 30, 2016 (July 8, 2016),
6 The district court’s finding that Sirius XM engaged in unfair competition was rife
with error. The court misconceived broadcasting as distribution (rather than
performance) of the copyrighted work; found unfair competition without finding
bad faith; and made the unfounded suggestion (under the guise of “economic
common sense”) that radio airplay somehow destroys record sales and deprives
record companies of licensing revenues, even though there is no extant market for
radio licensing of pre-1972 works. A-1692, 1698-99. Cf. Naxos I, 372 F.3d at 482
(bad faith is an element of an unfair competition claim under New York law); CA,
Inc. v. Simple.com, Inc., 621 F. Supp. 2d 45, 54 (E.D.N.Y. 2009) (internal
quotation omitted) (unfair competition requires proof of special damages in the
form of “direct financial loss, lost dealings, or an accounting of the profits caused
by the anticompetitive acts at issue”). Sirius XM did not appeal these rulings, and
the district court’s application of unfair-competition law is outside the certified
question. Upon a proper view of the law, no record company in the modern era
has any pecuniary right in the public performance of sound recordings that would
be protected against unfair competition, but this Court may leave that question to
another day.
-28-
https://www.fcc.gov/document/broadcast-station-totals-june-30-2016, many of
which broadcast to multiple states. Many are small and independent; others are
part of syndicated networks. Some are noncommercial. See generally Keith,
supra, at 23-29, 313-17.
Patchwork common-law copyright regulation of modern radio would invite
utter confusion and uncertainty. Radio entities could never predict with certainty
when an interstate broadcast would be deemed an “infringing” performance in a
particular state, and which state laws apply. Capitol Records, Inc. v. Mercury
Records Corp., 221 F.2d 657, 662 (2d Cir. 1955) (applying law of state of
infringing acts). Under federal law, radio broadcasting is deemed a public
performance to a “great, though unseen and widely scattered, audience,” Jerome H.
Remick & Co. v. Am. Auto. Accessories Co., 5 F.2d 411, 412 (6th Cir. 1925), but a
multistate broadcast performance creates no complication for a federal statutory
right. Under common-law state regulation, however, it is not only uncertain which
if any states would recognize a performance right, cf. Flo & Eddie, Inc. v. Sirius
XM Radio, Inc., No. 13-23182-CIV, S.D. Fla. June 22, 2015) (rejecting
performance rights under Florida law), appeal pending, No. 15-13100 (11th Cir.),
question certified, 2016 WL 3546433 (11th Cir. June 29, 2016), but also which
states have regulatory jurisdiction over a multistate performance. Moreover, there
-29-
is uncertainty whether an out-of-state programmer distributing to a network could
be deemed liable in states where any participating station is located.
Radio stations also cannot predict what payments would be owed and in
what amount, or to whom they would be paid. There is no public mechanism to
determine who has common-law copyright in pre-1972 sound recordings.
Moreover, in a common-law system, liability for playing any particular song would
be indeterminate until fixed by individual settlement or jury trial. There is no
single compulsory licensing scheme as exists under federal law (much less one
rewarding musicians and artists rather than only record companies), or expert body
like the Copyright Royalty Board to set rates. See 17 U.S.C. § 114(g)(2).
There also can be no single federal court consent decree to establish a
uniform system to collect royalties (such as ASCAP or BMI for publishers and
composers). See United States v. Am. Soc’y of Composers, Authors and
Publishers, No. CIV.A. 42-245, 1950 WL 42273 (S.D.N.Y. Mar. 14, 1950); United
States v. Broad. Music Inc., No. 64 CIV. 3787, 1994 WL 901652 (S.D.N.Y. Nov.
18, 1994). The district court suggested that the New York courts could fashion
comparable consent decrees, A-1690, but overlooked that those were U.S.
government antitrust actions against licensing organizations for alleged
anticompetitive activities. Radio defendants could face the vagaries of class
actions, with the possibility that owners of valuable assets may opt out (see Colt
-30-
Indus. S’holder Litig. v. Colt Indus. Inc., 77 N.Y.2d 185, 194 (1991)). It remains
unclear whether any multi-plaintiff or multi-defendant class action could be
certified, given that individualized implied-license and equitable-estoppel defenses
of radio stations may predominate over common questions. See N.Y. C.P.L.R.
901(a)(2). Chaos would reign.
The high litigation costs and unpredictability of determining common-law
liability and royalties will deter stations from playing pre-1972 tracks, or at least
playing them as much, to the detriment of many stakeholders. Songwriters and
publishers who derive royalties from broadcast of pre-1972 songs under federal
law will be injured by reduced airplay. Lack of airplay may erode public interest
in pre-1972 music, harming recording artists who still derive income from
licensing, concert tours, or album sales. And the district court conceded that
variable state regulation “could upend the analog and digital broadcasting
industries.” D.I. 88-1, at 40. Those factors militate against dramatically expanding
common-law rights. There is certainly no warrant for creating broader state-law
rights than those Congress granted for post-1972 recordings. See A-1690 (noting
that courts may conform state common law to federal statutory limitations).
In all events, this Court should not recognize such unforeseen rights
retroactively. Especially here, the common law is not “a brooding omnipresence in
the sky” in which courts merely discover the law. S. Pac. Co. v. Jensen, 244 U.S.
-31-
205, 222 (1917) (Holmes, J., dissenting). Although common-law decisions are
typically retroactive, “where there has been such a sharp break in the continuity of
law that its impact will wreak more havoc in society than society’s interest in
stability will tolerate,” a court may deny retroactivity to “an issue of first
impression whose resolution was not clearly foreshadowed” where retroactivity
would be inequitable. Gurnee v. Aetna Life & Cas. Co., 55 N.Y.2d 184, 191-92
(1982) (internal quotation marks omitted).
It would be fundamentally unfair for the recording industry to induce airplay
actively for decades without claim of compensation, deriving enormous economic
benefits therefrom, and then to demand retroactive compensation from
broadcasters for conduct that has always been understood to be free and indeed
authorized. Radio stations, particularly those who have invested substantial
resources in developing oldies and classic-rock formats, have strong reliance
interests that should be protected. There are about 1,850 such stations, many
small. Mark R. Fratrik, How Will the Radio Industry Be Affected by Pre-1972
Music Performers’ Fees 7 (July 27, 2015), http://www.biakelsey.com/pdf/
impactofpre72musicroyalties.pdf. For many, common-law copyright liability for
all pre-1972 spins may destroy the format’s economic viability, and stations cannot
always readily switch formats in competitive markets. This Court should not
retroactively recognize new property rights in pre-1972 recordings.
CONCLUSION
This Court should answer the certified question in the negative.
Rick Kaplan
Suzanne Head
NATIONAL ASSOCIATION
OF BROADCASTERS
1771 N Street, NW
Washington, DC 2003 6
(202) 429-5430
August 31,2016
LEGAL_US_E# 123412441.2
Respectfully submitted,
/~15_t~
Stephen B. Kinnaird
PAUL HASTINGS LLP
875 15th Street, NW
Washington, DC 20005
(202) 551-1700
stephenkinnaird@paulhastings.com
Counsel for Amicus Curiae
National Association of Broadcasters
-32-
EXHIBIT A
Robert L. Hilliard & Michael C. Keith,
THE BROADCAST CENTURY AND BEYOND
(5th ed. 2010)
~ e Broadcast
Century and Beyond
ELSEVIER
FIFTH EDITION
Robert L. Hilliard and Michael C. Keith
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Hilliard, Robert L., 1925-
The broadcast century and beyond I Robert L. Hilliard, Michael C. Keith. - 5th ed.
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Includes bibliographical references and index.
ISBN 978-0-240-81236-6 (pbk.: alk. paper) 1. Broadcasting-United States-History. I. Keith, Michael C.,
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airwaves.
56
The Davis Amendment
When Congress renewed the FRC's mandate in 1928, the legislation included
an amendment by Tennessee Congressman Edwin Davis that called for
equality of radio service to correct what many perceived as a geographic
imbalance of broadcasting stations. Davis's amendment called for equal
allocation of licenses, frequency bands, hours of operation, and radiating
power. Heretofore, most of these perks had gone to the large population
centers in the East and Midwest, leaving the more rural parts of the country
with fewer stations, operating mostly at lower power. Davis felt that a powerful
trust was dominating radio by favoring stations in heavily populated regions
where advertisers could reach more people while ignoring the "public interest"
of the sparsely settled areas in the South and Southwest. His amendment
required the FRC to divide the country into five geographical zones and create
a plan that would redistribute broadcasting facilities equally among them.
The FRC designed an arrangement whereby each zone would have an equal
number of clear, regional, and local channels. In this effort, Davis prevailed
against strong opposition from both the radio trust and politicians from heavily
populated regions. In the 1932 elections Davis lost to an oppbnent backed by
big radio companies, and by 1936 the equalization amendment was repealed.
1929
Radio programming and the materialistic abandon of the Prohibition Era would roar
together into the last year of the decade, the U.S. middle and upper classes mindless
of the consequences. Music filled the airwaves: pop singers, pop instrumentalists, pop
bands; serious music, too, from string quartets to symphony orchestras.Variety shows
on radio increased as more and more stage and vaudeville stars began to test the
waters of reaching more unseen people in one performance than they had played to
in theaters throughout their careers.
Two types of radio drama made their debut: (1) the so-called "thriller" drama,
somewhat equivalent to the horror and adventure TV programs of the last decades
of the 20th century, and (2) serial drama, that is, continuing characters in a continuing
story, a genre that expanded into many forms on radio, and later on TV, from day and
evening soap operas to sitcoms to cop/cowboy/hospital clinic series. Their successes
perhaps reflecting national attitudes of patronization, condescending tolerance, and
insensitivity, the two series that made their network debuts in 1929 and continued
for many years as U.S. favorites were both about ethnic minorities.
One of these shows, The Rise of the Goldbergs, was the continuing saga of an
urban Jewish family. Although the characters and situations were stereotyped, they
were treated gently and often with dignity. The Rise of the Goldbergs continued on
radio and into television, ending only during the 1950s McCarthy era when the show's
~ew
its that
the war.
n exposure
uption; the
f4; and the
:from then
1e political
orps joined
ion of Italy
were about
:were com-
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: sensitivity,
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movements
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t reduction
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ribution to
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war and Recovery-Full of Sound and Fury, Signifying .. Transition to TV
1944
its networks-the Blue
Network, which later
becomes ABC.
The public continued to be hungry for news, especially as the tide of war turned in
favor of the Allies and its end was almost in sight. D-Day signaled the invasion of
Europe, and General Douglas MacArthur returned to the Philippines. The networks'
percentage of program hours devoted to news had increased from about 7% in 1939
to about 20% in 1944. Shortwave transmitters carried battlefield reports from the
Pacific, and information and entertainment from the United States to the Soviet Union.
On-the-spot D-Day reports were described on wire recorders and as soon as feasible
sent to relay stations in London for broadcast directly to the United States.
Music still dominated the domestic airwaves, accounting for about a third of
the network's schedules; 75% of that was pop music by performers such as Frank
Sinatra, Bing Crosby, and Glenn Miller. Drama comprised more than a fourth of NBC
and CBS programming, with MBS devoting more than a third of its weekly hours
to news and talk shows. After the war the volume of news would decrease, and
drama, variety, comedy, music, and other entertainment programs would overwhelm-
ingly dominate.
With the war still in progress, politics took on an even greater importance for
the public. The largest radio audience up to that time, surpassing the previous records
for President Roosevelt's Pearl Harbor address and for the reports on D-Day, listened
to the November 7 election returns of Thomas E. Dewey's challenge to a Roosevelt
bid for a fourth consecutive term; more than 50% of all radio homes in the country
tuned in. The year 1944 solidified Clark Hooper's new ratings system; determined
through random telephone calls, it replaced Crossley's as the principal method of
radio audience measurement.
Media barons got a break in 1944. The FCC discontinued its cross-ownership
study, and did not at that time go ahead with a ban on newspaper/radio station com-
mon ownership in the same community; it decided to rule on a case-by-case basis.
The FCC also increased from three to five the number ofTV stations a single entity
could own. NBC and CBS made their AM programming available to the FM outlets of
their AM affiliates at no cost and enticed more advertising by providing these addi-
tional outlets to sponsors at no additional charge.
The FCC began hearings in 1944 to determine what to do about frequency
allocations for the expected growth of new and existing broadcast services follow-
ing the war. One key issue was whether to continue the old, low-quality TV stan-
dards or to introduce new ones that had been developed during the war. The "old
boys," an RCA-led coalition including NBC, GE, Philco, and DuMont, wanted to pro-
tect their already-huge investment by maintaining the old standards; the "new boys,"
a coalition led by CBS and including Westinghouse and Zenith, wanted their devel-
oping color system and higher definition in the ultra-high-frequency band to be
given an opportunity in the marketplace. The old boys won. After extensive hear-
ings, the FCC issued its decision the following year, 1945. The decision strengthened
FIG 4.5 Fred Allen
became one of radio's
foremost entertainers in
the 1940s. His legendary
radio feud with Jack Benny
provided many laughs.
101
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amous logo,
Broadcasting and Blacklisting-A Decade of Shame
the Eye. Perhaps the most innovative artist in television history-one who used the
potential of the visual medium more creatively than anyone else-was Ernie Kovacs,
who got his first network job in 1951. As exciting and farsighted as Kovacs's work
was, though, it was too far ahead of its time for broadcast executives and advertisers,
and his sporadic career on network television ended with his death in an auto acci-
dent in 1962, at about the time television might have been ready to give him the
superstardom it had up to then denied him.
Not only was television badly hurting movies, but it began to take an even greater
toll on radio. Radio network revenues steadily declined and prime-time offerings
decreased. To survive, more and more radio stations turned to deejay formats, thus
presaging the reprogramming of the entire radio industry.
Captain Video and His Video Rangers
An early television hit among youngsters was this low-budget wonder, one
of a number of innovative creations that materialized on the perpetually
financially troubled Dumont Network. The show began in 1949, lasting until
the network itself folded in 1955. It was aired live but its scripts were so short
of material that good chunks of its daily 30-minute episode were filled with
clips from some old B movie, usually a Western. Although no one should ever
query the logic void in programming geared for children, this show stretched
the boundaries of credulity. Besides the usual shortcomings with narratives
dealing with alien beings {they persist in having humanoid form; hold similar
values and emotions as earthlings'; often go by a single name; their leaders
command an entire planet rather than nation-states), Captain Video's aliens,
with technology advanced enough for space travel at the speed of light, rely
on shields and swords as their weapons, wear first-century Roman outfits, and
rely on paper-written communications transported by rocket ships. And yet
this pre-civil rights era show would frequently interrupt its dramatic action to
air spots promoting justice, brotherhood, and tolerance of others who might
not look exactly like us.
1952
On April 14, 1952, the FCC issued its now-famous Sixth Report and Order, finally
resolving the matters it had begun considering in 1948 when, pending their resolu-
tion, it had imposed a freeze on applications for any new television stations. The Sixth
Report and Order solved some of the problems but created others. The freeze was
lifted, and hundreds of TV stations rushed to get on the air. The UHF band was estab-
lished to provide for the growth of television, which otherwise would be stymied
because of an insufficient number of VHF channels. At first, UHF had channels
NBC and CBS attract a growing
audience with their nightly news
shows.
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Broadcasting and Blacklisting-A Decade of Shame
Elvis Presley debuts on The
Ed Sullivan Show, his
performance is censored from
the waist down.
Troops sent to enforce
desegregation in Little
Rock, Arkansas.
458 commercial Tv; and 12 noncommercial educational TV stations were on the air
in 1955. While most of the economy was growing, however, radio was suffering.
From billings that accounted for 11% of all advertising in the country in 1950, radio
dropped to 6% in 1955 (from more than $600 million to less than $550 million);
during the same period television's share rose from 3% to 11% (from only $171
million to more than $1.5 billion).
The expanding economy was reflected in programs.ln the 1930s a popular audi-
ence participation quiz show was The $64 Question, in which a contestant could
double the amount of money won by answering each subsequent question correctly,
to a total of $64.A television version of that program, which became one of the most
popular TV shows in America, made its debut in 1955, but now it was The $64,000
Question. At the other end of the programming scale, NBC's color telecast of Peter
Pan, starring Mary Martin, was seen by an estimated 65 million viewers, the largest
audience for a TV program up to that time.At the other side of the continent-New
York was the center of television production-the first major movie studio decided
to join rather than fight the television competition, and Warner Brothers broke
the general ban on offering movies to TV by making TV series based on some of its
famous films.
Programming breakthroughs were too late to help the DuMont network, how-
ever, the resources of which were simply not enough to compete with NBC and
CBS, and in 1955 it folded. ABC barely survived. Radio tried to survive on whatever
new approaches it could find. One such approach came to the fore in 1955, although
few in radio would guess its ultimate impact. A recording by a pop music group
called Bill Haley and His Comets became the number-one radio play. The song, called
"Rock Around the Clock," ushered in the era of rock music on radio and, with it, a
new audience that would prove to be radio's economic salvation. Around this time
two radio programming innovators, Todd Storz and Bill Stewart, introduced the Top
40 format in Omaha, Nebraska. This would mark the intensification of the long and
intimate relationship (some would call it a marriage) between the radio medium and
the recording industry, as both relied on each other for their well-being and contin-
ued prosperity. The recording industry manufactured the popular, youth-oriented
music radio wanted and needed, and the latter provided the exposure that created
a market for this product. From the perspective of the recording industry, radio was
the perfect promotional vehicle for showcasing its established, as well as up-and-
coming, artists. FM radio, struggling to remain afloat, used a different kind of music
to bring in some money. The FCC's Subsidiary Communications Authorization (SCA)
permitted FM to use its subcarrier to transmit so-called "elevator" (and other kinds
of) music to dentist's offices, supermarkets, waiting rooms, and, of course,
elevators.
A national event that was to catapult television into a political and social change
agent occurred in 1955. On the heels of the 1954 Supreme Court Brown v. Board
Nat King Cole becomes the first
black performer to host his own
network show.
;...(
:::::::>
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0::
st territory - the
circumstances of the payola-<:ase - it seems unlikely that they would pursue the option
of changing the selection system, unless all other options had failed. Dominant
incumbents would likely have resources that were well adapted to the current
selection system and be loath to risk the value of these resources (Chandy and Tellis
1998). The fourth option would be much more attractive to outsiders and non-
dominants, for instance, the members of the Impressionist movement as described in
Wijnberg and Gemser (2000). However, these actors usually lack the resources to
pursue the fourth option successfully - most revolutions fail.
Finally, there are interesting implications for related theoretical approaches,
such as population ecology, that have also been used to analyze media industries
(Greve 1996; Boone, Carroll, and Witteloostuijn 2002) Population ecologists have
stressed the importance of legitimation processes in the formative years of an industry
(Hannan and Carroll 1992; Aldrich and Fiol 1994). A new industry effectively means
new products, usually new competitors, and a new selection system, including a set of
selectors and a set of most significant product characteristics. Rao (1994) showed how
in a young industry firms could attain a competitive advantage by engaging effectively
in the competitive process in which the early selectors legitimize their own position
and make explicit the most significant product characteristics. He illustrated this by
showing how yardstick competitions are organized. As industries mature, the
composition of the set of selected - the firms in the industry - may change, but also
of the set of selectors. Changes in this set may resemble what Hannan and Freeman
(1977) refer to as "environmental change." Shifting alliances between particular
groups of the selected and particular groups of selectors, could explain much of the
longevity or mortality rates in the industry.
Precisely these issues, concerning legitimation processes and shifting alliances
of selected and selectors in uncertain and rapidly changing environments are highly
significant for the present state of the music industry. The dominant position of the
majors is once again threatened by new forms of reproduction, distribution and retail
made possible by the internet, as well as important changes in the ways in which
consumers, especially young consumers, are informed about the music products, their
quality and authenticity.
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All use subject to JSTOR Terms and Conditions
Competition, Selection and Rock and Roll 713
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EXHIBIT D
Adam D. Renhoff,
THE CONSEQUENCES OF “CONSIDERATION PAYMENTS”:
LESSONS FROM RADIO PAYOLA
(2010)
Rev Ind Organ (2010) 36:133–147
DOI 10.1007/s11151-010-9239-7
The Consequences of “Consideration Payments”:
Lessons from Radio Payola
Adam D. Rennhoff
Published online: 4 February 2010
© Springer Science+Business Media, LLC. 2010
Abstract The prohibition of radio payola in 1960 gives us an opportunity to exam-
ine the effect that “consideration payments” had on the record labels that used them
and on overall product variety. Using a historical Billboard chart data, we find that the
prohibition of payola reduced musical variety and overall record sales, but may have
helped increase access for smaller record labels. These findings support the theory
that payola payments, which may impose a non-trivial financial burden on the record
label, serve to reduce the radio station’s risk.
Keywords Payola · Radio · Regulation · Slotting allowances
1 Introduction and Background
In many consumer-product industries, such as groceries, pharmaceuticals, and
electronics, the use of “consideration payments” is commonplace. The term “consid-
eration payment” refers to payments that upstream firms (manufacturers) make to
downstream firms (retailers) in order to obtain favorable treatment for the upstream
firm’s product(s). This favorable treatment encompasses things like improved shelf or
display space or prominent in-store promotion.1
Academics and government agencies, such as the Federal Trade Commission
(FTC), have been concerned about the welfare implications of such payments.
1 The term “consideration” is courtesy of the Financial Accounting Standards Board (FASB). The FASB
uses the term in their rules on accounting for payments like slotting allowances, pay-to-stay fees, and
merchandising allowances.
A. D. Rennhoff (B)
Economics and Finance Department, Middle Tennessee State University, P.O. Box 27, Murfreesboro,
TN 37132, USA
e-mail: rennhoff@mtsu.edu
13
134 A. D. Rennhoff
Specifically, they are concerned about the impact these payments have on downstream
retail prices and the variety of product offerings. In general, the exact implication of
these payments is difficult to decipher. Given the widespread use of these payments
and the secrecy of the practice, it is difficult to conceive of an empirical test that would
conclusively determine the welfare effect.2 This has contributed to a lack of consensus
on the welfare implications (see, for example, Bloom et al. 2000).
Fortunately, there is an historical event that may help us shed light on the subject:
the radio payola scandal of the late 1950s. As noted in a recent Department of Justice
(DoJ) / FTC hearing on firm conduct, radio payola—which is the practice of paying
disc jockeys for radio play—has much in common with the current system of consid-
eration payments (Sullivan 2006). In the case of radio payola, record labels (upstream
firms) make payments to radio stations or to the disc jockeys that are responsible for
selecting the music that is played at these radio stations (downstream firms) in return
for favorable treatment: more “spins” or airplay for their records. Given that radio sta-
tions have a fixed or limited amount of time in which to play music, payola is designed
to influence the disc jockeys’ music selections. From a welfare perspective, one might
be concerned with the way in which payola alters the variety of music played. Also,
if payola were used consistently by larger labels as a way of squeezing out smaller
labels, this might raise barriers to entry and reduce competitive vigor.
In this research, we examine the impact that payola and its eventual prohibition
had on the variety of music played by radio stations using a unique index of musical
variety. We construct a unique historical data set of music airplay and sales for 25
record labels from Billboard’s record charts. This data set is then used to examine the
impact that payola had on product variety and on the record labels’ ability to place
singles on the charts.
Our findings indicate that payola increased the variety of musical styles on the
record charts, but it may also have restricted access to radio stations for smaller record
labels. The post-payola period, therefore, is characterized by decreased musical vari-
ety but an increased presence by smaller record labels. A simple descriptive regression
suggests that the prohibition of payola led to lower record sales.3
References to forms of radio payola date back to the late 1930s, but it was not
until radio stations shifted overwhelmingly to playing recorded music, as opposed to
the airing of live “big band” programs, in the 1950s that the practice of paying disc
jockeys for airplay became commonplace.4
Though becoming increasingly widespread over time, the use of payola did not
attract significant attention or scrutiny for most of the 1950s. Indeed, it was not until
late 1959 that government officials and agencies began publicly commenting and
engaging in payola inquiries. There are numerous reasons cited for the eventual reg-
ulatory interest in payola. Perhaps the most prominent reason involved the renewed
2 Thanks to access to confidential data, Bronsteen et al. (2005) and Wright (2007) are able to look at the
effect that slotting allowances have on price. Both studies conclude that slotting allowances do not result
in higher retail prices.
3 We discuss the implications of our findings in the broader context of slotting allowances in Sect. 5.
4 A detailed history of radio payola is beyond the scope of this paper. We refer the interested reader to
more thorough descriptions of radio payola, including Coase (1979); Segrave (1994); Sanjek (1996).
13
Lessons from Radio Payola 135
focus on truth, disclosure, and fraud brought about by the recent revelations that
the outcomes of several popular television quiz shows were rigged (Coase 1979).
Whatever the reasons may have been, in the final months of 1959, government agen-
cies like the Federal Communications Commission (FCC) and the FTC, along with
the US Congress, began actively trying to curtail payola. These interests culminated
with the September 1960 Amendments to the Communications Act, which effectively
outlawed payola.5,6
2 Data
The data used in this study come from several sources. The primary data source is
the Billboard Hot 100 Singles Chart. The Billboard Hot 100 Singles Chart, which is
published weekly, tracks the top songs (or “singles”) in popular music. Rankings in the
chart are based on both airplay and sales. Given the interest in examining how payola
affected radio station disc jockeys, it would be preferable to utilize information that
is drawn solely from airplay. Unfortunately, Billboard discontinued the “Most Played
by Jockeys” rankings prior to the introduction of payola legislation or enforcement.
Other potential airplay rankings, such as Billboard’s Hot 100 Airplay rankings, were
not introduced until after the desired sample period. The end result is that the only
ranking that covers both pre- and post-payola regulation/enforcement and incorporates
information on radio airplay is the Hot 100 chart.7 The Billboard Hot 100 chart has
historically been considered the definitive list of popular music.
For the three-year (156-week) period from January 1, 1959, to December 31, 1961,
a number of measures were collected from each of the weekly Billboard Hot 100
charts.8 These measures allow us to characterize the impact that payola had on differ-
ent chart “activity level” variables. These activity measures are meant to capture the
“survivability” of songs and/or the amount of “churn” on the charts (Bhattacharjee et
al. 2007). Among the measures collected were:
• Whether there is a new “number one” single in a given week
• The average “age” of the top five and top 20 singles on the chart during a given
week. This “age” measure captures the average number of weeks that each of the
songs has been ranked in the Hot 100.
• The number of new songs appearing in the Hot 100 during a given week (“turn-
over”).
5 The Communications Act amendments technically prohibited the use of payola unless disc jockeys
explicitly (on-air) disclosed any compensation that they received for playing a particular song. This caveat
aside, the Communications Act amendments are typically described as a “law prohibiting payola” (Coase
1979), and we therefore use this terminology throughout the current paper.
6 Although outlawed in 1960, payola re-emerged in headlines in 2004 when New York Attorney General
Eliot Spitzer successfully investigated four record labels and two radio companies that were accused of
engaging in payola.
7 While most practitioners generally believe that there is a positive correlation between airplay and sales,
Liebowitz (2004) has shown that while sales of an individual song may benefit from radio play, aggregate
per-capita record sales are not positively affected by increased radio airplay.
8 The 1960 Amendments to the Communications Act became effective as of September 13, 1960 (Coase
1979). This means that the data include 89weeks prior to the formal prohibition of payola and 67weeks post.
13
136 A. D. Rennhoff
Recall that the primary variable of interest in this study is variety. To allow us to address
potential changes in variety, we construct a weekly variety index that represents the
degree to which artists in each week’s top 20 are similar musically. This variety index
is a continuous variable between 0 and 1. Values of the variety index closer to zero
indicate that variety is low (i.e., that the artists in a week’s top 20 have similar musical
styles), while values closer to one indicate higher variety. We construct this index
using information on the identity of each artist in the Billboard top 20 along with
information from the All Music Guide database, which labels musical artists as being
associated with specific musical styles. The specific details of the construction of this
index appear in the Appendix.
The detailed nature of the Billboard Hot 100 also makes it possible to construct a
disaggregated data set with which the outcomes for individual record labels can be
examined. To do so, the following information is collected for the top 25 record labels
during the 156week sample period:9
• The identity of the record label that distributed each week’s number one hit on the
Hot 100 chart.
• The number of top 20 hits that each record label distributes on each week’s Hot
100 chart.
• The number of top 100 hits that each record label distributes on each week’s Hot
100 chart.
These measures help determine the effect that payola had on each record label’s prob-
ability of landing top singles. As discussed in greater detail in Sect. 2, observed and
unobserved record label heterogeneity can be controlled for, thanks to the panel nature
of the data.
While the primary focus of this research is the determination of the effect that payola
had on product variety, the 1960 Amendments to the Communications Act is not the
only relevant limitation on payola during the sample period. Prior to the passage of the
Communications Act amendments, the FTC began citing numerous record labels and
disc jockeys for the use of payola, which the FTC claimed violated consumer protec-
tion laws on deceptive practices in interstate commerce (Blair 1959). These citations
began in December 1959 and continued through the end of July 1960.10 Articles in
the New York Times and Broadcasting, published between December 1959 and July
1960, contain lists of which record labels were cited by the FTC for payola and when
these citations were issued. In total, our sample includes 13 record labels that were
cited by the FTC. This observed “enforcement,” which affected different record labels
at different times, adds an element to the panel regressions discussed in Sect. 3.2.
Summary statistics for the collected measures are presented in Table 1 below.
The first column in Table 1 shows the overall summary statistics for the entire
156-week sample period, and columns 2 and 3 present statistics for the pre- and
9 The top 25 record labels is determined by counting the number of times that each record label is repre-
sented on the Hot 100 during the 156week sample period. In other words, these 25 record labels had the
most appearances on the Hot 100 charts from January 1, 1959 to December 31, 1961. All 25 labels were in
operation for the entire sample period, creating a balanced panel (Hoffman 2005).
10 July 1960 marks the end of FTC payola citations prior to the Communications Act amendments. Over
the years, additional citations have been issued, although none during the remainder of the sample period.
13
Lessons from Radio Payola 137
Table 1 Summary statistics
Total sample Pre-amendment Post-amendment T -stat on difference
Number of weeks 156 89 67
Mean variety index 0.8045 (0.05) 0.8210 (0.04) 0.7820 (0.04) 3.1141***
New #1? 35.25% (0.48) 29.21% (0.46) 43.28% (0.50) −1.8286*
Mean age (top 5) 9.069 (1.52) 9.254 (1.47) 8.823 (1.55) 1.7681*
Mean age (top 20) 8.740 (0.81) 8.905 (0.73) 8.521 (0.86) 3.0033***
Turnover 11.910 (2.94) 11.090 (10.55) 13.000 (3.04) −4.2354***
Percentage of #1 hits
Top 10 labels 57.05% 64.04% 47.76% 2.0481**
Top 25 labels 71.94% 74.16% 68.66% 0.7523
Labels 16–25 5.77% 1.31% 13.43% −3.6923***
Percentage of top 20 hits
Top 10 labels 42.02% 44.21% 39.10% 3.5285***
Top 25 labels 63.43% 61.24% 66.34% −1.4769
Labels 16–25 9.55% 6.34% 13.80% −7.9023***
Percentage of top 100 hits
Top 10 labels 37.84% 41.18% 33.40% 9.4326***
Top 25 labels 57.47% 58.49% 56.11% 3.3853***
Labels 16–25 9.51% 8.16% 11.33% −9.2449***
Standard deviation values in parentheses. T -test based on 154degrees of freedom
∗∗∗ Significant at the 1% level
∗∗ Significant at the 5% level
∗ Significant at the 10% level
post-amendment periods, respectively.11 The final column in Table 1 shows the t-
statistics (and significance) on a test of whether the pre-amendment mean for each
variable is different from the post-amendment mean. The majority of the sample differ-
ences are statistically significant. These summary statistics illustrate some interesting
trends. First, variety is higher in the pre-amendment time period, and the decrease
in the post-amendment period is statistically significant. As for the other aggregate
measures: Turnover increases; there is a new number one song more frequently; and
songs disappear from the charts faster in the post-amendment period. The survivability
of songs appears to go down in the post-amendment time period.
The bottom half of Table 1 organizes the composition of songs on the chart by
record label size. The noticeable trend is that the larger record labels are losing share
on the charts to the smaller record labels.
3 Empirical Models
We divide the empirical models into two categories: aggregate regressions (Sect. 3.1)
and panel data regressions (Sect. 3.2). We discuss each type separately.
11 We treat the week ending September 19, 1960, as the first week in the post-amendment time period. As
a sensitivity analysis, we removed the 16-week period from August 1, 1960, through November 14, 1960,
from our data and re-estimate all models in this paper. Our conclusions were unaffected. These results are
available on request.
13
138 A. D. Rennhoff
3.1 Aggregate Regressions
The aggregate time series regressions examine how aggregate measures of variety and
survivability are related to payola. If Yt is used to represent the outcome measure of
interest, then the aggregate regression model can be expressed as:
Yt = β1 ∗ 1
[
Payola Law in Effect
] + β2 ∗ Timet + β3 ∗ Time2t
+
∑
m
Month fixed effects +
∑
y
Year fixed effects + εt . (1)
The indicator variable 1
[
Payola Law in Effect
]
, which accounts for the period of
payola prohibition, takes the value 1 after September 13, 1960, and 0 prior. Time and
time-squared terms are included to capture general trends, which cannot be captured
by other observed measures. Month fixed effects are included to capture monthly dif-
ferences (for example, Christmas-themed songs were prominent on the November and
December charts), and year fixed effects capture annual differences.12
The five outcome measures used, which were noted in Table 1, are (1) the weekly
variety index, (2) weekly turnover, (3) the average age of the top 5 singles in a given
week, (4) the average age of the top 20 singles in a given week, and (5) a binary
variable indicating whether there was a new number one single during a given week.
The time series nature of the data requires more attention than simply running
OLS on Eq. (1).13 We first conduct an Augmented Dickey–Fuller test to determine
whether the series are stationary. We are able to reject the null hypothesis of non-
stationarity (unit root) at the 1 percent significance level for all measures. We then
estimate Eq. (1) using OLS and test for autocorrelation in the error terms using the
Breusch–Godfrey Lagrange Multiplier test. The test indicates the presence of autocor-
relation (for measures 1–4). To correct for autocorrelation, Eq. (1) is estimated using
Prais–Winsten regression, which estimates the degree of autocorrelation (ρ) and then
uses this estimate in a GLS regression.
The treatment of time series binary variables is less standardized than for continu-
ous variables. We follow the methodology proposed by Beck et al. (1998) and estimate
a logit model that is augmented to account for temporal dependence, which allows the
number of weeks since the last number one single to affect the probability of a new
number one single today. It is likely that a simple (static) probit or logit model would
violate necessary independence assumptions.
3.2 Panel Data Regressions
Panel regression techniques enable us to examine the effect that payola had on record
labels, while controlling for observed and unobserved heterogeneity.14 The effect
12 With the time trend variables included, the year fixed effects add little to the analysis, but we keep them
for completeness. Excluding these year fixed effects does not affect the primary coefficient of interest (that
of the payola law).
13 The discussion that follows pertains to aggregate measures 1–4. Issues regarding the fifth measure,
which is a binary variable, are addressed separately.
14 Models of this type have also been termed “time-series-cross-section models” (Beck 2006) because the
time-series length of the panel raises the possibility of time series issues that are not present in standard
panel data sets with relatively few time periods.
13
Lessons from Radio Payola 139
of payola is examined for three observable measures: (1) the number of top 100
singles that each label had on the Hot 100 in a given week, (2) the number of top
20 singles that each label had on the Hot 100 in a given week, and (3) whether a
label had the number one single during a given week. These three measures serve
as the dependent variables in panel regressions. Using Yl,t to denote the dependent
variable for record label l during time t, then the panel regression model can be exp-
ressed as:
Yl,t = β1 ∗ 1
[
Payola Law in Effect
] + β2 ∗
[
Time Since FTC Complaintl,t
]
+β3 ∗
[
Time Since FTC Complaintl,t
]2 + β4 ∗
[
Major label fixed effect
]
+
∑
l
Record label fixed effectsl +
∑
l
Record label fixed effectsl ∗ T imet
+
∑
m
Month fixed effects +
∑
y
Year fixed effects + εl,t. (2)
In Eq. (2), both the payola law and the FTC payola citations are allowed to affect
the dependent variable. Given the somewhat dubious nature of payola methods, it is
not safe to say with certainty that the record labels that were not cited by the FTC
did not use payola. However, it does seem reasonable to assume that those firms that
were cited by the FTC were among the most likely to be using payola. For this rea-
son, we include the FTC citation information to determine the effect of prohibiting
record labels from using payola. We adopt an approach similar to Wolfers (2006)
study of divorce laws and allow the impact of FTC complaints to change over time.
The time-varying impact of being cited by the FTC is captured through coefficients
β2 and β3.
In terms of the controls used, fixed effects for each record label are included to help
account for unobserved heterogeneity, as well as record label-specific time trends. As
in the aggregate regressions, month and year fixed effects are also included.
Given the length of our sample, we follow the same basic approach used in the
previous section: We test for stationarity and then autocorrelation (for our continuous
measures). The Im-Persaran-Shin Unit Root test tests whether a variable has a unit
root for each record label in the panel. The data strongly rejects non-stationarity. We
again find evidence, however, of autocorrelation in the error terms.15 Based on these
findings, we again employ an estimation strategy to account for autocorrelation. In
order to account for left-censoring in our dependent variables, we estimate a panel
Tobit model with Newey–West adjusted standard errors.16, 17 Our binary model is
again estimated using the approach of Beck et al. (1998).
15 We use the Wooldridge Panel Serial Correlation test (Drukker 2003).
16 An approach for estimating consistent standard errors in Tobit models with serially correlated errors is
described in Busse and Bernard (2003).
17 We also estimated the panel regressions treating the dependent variable as continuous and uncensored
(Prais–Winsten GLS regression) and as count data (negative binomial regression). The results were quali-
tatively identical.
13
140 A. D. Rennhoff
4 Results
4.1 Aggregate Regression Results
The aggregate regression results are presented in Table 2.
We begin by examining the variety index results, as this is our primary outcome
variable of interest. The coefficient on “Payola Law” is negative and statistically sig-
nificant at the 5% level, indicating that variety falls in the post-payola period. This
finding reinforces the t-test result in Table 1, but is more robust because we now con-
trol for a variety of factors. The final row in Table 2 shows the F-value on a Chow test.
The Chow test, as used in this study, is a test of whether the model coefficients are
(statistically) different if we estimate the model using the pre- and post-amendment
samples separately.18 The result of the Chow test, which is statistically significant at
the 1% level, indicates that there is a difference between the pre- and post-amendment
coefficients.19
The remainder of the results are not particularly strong, perhaps due to the low-
ered variation among the aggregated measures. In the turnover regression (column
2), the coefficient on the payola law is positive and significant at the 10% level. The
Chow test is also significant for turnover. There are no statistically significant results
in column 3 (age of top 5 songs), although the payola law coefficient does have the
expected sign. The payola prohibition coefficient is negative and significant in the top
20 age regression. The payola prohibition coefficient is negative in both of the age
regressions, indicating that songs stayed at the top of the charts for shorter periods of
time when payola was outlawed. The likelihood of a brand new number one single
in a given week goes up by approximately 40 percentage points once payola is pro-
hibited. This estimate is significant at the 5% level. The joint test on the significance
of the grouped duration dummies, which account for the temporal dependence in the
logit model, is significant at the 1% level. This suggests that simple (static) binary
logit estimates are biased. Collectively the results provide support for the theory that
prohibiting payola decreased the survivability of songs and lead to increased churn.
4.2 Panel Regression Results
The panel regression results are presented in Tables 3, 4, 5.
The dependent variable in Table 3 is the number of top 100 hits record label l has
during week t. Column 1 shows estimates of Eq. (2) using the full sample of 25 record
labels. The coefficient on our main variable of interest (“Payola Law”) is negative,
but not statistically significant. Because of heterogeneity among labels, it may be the
case that the effect of the payola law is different for large labels than it is for smaller
labels. To allow for this possibility, we also separately estimate Eq. (2) for the ten
18 The Chow tests exclude the “Payola Law” variable as it cannot be identified when the model is estimated
using the divided sample.
19 Oaxaca decompositions of the estimates in Table 2 reveal that differences in the pre- and post-amendment
coefficients are due primarily to payola and not to differences in other observable factors.
13
Lessons from Radio Payola 141
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13
142 A. D. Rennhoff
Table 3 FTC Complaint and payola law panel regressions: number of top 100 hits
Full samplea Top 10 labelsa Labels 16–25a
Time since complaint 0.004 (0.015) 0.005 (0.013) −0.029(0.023)
Time since complaint squared −1.10E-04 (7E-05) −8.68E-05 (6E-05) 5.52E-05 (1E-04)
Payola law in effect (=1) −0.103(0.178) −0.567(0.177)*** 0.446 (0.227)**
Controls
Record label-specific time trend F = 306*** F = 182*** F = 75.6***
Month fixed effects F = 12.66 F = 55.84*** F = 45.93***
Year fixed effects F = 0.95 F = 0.97 F = 2.04
Chow testb F = 2.13***
Pseudo R-squared 0.2702 0.2786 0.1619
Number of observations 3900 1560 1560
a Panel Tobit regression with Newey–West adjusted standard errors
b Chow test of whether coefficients are equal between the top 10 labels and labels 16–25 (F36,3048)∗∗∗ Significant at the 1% level
∗∗ Significant at the 5% level
∗ Significant at the 10% level
Table 4 FTC Complaint and payola law panel regressions: number of top 20 hits
Full samplea Top 10 Labels 16–25a
Labelsa
Time since complaint −0.002(0.022) −0.006(0.026) 0.013 (0.029)
Time since complaint squared 1.28E-04 (2E-4) 1.20E-04 (2E-04) −1.11E-04 (1E-04)
Payola law in effect (=1) −0.058(0.253) −0.262(0.143)** 0.287 (0.250)
Controls
Record label-specific time trend F = 102*** F = 74.3*** F = 41.8***
Month fixed effects F = 8.14 F = 26.23*** F = 24.65***
Year fixed effects F = 0.53 F = 0.81 F = 0.91
Chow testb F = 0.86
Pseudo R-squared 0.2413 0.1926 0.2038
Number of observations 3,900 1,560 1,560
a Panel Tobit regression with Newey-West adjusted standard errors.
b Chow test of whether coefficients are equal between the top 10 labels and labels 16-25 (F36,3048).
*** significant at the 1 % level.
** significiant at the 10 % level.
largest and ten smallest labels in our sample, as ranked by the number of top 100 hits
during the sample period.20 These estimates are presented in columns 2 and 3. Using
the partitioned samples we see that the payola law had a negative and statistically
20 We would like to thank an anonymous referee for this suggestion.
13
Lessons from Radio Payola 143
Table 5 FTC Complaint and payola: number 1 hit (logit marginal effects)
Full sample Top 10 labels Labels 16–25
Time since complaint 9.25E-04 (0.001) 9.16E-04 (0.008) 3.13E-04 (3E-04)
Time since complaint squared −8.21E-06 (1E-05) 3.07E-06 (3E-05) −2.98E-06 (4E-06)
Payola law in effect (=1) −0.062(0.031)** −0.071(0.071) 0.108 (0.052)**
Controls
Month fixed effects F = 16.8 F = 6.93 F = 18.49***
Year fixed effects F = 8.56** F = 5.81* F = 4.30**
Grouped duration dummies F = 167*** F = 97.8*** F = 16.2***
Chow testa,b F = 1.35***
Number of observations 3900 1560 1560
a Chow test of whether coefficients are equal between the top 10 labels and labels 16–25 (F172,2776)
b Chow test is calculated using linear probability model, not the logit estimates
∗∗∗ Significant at the 1% level
∗∗ Significant at the 5% level
∗ Significant at the 10% level
significant impact on the number of top 100 hits for larger labels, while there is a
positive and statistically significant impact for smaller record labels. It is important to
note that these results control for time trends and other unobserved factors. A Chow
test of the hypothesis that the coefficient estimates are the same for the largest and
smallest labels is rejected at the 1% significance level. It is interesting to note that the
effect of the FTC complaints is far overshadowed by the effect of the payola law itself.
Table 4 shows the results of replicating Table 3 using the number of top 20 hits as
the dependent variable.
We again present the estimates for the full sample and for the two subsamples. The
coefficient on “Payola Law” is negative and statistically significant for the large label
subsample. The estimate is insignificant for the bottom 10 labels, however. A Chow
test fails to reject the hypothesis that the coefficients are equal for the two subsamples.
This result may, at least partially, be due to the fact that it is more difficult to predict
the number of top 20 singles (note the R-squared in Tables 3 and 4).
The final set of results is for the binary dependent variable: Whether record label l
has the number one hit in week t. Recall that we account for temporal dependence by
estimating a panel logit with grouped duration dummy variables. Also included are
controls for the month and calendar year. Estimated marginal effects from the panel
probit appear in Table 5.
The marginal effect of the payola law is negative for both the full sample (signif-
icant) and the subsample of large record labels (not significant). The marginal effect
is positive and significant for the small label subsample. Given the strong positive
effect for small labels and the weak negative effect for large labels, it must be the case
that medium-size labels (labels 11–15) experienced a notable decline following payola
prohibition. It seems reasonable to infer that the gains of the small labels came at the ex-
pense of the average-sized labels. The impact on large labels was negligible. The FTC
citations appear to have had no impact as they are insignificant in all specifications.
13
144 A. D. Rennhoff
5 Discussion and Conclusion
In this paper we have investigated the effect that payola had on radio airplay vari-
ety and turnover during the three years surrounding the 1960 Amendments to the
Communications Act. Empirical estimates account for monthly effects, general time
trends, and, where applicable, record label-specific time trends.
The main finding is that payola did result in greater musical variety. This implies
that, perhaps, payola was used to induce radio stations to “take a chance” and play a
wide variety of musical styles.21 The greater variety was accompanied by less churn on
the charts, with songs lingering for longer time periods. A series of panel regressions
illustrate that larger record labels were the greatest beneficiaries of payola, perhaps due
to their ability (at least relative to smaller record labels) to make the necessary financial
payments. An implication is that payola was an effective instrument in gaining radio
airplay for those labels that were willing to pay.
These findings help give us a greater understanding of the role that payola played
in the vertical channel. We now discuss how this role, as characterized by our empiri-
cal findings, relates to economic theories of consideration payments (namely slotting
allowances).
A number of views on both the role and impact of slotting allowances have emerged
in the growing literature on slotting.22 Two things make direct comparison difficult:
First, the slotting literature has focused primarily, although not exclusively, on under-
standing the effect that slotting allowances have had on retail prices. In broadcast radio,
listeners are able to “purchase” the product at zero monetary cost. Studies of radio
listenership—for example, Mooney (2009)—assume that listeners receive disutility
from hearing radio advertisements and that this is the “price” of listening. Examining
the amount of on-air advertising might allow us to address this price issue. Unfor-
tunately, detailed information regarding the amount of on-air advertisement does not
exist for the time frame of this study. The second detail that makes direct compari-
son difficult is that many of the slotting models assume either homogenous products
(Shaffer 1991, for example) or that the downstream firm offers only one product to
consumers (Chu 1992, for example). Given our focus on variety, these models do not
seem particularly applicable.
Our findings do, however, confirm some of the roles of slotting allowances that
were outlined in previous papers. For example, Sullivan (1997) argues that slotting
allowances are likely to emerge in areas where the growth in new products outpaces
the growth in available retail space. In this context, slotting allowances serve to equate
supply and demand. While we do not have precise evidence of this for the 1959–1961
time period, it is generally acknowledged that radio plays only a small fraction of the
music available, making the supply/demand explanation seem applicable. In addition
to this role, others (Chu 1992) have argued that slotting allowances may be used when
there is asymmetry regarding the quality of the products. In such models, slotting
21 Rossman et al. (2008) develop a model of diffusion that explains how radio stations adopt new songs for
their playlists. Their findings indicate that this pattern of adoption is notably different when payola is used.
22 For an up-to-date summary of the literature on slotting, please see Deltas (2006) and Klein and Wright
2007.
13
Lessons from Radio Payola 145
allowances (or payola in our case) are used by the upstream firm to signal their strong
belief in the quality or popularity of their product. Record labels using payola did not
provide uniform support for all of the songs they released, indicating they may have
been selectively promoting “higher quality” songs.
While we find that variety increased because of payola (or, equivalently, decreased
because of its prohibition), we have thus far avoided linking this finding to any conclu-
sions regarding consumer welfare. The simple reason for this is that variety changes,
on their own, do not allow us to draw conclusions regarding welfare. This fact can be
illustrated simply using a standard Hotelling model of horizontal differentiation. In the
duopoly case with fixed prices, the efficient locations are 1/4 and 3/4. Starting from
maximum differentiation (both firms located at the endpoints), a move to [1/4,3/4]
would decrease variety by reducing differentiation but would increase welfare. On the
other hand, starting from minimum differentiation (both firms located at the midpoint),
a move to the efficient locations would increase variety and increase welfare.
Wright (2007) argues that to get an accurate picture of the welfare impact, one
needs a measure of aggregate product category performance. For example, Wright
examines the welfare consequences of slotting allowances by determining whether
category sales, as opposed to sales of specific brands, changed with the introduction
of slotting allowances. The equivalent measure in our model might be total radio lis-
teners or total record sales. We were unable to find detailed radio listenership data:
however, we were able to find annual record sales information through the Recording
Industry Association of America (RIAA).23 While aggregate annual record sales is
less than ideal for such a short time period, it does allow us to make at least a small
step towards identifying the welfare effect.
Using annual sales from 1950 through 1966, we estimate a simple regression.24
We acknowledge that constructing a data set that allows one to estimate record sales
as a function of demographic changes, for example, is preferable. We, nevertheless,
proceed with our tentative attempt at addressing welfare measurement. In our regres-
sion, the dependent variable is logged annual record sales, which we filter using the
Hodrick-Prescott filter to remove all time trends in the raw data. The results are pre-
sented in Table 6 below.
The results suggest that overall record sales were lower in the post-payola periods,
after controlling for time trends. The payola law dummy and the time trends explain
record sales well. The coefficient estimates suggest that the banning of payola reduced
not only variety, but also overall record sales and thus (arguably) consumer welfare. To
make strong predictions regarding the welfare effect, however, we believe that future
research is necessary beyond this simple descriptive regression. At a minimum, how-
ever, this research has shown that banning payola may have increased access to radio
stations for smaller record labels, but the ban led to reduced variety and an apparent
reduction in total record sales, hinting at a reduction in consumer welfare.
23 The RIAA figures are reprinted in Harvey Rachlin’s Encyclopedia of the Music Business, published in
1981 by Harpercollins.
24 After 1966 the RIAA’s sales figures include both records and cassette tapes. To make the comparison
easier, we restrict our sample to the pre- 1967 period.
13
146 A. D. Rennhoff
Table 6 Payola law and annual record sales
Logged record sales
(in millions)
Constant 5.976 (0.452)***
Payola law in effect (=1) −0.113 (0.063)**
R-squared 0.7638
Number of observations=17
Prais-Winsten linear regression using GLS to account for serial correlation. The dependent variable is
logged annual record sales, filtered using the Hodrick-Prescott filter.
*** significant at the 1% level.
** significant at the 5% level.
Appendix: Constructing the Variety Index
The variety index is the primary variable of interest in the aggregate regressions. We
constructed this index based on the average degree of similarity between artists on the
charts in a given week. Each artist appearing in the Billboard Top 20 during the sample
period was researched using the All Music Guide database (http://www.allmusic.com).
In total, there were 291 artists. For each artist, the All Music Guide lists a genre and a
set of musical styles. While typical genre labels, such as “Pop/Rock” or “Jazz”, provide
very little information regarding the style of music, the All Music Guide’s musical
style listings are intended to capture the true characteristics of each artist’s music.
Examples of these musical styles include “Rockabilly”, “Nashville Sound/Country-
politan”, “Doo Wop”, “Traditional Folk”, and “Dixieland Jazz”. For each of the 291
artists in the sample, we construct of a 31 × 1 vector of dummy variables that indicate
which of the 31 music styles are attributed to the artist by the All Music Guide. Artists
have, on average, around three musical styles listed in their database profile.
Using these vectors, we calculate the percentage of overlap or similarity between
each pair of artists in a given week’s Top 20.25 To illustrate this process, consider
the following simple example: Suppose that there are two artists (A and B) and three
possible musical styles (X,Y, and Z). Artist A is associated with musical style X, but
neither of the other two styles. Artist B, on the other hand, is associated with musical
styles X and Y, but not Z. The degree of similarity between A and B would be 0.50
because Artist A only shares one of Artist B’s two possible musical styles. This process
is repeated for each pair of artists in the week’s Top 20. We then average these similar-
ity percentages across all artist pairs to get a weekly average. This weekly average is
then subtracted from 1 to yield our variety index. In this context, “variety” measures
the average dissimilarity in the musical styles of the artists in each week’s Billboard
Top 20.
25 Multiple chart appearances by the same artist in a given week are treated as if they were separate
individuals.
13
Lessons from Radio Payola 147
References
Beck, N., Katz, J. N., & Tucker, R. (1998). Taking time seriously: Time-series-cross-section analysis
with a binary dependent variable. American Journal of Political Science, 42, 1260–1288.
Beck, N. (2006). Time-series-cross-section methods. New York University, Mimeo.
Bhattacharjee, S., Gopal, R. D., Lertwachara, K., Marsden, J. R., & Telang, R. (2007). The effect
of digital sharing technologies on music markets: A survival analysis of albums on ranking
charts. Management Science, 53, 1359–1374.
Blair, W. M., (1959). FTC files suits to prevent payola. New York Times, Dec 3, 1.
Bloom, P., Gundlach, G., & Cannon, J. (2000). Slotting allowances and fees: Schools of thought and
the views of practicing managers. Journal of Marketing, 36, 203–216.
Bronsteen, P., Elzinga, K. G., & Mills, D. E. (2005). Price competition and slotting allowances. Antitrust
Bulletin, 50, 267–284.
Busse, M. R., & Bernard, A. B. (2003). Consistent standard errors in panel Tobit with autocorrelation.
Dartmouth College, Mimeo.
Chu, W. (1992). Demand signaling and screening in channels of distribution. Marketing Science, 11,
327–341.
Coase, R. H. (1979). Payola in radio and television broadcasting. Journal of Law and Economics, 22,
269–328.
Deltas, G. (2006). Slotting allowances: An assessment of the literature. University of Illinois, Mimeo.
Drukker, D. M. (2003). Testing for serial correlation in linear panel-data models. The Stata Jour-
nal, 3, 168–177.
Hoffman, F. (Ed.). (2005). Encyclopedia of recorded sound. New York: Routledge.
Klein, B., & Wright, J. D. (2007). The economics of slotting contracts. Journal of Law and Econom-
ics, 50, 421–454.
Liebowitz, S. J. (2004). The elusive symbiosis: The impact of radio on the record industry. Review of
Economic Research on Copyright Issues, 1, 93–118.
Mooney, C. T. (2009). A two-sided market analysis of radio ownership caps. University of Oklahoma,
Mimeo.
Rossman, G., Chiu, M. M., & Mol, J. (2008). Modeling diffusion of multiple innovations via multilevel
diffusion curves: Payola in pop music radio. Sociological Methodology, 38, 201–230.
Sanjek, R. (1996). Pennies from heaven: The American popular music business in the twentieth
century. New York: Da Capo Press.
Segrave, K. (1994). Payola in the music business: A history, 1880–1991. Jefferson, NC: McFarland &
Co.
Shaffer, G. (1991). Capturing strategic rent: full-line forcing, brand discounts, aggregate rebates, and
maximum resale price and maintenance. Journal of Industrial Economics, 39, 557–575.
Sullivan, M. W. (1997). Slotting allowances and the market for new products. Journal of Law and
Economics, 40, 461–493.
Sullivan, M. W. (2006). Slotting allowances and payola: Do they deserve different regulatory treatment?.
(Presented at Department of Justice/Federal Trade Commission Hearings on Single-Firm Conduct).
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ican Economic Review, 96, 1802–1820.
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13
EXHIBIT E
Marc Eliot,
ROCKONOMICS: THE MONEY
BEHIND THE MUSIC
(1989)
(
ROCKONOMIC
The Money Behind the Music
Marc Eliot
A CITADEL PRESS BOOK
Published by Carol Publishing Group
-------,
I
I
Copyright© 1989, 1993 by Marc Eliot
All rights reserved. No part of this book may be reproduced in any
form, except by a newspaper or magazine reviewer who wishes to
quote brief passages in connection with a review.
A Citadel Press Book
Published by Carol Publishing Group
Citadel Press is a registered trademark of Carol
Communications, Inc.
Editorial Offices: 600 Madison Avenue, New York, N.Y. 10022
Sales & Distribution Offices: 120 Enterprise Avenue, Secaucus,
N.J. 07094
In Canada: Canadian Manda Group, P.O. Box 920, Station U, Toronto,
Ontario M8Z 5P9
Queries regarding rights and permissions should be addressed to
Carol Publishing Group, 600 Madison Avenue, New York, N.Y. 10022
Carol Publishing Group books are available at special discounts for
bulk purchases, for sales promotions, fund-raising, or educational
purposes. Special editions can be created to specifications. For
details contact: Special Sales Department, Carol Publishing
Group, 120 Enterprise Avenue, Secaucus, N.J. 07094
Manufactured in the United States of America
10 9 8 7 6 5 4 3 2
Library of Congress Cataloging-in-Publication Data
Eliot, Marc.
Rockonomics : the money behind the music I Marc Eliot.
p. em.
"A Citadel Press book."
ISBN 0-8065-1457-4
Bibliq::raphy: p.
Includes Index
1. Rock music-History and criticism. 2. Rock music-Economic
aspects. 3. Music trade. I. Title.
ML3534.E44 1993
784.5 4-dc 20 89-5282
CIP
MN
Eighteen
From an economic point of view, 1971 was a terrific year for
rock, ushering in a decade of nearly uninterrupted profits.
The widespread acceptance of prerecorded tape became a
reality with the introduction of the Muntz eight-track car-
tridge and later that year, cassettes, breathing a second sales
life into record company backlists.
General Recording Tape was the first of several companies
to license the catalogs of record companies. GRT struck a
deal with RCA for exclusive duplication rights to its entire
catalog for a five-year period, beginning in 1972, for $7.5
million. With the combined sales of tapes and albums a factor
for the first time, the U.S. recording industry racked up sales
totaling $1.2 billion, twice the gross of 1960.
The greatest concentration of sales was by a relatively few
acts. One method initiated by the industry to expose the
audience to as much new product as possible was rack
jobbing, which resulted in the demise of one of the last
remaining independent operations in the business of music:
independent distribution.
The average rack capacity in a department store was about
a hundred albums and the top 40 singles. To get on the racks,
it was necessary to be on the charts. In order to be on the
charts, it was necessary to have rack space. The only way onto
this ever-revolving carousel was radio, which became an
Part Two/ Dear Landlord 173
increasingly critical factor in the manufacture of hits. In the
Fillmore era, a hit record could still be broken without benefit
of major exposure on the airwaves. In the seventies, radio
once again became the definitive make-it-or-break-it route to
the charts. The one-time "enemy" had become its most vital
promoter.
Independent program directors became the newest power
brokers within the industry, replacing the independent rec-
ord distributors of the early sixties. Bill Drake, one of the first
to develop the radio network concept for rock, converted
independent stations to "Drake" stations, supplying identical
format and preprogrammed music; mixing oldies, album
cuts, hits, and new up-and-coming singles; eliminating the
local deejays. Becoming a Drake station was a very attractive
package for station owners, reducing what was their major
expense, the salary packages of in-house "personalities."
The advantage to the record industry was the opportunity
the Drake system offered to instantly expose new product to a
national audience. So effective was radio's ability to capture
its target audience, that the combined revenues of American
radio reached approximately $1.4 billion in 1971, a figure
that more than doubled itself by the end of the decade.
Another way record companies sought to increase sales was
through the support of tours. Although festivals had died
with Altamont, and the Fillmore ballroom circuit was mori-
bund, there was still a market for live rock. While tours could
not, by themselves, create hit records, the combined radio
support and label promotions created an "event" out of new
releases, which helped to launch them into the commercial
arena. Live concerts became the best way to maintain au-
dience interest in a successful act and a key factor in breaking
a new one. Virtually every rock group eagerly toured behind
the release of a new album, with record companies assuming
all expenses, paying the acts nothing more than per diems.
Touring reverted to what it had been before the days of the
ballrooms, less a function of performance than promotion.
EXHIBIT F
Ronald H. Coase,
Payola in Radio and Television Broadcasting,
22 J.L. & ECON. 269 (1979)
The Journal of
LAW~
ECONOMICS
VOLUME XXII (2) OCTOBER 1979 PRICE $6.00
Keynes and Chicago
By DoN PATINKIN
Transaction-Cost Economics: The Governance of Contractual
Relations
213
By OLIVER E. WILLIAMSON 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 233
On Economism
By G. WARREN NuTTER............................................ 263
Payola in Radio and Television Broadcasting
By R. H. COASE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 269
The Northern Pacific Case
By F. JAY CuMMINGs AND WAYNE E. RuHTER . . . . . . . . . . . . . . . . . . . . . . 329
The International Salt Case
By JOHN L. PETERMAN 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 351
Self-Interest, Ideology, and Logrolling in Congressional Voting
By JAMES B. KAu AND PAUL H. RuBIN . . • . . . . . . . . . . • . . . . . . . . . . . . . . . 365
Indivisibility, Decreasing Cost, and Excess Capacity:
The Bridge
By JoRA R. MINASIAN . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . . . . . . . . . . . . . . . . . 385
A Decentralized Method for Utility Regulation
By MARTIN LOEB AND WESLEY A. MAGAT . . . . . . . . . . . . . • • . . . . . . . . . . . 399
A Decentralized Method for Utility Regulation: A Comment
By w. w. SHARKEY 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 405
THE UNIVERSITY OF CHICAGO LAW SCHOOL
PAYOLA IN RADIO AND TELEVISION
BROADCASTING*
R. H. COASE
University of Chicago Law School
I. INTRODUCTION
PAYOLA in radio and television broadcasting may be defined as undis-
closed payments (or other inducements) which are given to bring about the
inclusion of material in broadcast programs. 1 The making of such payments
has become a crime as a result of amendments to the Communications Act in
1960,2 and is now prohibited by regulations of the Federal Communications
Commission (FCC). 3 The aim of this paper is (1) to discover why these
payments came to be made, (2) to consider whether the results of allowing
such payments should be regarded as beneficial or harmful, and, in the light
of this, (3) to evaluate the worth of the 1960 amendments to the Communica-
tions Act and of the FCC's regulations.
To understand why payola became so common in the broadcasting indus-
try it should be realised that payola became a feature of the broadcasting
industry not in the late 1950s, when the practice received considerable pub-
licity in the press and was investigated by a congressional committee, but in
the 1930s and that it entered the broadcasting industry simply as a continua-
* I am greatly indebted to Mrs. Clara Ann Bowler who, as research assistant, showed
considerable enterprise in unearthing information on payola from a wide variety of sources. I
am also grateful for financial assistance to the Law and Economics Program of the University of
Chicago Law School and the Foundation for Research in Economics and Education. I have to
thank officials of both the Federal Communications Commission and the Federal Trade Commis-
sion for their help in providing me with information. They are not, of course, ~esponsible in any way
for the use which I have made of this information. It is pleasant to recall that I started to write this
paper at Stanford University in 1977 while a Senior Research Fellow at the Hoover Institution. In
revising this paper, I have greatly benefited from comments made by participants at seminars at
UCLA and the Hoover Institution and by written comments by Professors Edmund W. Kitch, John
H. Langbein, H. Douglas Laycock, Bernard D. Meltzer, and Geoffrey R. Stone of the University of
Chicago Law School and by Professor Earl A. Thompson of UCLA.
1 The term "payola" is generally said to have been introduced by the trade periodical Variety
and its popularity resulted from its use in that periodical. In Webster's Third New International
Dictionary, payola is defined as "an undercover or indirect payment for a commercial favor (as
to a disc jockey for plugging a song)."
2 See P.L. 86-752, 74 Stat. 895-97.
3 See Applicability of Sponsorship Identification Rules (Public Notice), 40 Fed. Reg. 41936
(1975).
269
270 THE JOURNAL OF LAW AND ECONOMICS
tion of business practices which were normal in the popular music industry.
Section II gives an account of the history of payola (or its equivalent) in the
popular music industry. This shows not only why such payments were made
but also why it was to be expected that payola would ultimately make its
appearance in the broadcasting industry. Nor should it be supposed that the
1960 amendments to the Communications Act represented the first attempt
to regulate payola. As is demonstrated in Section III, numerous attempts
had been made over a long period before 1960 to do this. The main propo-
nents of such regulation were the music publishers and their arguments in
support of their position make clear the effects such regulation was expected
to produce. The 1960 amendments were, however, brought about by a
combination of events which took place in the 1950s. These events are
described in Section IV. An account is given in Sections V and VI of the
resulting change in the law and of its implementation by the FCC. In Section
VII, I consider, in the light of the historical materials in the earlier sections,
what effects the 1960 amendments are likely to produce and I attempt to
assess whether the situation brought about by the change in the law repre-
sents, on balance, an improvement in the situation.
II. PAYOLA IN THE POPULAR MUSIC INDUSTRY
Payola in connection with radio programs seems first to have been noticed
in the press in the late 1930s. It was then reported that dance band leaders
and performers were given gifts by music publishers to induce them to
include certain songs in their programs. 4 This was the period of the "big
bands" and their performances in hotels and ballrooms were regularly
broadcast by radio stations. The popularity of a song and therefore the sales
of sheet music as well as performance royalties (and therefore the profits of
the firm that published the song) depended, so it was thought, on its "expo-
sure" by the "big bands" and it was therefore understandable that music
publishers should endeavour to get them to play their pieces. Given the
inefficiency of barter, direct money payments were no doubt often made.
Another arrangement said to be common was for a dance band leader to be
given a financial interest in the publishing house or in the copyright of a
song. 5
Such payola was merely a continuation of practices which had long existed
in the music industry. About a hundred years before payola became a feature
of the radio broadcasting industry, it has been recorded of the London music
publishing house, Novello, that members of the Novello family used to sing
songs published by the firm with a view to increasing the sales of the firm's
sheet music:
4 See Variety, Feb. 9, 1938, at 1; and id., Feb. 23, 1938, at I.
s See Variety, Feb. 23, 1938, at 1 & 48.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 271
The sisters, Cecilia, Clara, and Sabrina Novello, either as singers or as teachers, ...
assisted directly and indirecly to further the love for music . . . and to augment the
fortunes of the house, by bringing its publications into notice. This valuable form of
help, highly appreciated by Alfred Novello [the head of the firm], together with his
own exertions as a vocalist, mitigated the cost of advertisement, which in those days
was burdened with a heavy duty, and was oppressed by a capricious mode of estimat-
ing the amount. 6
The Novello firm also organized choral concerts and the motive was no
doubt in part to increase the demand for music published by Novello since it
is not to be expected that music published by the sponsoring firm would be
neglected. For example, we are told that in 1867, "Mad·ame Arabella God-
dard played at the Monday Popular Concert, for the first time in public,
Book Eight of Mendelssohn's 'Lieder ohne Worte,' a few days before its
publication by the firm."7 There is no mention of musicians being paid to
perform music at concerts not organized by the Novello firm although on
occasion this may have been done. According to the head of the Boosey
music publishing firm, this was certainly the practice of British music pub-
lishers late in the nineteenth century:
In the old days the leading singers ... received a royalty for a term of years upon all
new songs introduced by them .... There was a special reason for giving the leading
singers royalties because if a leading soprano, contralto, tenor or baritone introduced
a new song at the ballad concerts, all the smaller singers, according to their voices,
would take up the ballads made popular by the star artists. After a while, however, a
certain W. H. Hutchinson appeared on the horizon, and he saw at once, being
publisher and composer, that he could never get his songs advertised through con-
certs under the big ballad concert system. He therefore approached all the smaller
singers, and paid them so much a time for so many concerts, provided they sang one
of the songs that he was pushing .... I was the first of the leading publishers to
understand immediately that this new system was going to deal a severe blow to our
old system, so, although we still paid the big singers royalties, I set to work at once
subsidizing the small singers in the same way that Hutchinson did. 8
Similar practices were also common in the United States. Books relating
to the history of popular music in America are filled with accounts of the
activities of song-pluggers, whose exploits often outshine those of the per-
formers. Such books are not normally scholarly publications and lack de-
tailed references to sources, and, indeed, are probably not accurate in all
their particulars. But the general picture they paint is clear. Isaac Goldberg
has described the efforts made in the 1880s and 1890s to switch the al-
6 See Joseph Bennett, A Short History of Cheap Music 31 (1887) (at University of Chicago
Library).
7 /d.atlll.
8 See William Boosey, Fifty Years of Music 26-27 (1931).
272 THE JOURNAL OF LAW AND ECONOMICS
legiance of a performer from one music publisher to another. "Pay his board
bill .... Buy him a suit of clothes .... Promise her a glittering stone ....
Present him with a trunk .... Subsidize his act with a weekly pourboire.
The performer heard but one refrain: 'Sing our song!' "9 Edward B. Marks, a
leading American music publisher, has written of this same period as fol-
lows:
The best songs came from the gutter in those days. Indeed, when I began publishing
in 1894, there was no surer way of starting a song off to popularity than to get it sung
as loudly as possible in the city's lowest dives .... When a number was introduced
from the stage of one of the more pretentious beer halls, that was a plug! And a plug
... is any public performance which is calculated to boost a song .... In the nineties, a
young music publisher had to know his way about the night spots. It was important
to get his wares before the bibulous public; so he had to spend a large part of his time
making the rounds for plugs, and more plugs .... Sixty joints a week I used to make.
Joe Stern, my partner, covered about forty. What's more, we did it every week. 10
Later, he remarked that the "train of association whereby 'Annie Rooney'
eventually appeared on the piano in a small town banker's house would have
shocked many a fine community." 11
Isaac Goldberg says this of the song-plugger: "The Plugger . . . is the
publisher's lobbyist wherever music is played. He it is who, by all the arts of
persuasion, intrigue, bribery, mayhem, malfeasance, cajolery, entreaty,
threat, insinuation, persistence and whatever else he has, sees to it that his
employer's music shall be heard." 12 Services mentioned as being provided to
performers by music publishers include free copies of sheet music, 13 orches-
tral arrangements, 14 and rehearsal rooms. 15 In addition, gifts and money
were given to performers as an inducement to sing particular songs. It is
reported of the Shapiro-Bernstein firm that from its inception (in the 1890s),
it "instituted a policy of getting stage stars to sing their songs by means of
tactful, though not always inexpensive, bribes. Lottie Gilson, for .example,
was once presented a diamond ring valued at $500. "16 And we are told that
(also in the early 1890s) a composer-publisher, Charles K. Harris, was "able
to place his song ('Mter the Ball) in Charles Hoyt's fabulous extravaganza A
9 Isaac Goldberg, Tin Pan Alley 112 (1930).
10 Edward B. Marks, They All Sang 3-4 (1934).
11 /d. at 18.
12 Isaac Goldberg, supra note 9, at 203.
13 Edward B. Marks, supra note 10, at 209.
14 David Ewen, The Life and Death of Tin Pan Alley 59 (1964).
15 /d. at xii.
16 /d. at 66.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 2 i 3
Trip to Chinatown by the simple expedient of paying the singing star,
]. Aldrich Libbey, $500 in cash and a percentage of the song's royalties."17
Isaac Goldberg tells us that in the middle 1890s, an attempt was made to
eliminate such payments. The music publishers "banded together and
agreed to give up the practice of buying singers to plug their works." How-
ever, the agreement was not successful. "Publishers began to make secret
arrangements with headliners; the duplicity was discovered, and the lid blew
off. "18 By the early 1900s, such song-plugging arrangements seem to have
been commonplace. "To get a musical comedy star or vaudeville headliner to
use a song was ... the surest way a plugger knew to launch a song success-
fully and keep it alive for years .... Before long, performers were beginning
to get a regular weekly stipend from a publisher." 19 Of Al ]olson in the
1910s, the same author says that he made "more song hits than any other
single performer of his generation. Along Tin Pan Alley, it became a truism
that to get ]olson to sing a song was to have a big hit on your hands.
Publishers used cajolery, flattery, the intercession of }olson's closest friends
to get him to sing their numbers. When these failed, bribery was called
upon. One publisher gave him the gift of a race horse; others got him a cut in
a song's royalties; still others listed him as collaborating lyricist or com-
poser."20 Al }olson provides but a spectacular example of a common prac-
tice. The position as it existed in 1912 was described in Variety:
A few seasons ago the vaudeville singer selected the song wanted, and blithely asked
the publisher for a weekly salary to sing it. Not all did but the great majority. The
publisher paid the price, as other competitors stood ready to bid .... They "put on" a
number one week, and "took off" the next, using someone else's song instead. To
hold singers, publishers advanced the "plugging scale" somewhat. Then another kind
of money-paying publisher appeared. He offered to make the "production," plunged
heavily on gowns for "woman singles," supplied "special drops," did almost every-
thing possible. The "act-making" publisher says he doesn't pay money, but that
statement is accepted doubtfully. 2 1
In May, 1916, the practice of publishers making payments to performers
was again noted in Variety when it was reported that some music publishers
were threatening legal action against performers who had taken money to
sing the publishers' songs but who, after receiving payment in advance, had
failed to do so (or had not done so to the extent agreed). This report makes
clear both that paying performers was an accepted part of the music pub-
17 /d. at 17.
18 Isaac Goldberg, supra note 9, at 206.
19 David Ewen, supra note 14, at 133.
20 Id. at 117.
21 Variety, Dec. 20, 1912, at 32.
274 THE JOURNAL OF LAW AND ECONOMICS
lishers' business and that no serious doubts were entertained about its legal-
ity. The report adds that, "there is a large possibility of [the publishers]
combining their complaints for individual and collective protection."22
Whatever arrangements may subsequently have been made to check on
the compliance of performers with the terms of their agreements, it is certain.
that the practice of paying performers continued. Of course, its character
changed. As Isaac Goldberg said in 1930: "Plugging methods have simply
followed the transformation of the mechanical agencies for publicity. Once it
was Libbey's fac~and figur~that shone from the sheets on the piano
racks. Now it is Rudy Vallee's. Nor is it an accident that Libbey was a
singer, while Vallee is a band-leader. We have become band-minded. The
big names . . . are no longer . . . purely singers. . . . They are Paul
Whiteman, Ted Lewis, Ben Bernie, Vincent Lopez, Paul Ash. For plugging
certain numbers these leaders collect-'cut in'-on payments and royalties,
even as did the Libbeys of 1893. There is little philanthropy in Tin Pan
Alley. If you scratch my back, I must scratch yours--or your palm. "23 It is
therefore hardly surprising to learn that, when the "big bands" became an
important part of radio programming, payola entered the broadcasting in-
dustry. It was a normal business practice in the popular music industry in
the United States. 24
III. EARLY ATTEMPTS TO REGULATE PAYOLA
Although payments to performers by music publishers, in one form or
another, continued right through the 1930s, it should not be concluded that
there were no attempts to stop the practice. An unsuccessful attempt by
music publishers in the 1890s to make an agreement to ban payola was noted
in the previous section. 25 A more serious attempt was made late in 1916.
Earlier in that year, a report in Variety seemed to suggest that the music
publishers were trying to establish some general scheme for checking
22 Variety, May 26, 1916, at 5.
23 Isaac Goldberg, supra note 9, at 210.
24 It was at the same time, and for the same reason, that payola entered broadcasting in
Britain. "Plugging had existed in the music market long before the appearance of broadcasting,
and speci~ payments to singers and musical directors by publishers and writers had long been a
recognized means of ensuring public performance of new works. Faced with a broadcasting
monopoly, the only means of directly influencing the content of music programmes was for the
publisher or song writer to pay dance band leaders for playing selected items. Those who were
unable to make such payments were simply left out. To satisfy the large number of complaints
about plugging, the BBC prohibited dance band leaders from using announcing microphones."
Alan Peacock & Ronald Weir, The Composer in the Market Place 65-66 (1975). They add in a
footnote: "Whilst plugging has always involved special payments, it was also, until about 1930,
regarded as a legitimate form of advertisement in the music trade ... . "/d. at n.2.
25 See p. 273 supra.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 275
whether performers carried out the terms of their agreements. 26 But when
the collective action came, it had a very different character. It aimed to
abolish what we now call payola, but was, at that time, called the "payment
system."
The first move had a somewhat unusual character. In October, 1916, it
was reported in Variety that the head of a "5-and-10-cent store syndicate"
was attempting to bring the music publishers together "to eliminate the
existing evils of the business, the principal one being the payment system."
Under his plan, publishers would promise to "discontinue paying profes-
sional singers for 'popularizing' their numbers." A committee "composed of
outside men would decide whether the publisher was guilty of a violation of
the rules." If found guilty, "the 5-and-10-cent stores would discontinue sale
of the violator's products." Although "several of the larger firms had tenta-
tively agreed to combine under such arrangements," many were clearly
unwilling to do so. They were suspicious of the motives of the organizer. "It
is gossip among the music men that the syndicates always advocated the
payment of moneys to professional singers, they claiming a better service
was assured and the songs popularized more quickly and a demand for
copies simultaneously created. Just why the syndicate people should become
suddenly interested in organizing the publishers seemed a problem to the
veterans of the trade and they began looking around for the 'friendly rea-
son."' Some publishers seem to have thought that the scheme might enable
the store syndicates to secure "complete control of the selling end of all
popular music." In any case, it would be "quite as simple for the publishers
themselves to reorganize independently of the syndicates and after forming
an association, appeal to the syndicates for their cooperation."
It was clear that the scheme of the 5-and-10-cent storeman would not
succeed. But the report in Variety concluded that some such arrangement
was needed since the "'payment system' is slowly but surely tearing large
chunks into [the publishers'] reserve bank rolls." But nothing would be done
"until some disinterested party takes the initiative," since "everyone is sus-
picious of his competitor." But there was hope. "It is understood another
attempt will be made by an outsider to bring the publishers together."27
This account is disingenuous. The outsider was none other than John J.
O'Connor, business manager of Variety, and he actively set about organizing
an association of music publishers. He secured the cooperation of vaudeville
theater operators (or certain of them) and persuaded music publishers to
join. He became the first chairman of the association and Edward B. Marks,
26 See pp. 273-74 supra.
27 Variety, Oct. 6, 1916, at 3.
276 THE JOURNAL OF LAW AND ECONOMICS
whose exploits as a song-plugger we have already noticed, 28 became its first
president. The name given to the association was the Music Publishers'
Protective Association (MPPA). 29 Preliminary moves to establish the associ-
ation were reported in Variety late in 1916.30 By May, 1917, the MPPA was
formed, the headline to the report in Variety giving this news being, "Song
Payments End This Week." In the same issue of Variety, there was an
advertisement which gave the aims of the MPPA:
The primary and main object of this association just formed shall be to promote
and foster clean and free competition among music publishers by eradicating the evil
custom of paying tribute or gratuities to singers or musicians employed in theatres,
cabarets and other places to induce them to sing or render music, which custom has
worked to the detriment of the theatre management and the public through the
rendition of music, not because of its merits, but because those singing or rendering it
received gratuitit>:; in some form for so doing. Such practices have tended to discour-
age and retard the work of music writers, whose labors have not had a free field for
competition. 31
During 1917, Variety reported with enthusiasm on the success of the
MPPA. Immediately after its formation, Variety reported: "The payment
system to singers automatically became a thing of the past this week when
the publishers notified their clients that in future all dealings would necessar-
ily have to be conducted without the cash propositions. As far as could be
ascertained, there has not been a .single instance where the singer has not
agreed to do all in his power to cooperate with the publishers, the majority
recognizing the future good to be attained by the abolition of payments. "32
At the end of 1917, an article in Variety summed up what had been accom-
plished. The MPPA had "wiped out the most insidious curse ... the 'pay-
ment system' ... the [MPPA] has not only lived, but has strengthened itself
beyond the fondest dreams of its organizers. "33
These accounts which appeared in Variety about the success of the MPPA
were inaccurate. Isaac Goldberg, after stating that the MPPA "ostensibly
put a stop to [the 'payment system')," adds: "It is optimistic to believe that
the practice has been eliminated. "34 Hazel Meyer says this of the formation
of the MPPA: "Within twenty-four hours, the overt payola to vaudeville
2s See p. 272 supra.
29 For accounts of the formation of the Music Publishers' Protective Association, see Edward
B. Marks, supra note 10, at 134-35, David Ewen, supra note 14, at 135, and Hazel Meyer, The
Gold in Tin Pan Alley 158-62 (1958).
30 Variety, Nov. 3, 1916, at 5; id., Nov. 24, 1916, at 5.
3t Variety, May 4, 1917, at 4.
32 Variety, May II, 1917, at II.
33 Variety, Dec. 28, 1917, at 8.
34 Isaac Goldberg, supra note 9, at 206-7.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 277
performers stopped. Within another twenty-four hours, payola was under-
ground. "35 David Ewen says this: "It did not take long for now one pub-
lisher, now another, to devise devious ways of influencing performers to use
their songs. The most effective way, and the hardest to pin down as a
violation of the rules, was to give a star a share in the song's royalties ....
The fact that the performer thus profited from the future success of the song
made him more partial to including it in an act or show. "36 Even Edward B.
Marks, who was president of the MPPA and was no doubt inclined to
magnify its accomplishments, states: "We got rid of the flagrant evil of
paying acts, but the sub rosa practice never entirely ceased. "37 It is abun-
dantly clear, not only from these opinions, but from other evidence, that "the
payment system" or what we would now call "payola" continued after the
formation of the MPPA.
This outcome would not have surprised most music publishers since there
seems to have been considerable scepticism about the possibility of abolish-
ing the "payment system" when the idea of an association was first
broached. 38 But if this was so, why did all the important music publishers
join the MPPA? Some (but certainly not all) undoubtedly thought they
would be better off if this restraint on competition were instituted. This
would also be true of those few popular music publishers who did not use the
"payment system" to promote their own properties or who were not adept in
using it. Edward B. Marks may have been one of those. He said this of the
"payment system": "Stern and I stood out against the thing, because we
sensed that it would ruin the houses that spent the most money. It took will
power to stay out of the procession-just a little more than I had. One day I
authorized our professional manager ... to go ahead and see to it that our
numbers got a few breaks. In two days he came back disappointed. 'Boss,'
he said, 'I can't give your money away. Every team worth a damn is signed
to sing for other publishers."'39 It was apparently shortly after this experi-
ence that Marks agreed to become MPPA's first president.
But even those who would benefit from the abolition of the "payment
system" might well have hesitated to join if they thought their competitors
would not abide by the rules, as many no doubt did. It seems that O'Con-
nor's success in securing the cooperation of some of the vaudeville theatre
operators was decisive in inducing the hesitant (or hostile) to join. It is said
35 Hazel Meyer, supra note 29, at 162.
36 David Ewen, supra note 14, at 135-36.
37 Edward B. Marks, supra note 10, at 135.
38 When Edward B. Marks was first approached, he states that, "At first, I demurred."
Edward B. Marks, supra note 10, at 134. See also the statements in Variety, Dec. 28, 1917, at 8.
39 Edward B. Marks, supra note 10, at 134.
278 THE JOURNAL OF LAW AND ECONOMICS
that O'Connor was able to enlist their aid by taking an executive of the
Keith-Albee-Orpheum circuit to a show in which the same song ("I Didn't
Raise My Boy to Be a Soldier," an antiwar song of the day) was used in a
whole series of acts: the melody served as background music for the opening
animal act, accompanied a dramatic sketch, was sung first by a duo and
later by a quartet, was used in a "pepped-up" version to introduce the comic,
while the melody was again used to accompany (in waltz time) the acrobatic
troup which closed the show. It was a song-plugger's triumph. 40 Whether or
not this incident really took place, it is clear that, even though there may not
have been great hostility to the "payment system" among vaudeville theatre
operators (it would obviously lower the amounts that had to be paid to
artists), there was some concern that the use of vaudeville theatres for song~
plugging might affect the popularity of the shows. 41 What the manager of
the Keith-Albee-Orpheum circuit apparently did was to refuse to allow
music to be performed unless the publisher of the music was a member of the
MPPA. 42 At first, three prominent firms, Feist (publisher of "I Didn't Raise
My Boy to Be a Soldier"), Remick, and Harms, declined to join the MPPA,
but after the announcement of the ban on the music of publishers not mem-
bers of the MPPA they did so. 43
The reasons why the music publishers joined the MPPA seem fairly clear.
But why did O'Connor undertake the task of organizing the association?
Was it an example of that philanthropy which is apparently so rare in the
popular music industry? According to Hazel Meyer, it was not. She states
that O'Connor drew the attention of the management of Variety to the
negative relationship between payola and Variety's advertising revenues and
was then given authority to act as that "disinterested party" who, according
to Variety, was needed to bring the publishers together. 44 The view that the
"payment system" might have been dampening Variety's advertising reve-
nues is not illogical. Paying a singer to popularize a song is a form of
promotional expenditure and therefore competitive with other promotional
activities, including paying for an advertisement for the song in a trade
periodical. But whatever O'Connor's motives may have been, the results
achieved by the MPPA must have been a disappointment. What seems to
40 See Hazel Meyer, supra note 29, at 160-61. This tale is repeated in David Ewen, supra note
14, at 135.
41 Compare Hazel Meyer, supra note 29, at 158. In Variety, Dec. 3, 1915, at 5, the general
booking manager for the Loew Circuit was reported as objecting to an agent who was directing
his acts what songs to sing. The music publisher involved was Leo Feist. The agent denied that
he had required his acts to sing Feist songs but "stated he felt under obligation to the Feist firm
for furnishing the small time with such a large number of new tunes." /d.
42 See Hazel Meyer, supra note 29, at 161.
43 /d. at 162.
44 /d. at 155 & 158.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 2 i9
have happened is that at first the "payment system" simply became, in
Edward B. Marks's words, "sub rosa," but, as time went by, the need for
concealment was less acutely felt. The MPPA, by its rules, had authority to
fine members who used the "payment system," but we are told that these
rules were "unenforced and ineffective."45
An opportunity to correct the situation came with the establishment of the
National Recovery Administration (NRA) in June, 1933.46 The act creating
the NRA empowered members of an industry to draw up a code which, once
approved by the NRA-code authorities and signed by the president, became
binding on the whole industry. The first draft of such a code for the music
publishing industry was submitted to the NRA on September 1, 1933.47 The
initiative in formulating this code was taken by the MPPA, and its chair-
man, Mr. John G. Paine, was the driving force in the negotiations. 48 The
popular music publishers (that is, the members of the MPPA) made it clear
that Section 8 of the code, which consisted of "Trade Practice Rules," and
was largely designed to prohibit "payola," was for them the most important
part of the code. In the official case history of the music publishers' code, it is
stated that "representatives of [the popular music publishers] ... said, from
time to time, that they were willing to agree to any other provisions in the
Code that the Government desired if they might be granted these Trade
Practice Rules."49 The standard music publishers (broadly speaking, those
who published classical music) expressed no interest in the Trade Practice
Rules, and the task of justifying these provisions was assumed by the popu-
lar music publishers.
In the hearing on the proposed code in July, 1934, Mr. Paine explained
that the MPPA
... was organized 17 years ago in an endeavor to put a stop to ... unfair trade practices
which are in the nature of bribes paid to orchestra leaders, radio performers and to
other artists who appear in public, to induce those artists to perform the copyrighted
composition of one publisher in competition or in opposition to their selecting ... the
composition of another publisher .... These practices run into enormous sums of
money annually and are extremely costly to the industry. We have tried as an
association, to put a stop to them. We cannot very readily do that because we cannot
45 Sidney Shemel & M. William Krasilovsky, This Business of Music 97 (rev. ed. 1971).
• 6 48 Stat. 195 (1933).
47 See P. A. Markland, Case History of the Code of Fair Competition for the Music Publish-
ing Industry, Code No. 552, Oct. 12, 1935, at Sf, contained in Approved Code Histories,
Division of Review, Records of the National Recovery Administration (Record Group 9,
National Archives, Washington D.C.).
48 See the Report of H. Brewster Hobson, Asst. Deputy Administrator, June 22, 1935, at 2,
contained in Appendix I of Case History of the Code of Fair Competition for the Music
Publishing Industry, supra note 47.
49 Id. at 11.
280 THE JOURNAL OF LAW AND ECONOMICS
control the whole industry but only the members of the Association, and that is one of
the reasons we have felt the need of the code because by having it, we would be able
to control these activities and practices in connection with the entire industry ....
[The code] is protective ... of the small publisher who does not have the money, does
not have the capital, to go out and buy this talent .... We feel [that] the exploitation
should be ... solely on the merit of the musical composition which is offered. If I go
to Mr. Rudy Vallee ... with my musical composition I think he should decide
whether he will include that in his repertoire solely on the merit of my . . . composi-
tion and not because I happen to be a wealthy publisher and can pay him a substan-
tial sum of money to put mine in to the exclusion of somebody else's whose musical
merit might be even greater than mine. We feel that the competition should be solely
on the basis of the merit of the composition and not on any extraneous induce-
ments.50
Other provisions in the code were justified by Mr. Paine on the ground
that they were necessary to prevent evasion. For example, the prohibition on
the supply of special arrangements was needed because, in practice, it would
merely be a means of evading the ban on payola:
We go to an orchestra leader and we say" ... We would like very much to have you
use this musical composition." He looks it over and says he is not particularly in-
terested in that musical composition, that it does not quite fit his particular band; ...
and then we say to him" ... You make a special arrangement ... and we will pay
you whatever that cost is" ... [T]hat is just a subterfuge for paying directly to the
orchestra leader because in . . . practically all instances, the orchestra has its own
arranger who arranges the music for the particular and peculiar instrumentation of
that orchestra, and that arranger is on a salary. 51
The effect of the code, according to Mr. Paine, would be to prevent public
performance being "dominated completely and absolutely by those pub-
lishers that have substantial bankrolls to the utter exclusion of those pub-
lishers who may have meritorious compositions, good writers, and yet no
money for exploitation. "52 What the NRA code did was to impose on the
music publishing industry the regulations which the MPPA had attempted
unsuccessfully to introduce in 1917. Section 8 of the music publishers' code is
reproduced in Appendix A. There was also a section in the radio broadcast-
ing code which prohibited payola and this will also be found in Appendix A.
so Testimony of John C. Paine, Chairman, Board of the Music Publishers Protective Ass'n in
The Music Publishing Industry: Hearings on a Code of Fair Practices and Competition before
the National Industrial Recovery Administration 158-61 Guly 26, 1934), contained in Vol. III,
Code of Fair Competition for Music Publishing Industry, Transcripts o£ Hearings, 1933-1935,
Records of the National Recovery Administration (Record Group 9, National Archives, Wash-
ington D.C.).
51 /d. at 162.
52 /d. at 164.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 281
According to a representative of the National Association of Broadcasters
this provision was inserted in the radio broadcasting code at the request of
the music publishers. 53 The chairman of the Code Authority for the Music
Publishing Industry was Mr. Paine, who was also chairman of the MPPA.
Although the original draft of the music publishers' code had been submitted
on September 1, 1933, owing to bureaucratic delays the code was not finally
approved until March 4, 1935, to become effective March 18, 1935. How-
ever, on May 27, 1935, the Supreme Court declared the act establishing the
NRA unconstitutional; as a result the NRA code for the music publishing
industry was only in operation for about two months. 54
In a letter dated June 18, 1935, sent to an NRA official, Mr. Paine stated
that the Supreme Court decision had removed "the most valuable aid to the
[music publishing] industry which we have had ever in our history ....
Should some method be devised which would again give to our industry a
code effective upon the whole industry, which would be aimed only at
eliminating the practices set out in Article 8 ... of the Code ... we feel that
... the savings ... will be so beneficial to our industry that we can undoubt-
edly solve most of the commercial problems which lie before us. "55
The method which Mr. Paine had in mind to ensure that the industry
continued to abide by the Trade Practice Rules of the NRA code was soon to
be revealed. About four months after the NRA ac~ had been declared uncon-
stitutional, on September 20, 1935, the MPPA submitted to the Federal
Trade Commission (FTC) Trade Practice Rules for the music publishing
industry. In a memorandum sent to the Trade Practices Board of the FTC
by a staff member it was noted that the rules proposed "were taken practi-
cally verbatim from the [NRA] Code of Fair Competition for the Music
Publishing Industry." This approach to the FTC by the MPPA was quite
proper. The FTC could approve rules of fair trade practices for an industry,
once it has determined that to grant the industry's request would not sanc-
tion practices contrary to law or be in some way inimical to the public
interest. Such rules are divided into two groups. The FTC took the position
that group I rules were legally binding and took appropriate action to en-
force them. Group II rules were advisory. Their observance was considered
desirable but their nonobservance was not per se a violation of the law.
However, if it was determined that nonobservance would result in unfair
53 Letter from Oswald F. Schuette, Nat') Ass'n of Broadcasters, to Dr. Lindsay Rogers,
Deputy Administrator, National Recovery Administration, Dec. 15, 1933, contained in Music
Publishing Industry, Code No. 552, Consolidated Approved Code Industry File, Records of the
National Recovery Administration (Record Group 9, National Archives, Washington D.C.).
54 Report of H. Brewster Hobson, supra note 48, at 2.
ss Letter from John C. Paine to H. Brewster Hobson, June 18, 1935, contained in Consoli-
dated Approved Code Industry File, supra note 53.
282 THE JOURNAL OF LAW AND ECONOMICS
competition or unfair deceptive acts or practices, the FTC might take the
same action as it would for group I violations. 56
This application of the MPPA was to have a difficult passageY While
there was some support for the proposed rules within the FTC, reservations
were expressed about the legality of the provisions and their desirability.
Lengthy negotiations followed with Mr. Paine and his legal counsel, Joseph
V. McKee (a former mayor of New York City). The character of the obsta-
cles to FTC approval may be gathered from a memorandum sent by the
Trade Practices Board to the Commission in June, 1937. The memorandum
first describes the situation of the popular music industry: "The products of
the industry consist of popular songs, orchestrations and musical composi-
tions. To induce members of the public to buy it is necessary to afford them
the means of hearing the tune of the musical composition, for it is only when
they are attracted by the tune that they are induced to buy. Thus in promot-
ing the sale of their products the members of the industry constantly strive to
have their songs and musical compositions accepted by those providing
public entertainment and played or performed over the radio, in theaters or
by orchestras or singers in hotels, restaurants and other places of public
amusement." It then explains that the "practice has grown up of publishers
paying so-called bribes or making gifts of money, articles or favors to or-
chestra leaders, singers and other artists to play or sing their songs .... it is
the purpose of the proposed trade practice conference to provide rules pro-
hibiting it." It notes that "the employers of such musicians, singers or artists,
for the most part at least, have no objection to such professional employees
receiving such payments or gifts. It is proposed, however, to prohibit the
practice when indulged in either with or without such employer's consent.
Except for this the practice has much similarity to commercial bribery. Our
ordinary commercial bribery rule is limited to cases where the bribe is paid
without the knowledge or consent of the employer."58
The drafting problem as seen by the staff of the Trade Practices Board is
then described but hardly resolved:
The [MPPA] desires that the rules prohibit the practice "with or without" the knowl-
edge or consent of the employer and moreover, that they be placed in Group I as
56 See Federal Trade Commission, Control of Unfair Practices through Trade Practice Con-
ference Procedure of the Federal Trade Commission (TNEC Monograph No. 34, 1941).
51 The following account of the attempt to secure the FTC's approval for a Code of Fair
Competition for the Music Publishing Industry is based on memoranda and various other
material made available to me by the Federal Trade Commission. These materials have been
collected as U.S. Federal Trade Commission, Materials on the Popular Music Industry used in
Preparation of R. H. Coase's Payola in Radio and Television Broadcasting (available at Univer-
sity of Chicago Law School Library). The pagination on the following notes refers to the bound
volume of materials at the University of Chicago Law School Library.
58 /d. at 242-44.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 283
compulsory. Otherwise, it is claimed, the rules would mean little and would be
ineffectual and not worthwhile. Under the circumstances therefore the rules will
have to be phrased so as to prohibit practices which are contrary to law and no more.
In our study of the proposed rules thus far we have not been fully convinced that they
prohibit only that which is illegal. On the other hand, however, we are likewise not
yet fully convinced of the impossibility of making such rules eligible for Group I,
although thus far we have not been able to devise appropriate language which
would, in our judgment, bring the rules wholly within the law and at the same time
meet the situation which the applicant desires, namely, complete and compulsory
prohibition of such "song plugging" practices. While strict legal construction . . . of the
rules [submitted by the MPPA] would seem to bring them within the Group I
category, proof of a case thereunder would appear to be next to impossible. 59
The memorandum next alludes to the antitrust suit pending against the
American Society of Composers, Authors, and Publishers (ASCAP), of which
the popular music publishers were, of course, members. The existence of this
suit seemed to some in the FTC enough to bar approval of the rules even
though the Department of Justice had stated in a letter that the "proposed
rules . . . do not affect the issues in the antitrust suit. "60
The memorandum also referred to a charge by an independent music
publisher-one, that is, not affiliated with a motion picture company-that
the proposed rules would inflict great harm on such independent publishers.
He said that many independent publishers "signed the petition unwillingly
because of threats that their songs would be boycotted by orchestra leaders
and artists under the control of the dominant music publishers." The harm
this publisher had in mind was recounted in the memorandum:
Through using the songs and orchestrations of their own publishing subsidiaries in
their motion pictures and their large chains of theaters throughout the country, such
affiliated publishers, who are competitors of the independents, have means for
exploiting their songs and orchestrations in public performances without the neces-
sity of resorting to "song plugging." ... The independent publisher claims that not
having such motion picture outlets, it is necessary for him to induce orchestras and
singers in hotels, restaurants and in other non-controlled places of entertainment to
play his music in order that the public may hear his tunes and thus become interested
in buying his sheet music. It should be remembered that it is only when the buying
public are attracted by the tune that they can be induced to buy. And the tune can, of
course, only be imparted audibly. The opponents, therefore, claim that if these rules
should deprive the independent publishers of the privilege of paying orchestra leaders
or other artists to sing, play or perform their compositions, their means of bringing
their tunes to the attention of the public would be cut off and the business would be
monopolized by the motion picture corporations and their subsidiaries who have
59 /d. at 244.
60 /d.
284 THE JOURNAL OF LAW AND ECONOMICS
control of the use of songs and music in motion pictures and in motion picture
theaters throughout the country.
The chief examiner of the FTC reported that it "appears from the record
so far made, that at least some of the independent publishers under duress or
threat of injury to their business agreed to the Proposed Trade Practice
Conference rules as submitted to the Commission by the Industry" and that
it was the opinion of his investigating attorney that the proposed rules
"would mean the elimination of the independent publisher."61
The position was further complicated by the fact that the MPPA an-
nounced in the press that it had already put the trade practice rules into
effect and in terms which gave the impression that this had been sanctioned
by the FTC. "The applicant's committee has expressed fear that unless the
Commission grants the conference promptly, violations of the rules will
increase because members of the industry are beginning to realize that the
rules, although put into effect by the association, have not as yet been
sanctioned or approved by the Commission and therefore may not be en-
forceable. "62
The Trade Practice Board's conclusion was as follows: ". . . we do not
believe the trade practice conference matter should be postponed to await
conclusion of further investigation ... if, under all the circumstances, the
Commission ... feels that a trade practice conference is not feasible or
desirable, the application should. be denied forthwith .... On the other
hand, we do not see how material harm could come from holding a confer-
ence and allowing all sides to be heard in an effort to thrash out the whole
matter. "63 Given the divergent views within the FTC, it is hardly surprising
that the commission, on July 13, 193 7, denied the application for a confer-
ence. However, following representations from the industry and modifica-
tion of their proposed rules, the FTC rescinded this decision on July 30, 193 7
and agreed to hold a trade practice conference. 64
Mter this conference, held on October 4, 193 7, the FTC received a letter
from the Southern Music Publishing Company, New York City, which said
that the conference proceedings "represented only an expression of the
wishes and desires of the motion picture owned publishers and a few long
established independent houses." The rules were, however, tentatively ap-
proved by the FTC and an oral hearing was set for January 4, 1938. 65 In
the meantime, the commission had received a letter from Mr. Albert
61 /d. at 245-46.
62 /d. at 245-48.
63 /d. at 248.
64 /d. at 254, 262.
65 /d. at 289, 276.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 285
Bader, President, Independent Music Publishers, U.S.A., claiming that the
proposed rules were "concocted under the influence of the ASCAP and
the MPPA, the representative organizations of the Music Publishers
Monopoly. "66
The Trade Practice Board recommended approval of the rules. The chief
counsel of the FTC, however, noted the pending antitrust suit and the
charges of monopoly against members of the MPPA. He concluded: "I be-
lieve that the approval of the Trade Practice Rules should be considered as
the grant of a privilege and that in no event should it be extended unless the
sponsors come before the Commission with absolutely clean hands and un-
questioned honesty of purpose and intent." He therefore recommended that
approval of the rules be denied, leaving it open to the MPPA to make a new
application "as soon as all pending charges against the members of this
industry have been disposed of."67 On May 25, 1938, the FTC rejected the
proposed trade practice rules for the music publishing industry. 68
One more attempt was to be made in the 1930s to eliminate payola. In
1939, the song-pluggers formed a union, affiliated with the American Feder-
ation of Labor, the Music Publishers' Contact Employees Union. From the
reports, in November, 1939, about the contract to be signed between the
union and the music publishers, we learn that one of its main provisions was
intended to prevent payola. Billboard had this to say: "Basic element in the
contract (and likewise in the original formation of the union) is the abolition
of the evil of bribery for song plugs, contact men feeling that the situation
was growing to a point where a publisher's checkbook would finally obviate
the necessity of maintaining a plugging staff." The contract provided for a
fine for any publisher found guilty by an arbitration board of resorting to
payola, plus the posting of a $1,000 bond to be retained by the union if the
publisher repeated the offense. 69 The account in Variety gave more detail
about the practices which would subject a publisher to such penalties: "The
unfair practice clause ... bars publishers from giving or offering any form of
gratuity or reward for a plug, including cut-ins, or the making of special
arrangements or extractions but prevents them from having their employees
attending band leaders' 'command performances' or special nights, unless
the consent of the union has been obtained. "70
There would have been little difficulty in the music publishers and the
66 /d. at 312.
61 ld. at 332.
68 I d. at 325.
69 Billboard, Nov. 25, 1939, at 15.
70 Variety, Nov. 22, 1939, at 39. "Cut-ins" refer to the practice of making a band leader or
performer a part-composer of a song and therefore giving him a share in the copyriglit royalties.
286 THE JOURNAL OF LAW AND ECONOMICS
union coming to an agreement to restrict payola. The publishers wanted to
impose these regulations on the industry; the song-plugger employees of
the publishers would see the abolition of payola as leading to an in-
creased demand for their services. The American Federation of Musicians
(AFM), some of whose members received the payola, did not welcome this
development. Although indicating that they would cooperate, they were, in
fact, reluctant to help the new union. The president of the New York local of
the AFM is reported to have said that if payola is to be abolished, "the music
men must do it for themselves." And Billboard added: "AFM officials are
... known to regard the bribery angle as not in their province and they do
not care to deter a leader from picking up a little extra money in this
way."71
There is no reason to suppose that the Music Publishers' Contact Employ-
ees Union was able to stop payola. It was reported in Variety in 1944 that the
contact men's salaries had risen so high that they were making payments to
broadcasters and performers out of their own pockets. 72 And in 1945, payola
was apparently so widespread that some publishers threatened to make open
payments for broadcasting plugs for their songs. 73 It is clear that the union
had not been able to stop payola. Up to the end of World War II, all
attempts to stop payola seem to have failed.
IV. THE SITUATION IN THE 1950s
Until the end of World War II, payola, although it affected the radio
programs broadcast, did not normally involve directly either the radio sta-
tions or their employees. It consisted of payments by music publishers to
performers. By the 1950s, its character had changed radically. The predom-.
inant form of payola became payments by record companies (who were often
also music publishers) to disc jockeys. Whether because of a change in tastes
in music, a change in the composition of the potential audience of radio
stations following the advent of television, an improvement in the quality of
recordings, or more probably a combination of all these factors (and others),
"big band" radio programs disappeared and there emerged as an important
form of programming on radio stations the disc jockey who played record-
ings, interspersed with comments and commercials. At first, record com-
panies (or some of them) had resisted such programming, no doubt believing
that listening to records on the radio would reduce the demand for records to
be played at home. 74 But it soon became apparent that the playing of a
71 Billboard, Nov. 25, 1939, at 15.
72 Variety, Aug. 2, 1944, at 31.
73 Variety, Nov. 21, 1945, at 49.
74 At the Hearings on a Code of Fair Practices and Competition for the Radio Broadcasting
Industry, Vol. 1, at 149 (Sept. 2 7, 1933), RCA-Victor made a request, which was supported by
PAYOLA IN RADIO AND TELEVISION BROADCASTING 287
record by a disc jockey increased the sales of that record and the desire of
record companies to have their records played on disc jockey programs led
naturally to payola. In the trade press throughout the 1950s there are re-
peated references to record companies making gifts or money payments to
disc jockeys to play their records. 75 However, it was not until late in 1959
that payola came under congressional scrutiny.
In the meantime, the broadcasting industry was the subject of several
congressional investigations. At first, it was corruption within the FCC itself
which attracted attention. Commissioner Mack was alleged to have been
given money to obtain his support for the award of a television channel to a
particular applicant (who was in fact successful). This resulted in the resig-
nation and later indictment of the commissioner. 76 It was a continuation of
this concern about improper relations between the FCC and the industry
that in 1960 led to the resignation of the chairman of the FCC, Commis-
sioner Doerfer, following his acceptance of hospitality from a broadcast-
station operator. 77 Attention, however, soon shifted from corruption within
the FCC to corruption within the broadcasting industry itself and to the need
to give the FCC additional powers to regulate the industry.
In 1958, Senator Smathers introduced a bill which provided that no one
engaged in music publishing or the manufacture and distribution of musical
records could hold a license to operate a broadcasting station. This bill seems
to have been an outcome of the rivalry between two organizations control-
ling musical copyrights, the American Society of Composers, Authors, and
Publishers (ASCAP) and Broadcast Music, Inc. (BMI). Broadcasting sta-
tions and the networks (who also owned recording companies) were stock-
holders in BMI. It was alleged that broadcasting organizations favoured the
playing by disc jockeys of records in which they had an interest. It is easy to
see that this practice would have affinities with payola. However, in the
course of the enquiry, there were many references to payola, one witness
Mr. H. A. Huebner of the American and Brunswick Record Corporation, to put a provision in
the code which would make it a violation "to broadcast records without prior written consent of
the manufacturer of such records." Later Mr. Huebner indicated that he would support a
provision to ban "all use of records for broadcasting," id. at 15 7. The hearings are contained in
Transcript of Hearings, 1933-1935, Records of the National Recovery Administration (Record
Group 9, National Archives, Washington, D.C.).
75 See, for example, the articles mentioned in Investigation of Television Quiz Shows: Hear-
ings before a Subcomm. of the House Comm. on Interstate & Foreign Commerce, 86th, 1st
Sess. at 1142-47 (1959) [hereinafter cited as Investigation of Television Quiz Shows]; and
Meyer, supra note 29, at 154-85.
76 See Investigation of Regulatory Commissions and Agencies: Hearings before a Subcomm.
of the House Comm. in Interstate & Foreign Commerce, 85th Cong., 2nd Sess., pt. 4 (Feb.-
March, 1958). Mack was indicted, but criminal charges were dropped in August 1961. New
York Times, Aug. 31, 1961, at 41, col. 1.
77 For the circumstances surrounding Doerfer's resignation, see Broadcasting, March 14,
1 960, at 31-40.
288 THE JOURNAL OF LAW AND ECONOMICS
stating that it was paid to disc jockeys to induce them to play BMI songs. 78
But these payments to disc jockeys do not seem to have occasioned any great
concern at that time. Senator Pastore likened the practice to paying "a
headwaiter $5 to get a desirable table."79 The bill never passed.
It was part of the case against BMI, with Mr. Vance Packard as the
principal proponent, that the disc jockeys had filled their programs with
"whining guitarists, musical notes put to a switchblade beat, obscene lyrics
about hugging, squeezing and rocking all night long," which they substi-
tuted for the music of such composers as Cole Porter, Richard Rodgers, and
Irving Berlin (who were members of ASCAP). It was clear to Mr. Packard
that "something more than artistic judgment or poll results was going into
the decision to feature rock and roll, or rhythm and blues" and in support of
this statement he referred to an article which appeared in Billboard in 1951
which stated that "the 'payola' situation is worst among the rhythm and
blues spinners." According to Mr. Packard, the "rock and roll surge" really
got going when RCA-Victor made a contract with a "pallid, sullen young
man named Elvis Presley."80 Although no legislation resulted from these
hearings, the idea that the demand for "rock and roll" music was created by
the broadcasters through playing records of such music on disc jockey pro-
grams and that this was in some way connected with payola was to remain a
factor influencing congressional attitudes.
The next congressional enquiry arose out of charges in 1958 that the
popular television quiz shows, which had been presented as honest contests,
had in fact been rigged, that the contestants were groomed before the pro-
grams, knew the questions that were to be put to them and how they should
answer and that the contestant who would win was arranged in advance.
The contests were the subject of a New York grand jury investigation. After
completion of this investigation, the testimony given to the grand jury was
made available to the Subcommittee on Legislative Oversight of the House
of Representatives, which then held its own hearings. The proceedings of the
subcommittee left no doubt that the charges were true. But payola did not
make its appearance until the proceedings were nearing their end.
It was then disclosed that t~e owner of a department store, Mr. Hess of
Allentown, Pennsylvania, had paid $10,000 so that an employee, Mr. Hof-
fer, would be a contestant on the most popular of the quiz programs, the
"$64,000 Question." It had been expected by Mr. Hess that the contestant,
in the course of being introduced, would be asked where he was employed
78 Amendment to Communications Act of 1934: Hearings before the Subcomm. on Com-
munications of the Senate Committee on Interstate & Foreign Commerce, 85th Cong., 2nd Sess.
at 208.
79 ld. at 209.
80 /d. at 138. Mr. Vance Packard's testimony is at 106-41.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 289
and in fact this happened. The transaction offended the moral sensibilities of
some congressmen as the following extracts from the hearings show:
MR. ROGERS: Did you feel what you were doing was wrong, Mr. Hess?
MR. HESS: I thought it was a terrific promotion for the store.
MR. FLYNT: So basically as far as you were concerned the whole idea of getting Mr.
Hoffer on there was to plug your store. We will say it was deceitful, at the very least.
MR. HEss: I thought it was a good promotion.
MR. FLYNT: Yes, but you were not trying to promote an honest quiz show. You were
trying to plug your store.
MR. HEss: I didn't know whether he could answer the questions or not. 81
Following a statement by Mr. Hess that he had appeared on a TV show
with Kate Smith for a payment, he explained, under questioning by Mr.
Lishman, counsel to the subcommittee, that such payments were common:
MR. LISHMAN: Do you think this was a common practice in order to get these plugs
that a person would have to pay?
MR. HEss: It was not "was"; it is a common practice.
MR. LISHMAN: It is. Isn't it a fact that the sponsor buys the time and unbeknownst to
the sponsor ostensibly somebody gets a free ride by paying some side money to a
producer. Is that the case?
MR. HEss: This is considered a business today. There are plenty of people--
MR. LISHMAN: It is considered a business?
MR. HESS: Yes.
MR. LISHMAN: Wouldn't this closely approach commercial bribery, in your opinion?
MR. HEss: Commercial what?
MR. LISHMAN: Commercial bribery.
MR. HEss: No, sir. This is a recognized business. There are certain people in New
York that do just nothing but plug words.
MR. LISHMAN: Are these people commonly known as "schlukmeisters" that you are
referring to? "Schlukmeisters," masters of making a sharp bargain on the side? Is that
what they are known as in the trade? You say it is a business. I am trying to find the
business name for them.
MR. HEss: These people are in the business like everybody else and it is a recognized
thing with them.
MR. LISHMAN: Don't you think it is a fraud on the sponsor who pays the big sum of
money to get the program format established and buys the time of the network and
then someone comes along and for a comparatively small amount of money gets a free
ride on the sponsor's program?
MR. HEss: I think it is a terrific thing for a little business to be able to get on some of
those big network shows. 8 2
81 Investigation of Television Quiz Shows, supra note 75, at 964 & 970.
82 /d. at 959.
290 THE JOURNAL OF LAW AND ECONOMICS
Mr. Hess also pointed out that his store also made payments to newspaper
columnists. He mentioned the names of Jack O'Brien, Bob Considine, and
John Hall. Mr. Levine, public relations manager at the Hess store, gave
more particulars of these transactions. He provided the subcommittee with a
list of TV shows on which a mention of the Hess store or its activities had
been obtained by a payment of money in the 1950s. They included the Steve
Allen "Tonight" show and "Name That Tune."83 In his testimony, he added
the Dave Garroway "Today" show and the "Garry Moore Show."84 He also
mentioned that in a television film with the locale in New York City, one of
their trucks had been spotted. 85 Mr. Levine also added the names of Hal
Boyle and Earl Wilson to the names of newspaper columnists mentioned by
Mr. Hess. When Congressman Bennett started to question Mr. Levine about
the columnists, the chairman (Mr. Oren Harris) intervened to say that "that
gets into the newspaper business" and Mr. Bennett said "I withdraw the
question about the newspapers because I guess that is out of our field. "86 In
statements issued after this testimony, Earl Wilson denied that he had re-
ceived money from Hess while Jack O'Brien denied that he had mentioned
the Hess store. Other columnists (Bob Considine, Stanley Delaplane, and
Hal Boyle), who had mentioned the store in their columns, explained that
the payments they received were for "personal appearances" or "travel ex-
penses." But the question of payments to newspaper columnists seems to
have attracted very little attention compared to that accorded payments to
disc jockeys. 87
The members of the subcommittee showed great interest in the way in
which Mr. Hess made his payments. 88 Who actually received the $10,000
paid (in cash) to secure Mr. Hoffer's appearance on the "$64,000 Question"
was never revealed. A Mr. Schwartz who, it was said, was handed the
money by an employee of the Hess store, claimed that his testimony might
"tend to defame, degrade or incriminate some person" and his testimony was
in consequence taken in executive session and was not published. 89 Mr.
Hess, mindful no doubt of the presence at the hearings of a representative of
the district attorney of New York, showed considerable circumspection in
his answers on this subject. What is apparent, however, is that this particu-
lar transaction was very unusual. Normally the payment was made by check
83 Id. at 1008.
84 Jd. at 1007 & 1009.
85 ld. at 1010.
86 /d. at 1012.
87 See the New York Times, Nov. 5, 1959, at 28; id., Nov. 6, 1959, at 16; id., Nov. 13, 1959,
at 12; and Time, Nov. 16, 1959, at 65.
88 Investigation of Television Quiz Shows, supra note 75, at 967.
89 Id. at 1024.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 291
and to a public relations firm. How the public relations firm obtained these
"mentions" for the Hess store, whether by payment or in some other way,
was not disclosed.
The heads of two of the networks were questioned about Mr. Hess's
transactions. Mr. Kintner, President of the National Broadcasting Company
(NBC), said that the showing of some fashions from the Hess store on the
"Today" show, probably arose because the show wants to have interesting
people on it and "apparently some public relations firm told the Hess De-
partment Store that they could get some interesting person on 'Today."'90
This, he thought, was not objectionable. Asked about the practice of pro-
ducers or employees of NBC being paid to insert plugs into programs, Mr.
Kintner said that it was not "general," was "reprehensible," and would lead
to dismissal if discovered. However, he added a qualification: "You under-
stand the operation of all these types of shows, for example--and this is just
a theoretical example--if Miami wants the 'Today' show to come to Florida,
in order to boom for tourists, the program, itself, may be paid some of the
costs of transportation, but it does not go to the individuals or staff, and it is
part of the budget of the show. I would not consider the example I gave as
reprehensible. "91 Mr. Stanton, President of the Columbia Broadcasting Sys-
tem (CBS), said that the practices disclosed by Mr. Hess's testimony were
"deplorable." But he did not "quarrel with the idea that personalities and
institutions retain agents, public relations people, to try to get as much
public attention as possible. The place where I draw the line is the passing of
money from the act or from the personality to the person who writes the
column or does the show or plans the display window, or whatever that
might be."92
At the end of the hearings into the television quiz programs, there were
introduced into the record a letter and memorandum from Mr. Burton Lane
(composer of the musical score for "Finian's Rainbow" and a number of
popular songs) in his capacity as president of the American Guild of Authors
and Composers. The letter stated in part that the "practices of audience
deception in broadcasting which have been revealed in the testimony ad-
duced before your committee, is by no means limited to quiz programs. It
has a counterpart in the promotion of music, and in music products. There is
no doubt that commercial bribery has become a prime factor in determining
what music is played on many broadcast programs and what musical records
the public is surreptitiously induced to buy."93 The memorandum gave ex-
90 !d. at 1045.
91 ld. at 1046.
92 /d. at 1106.
93 /d. at 1142.
292 THE JOURNAL OF LAW AND ECONOMICS
amples of payola, mainly taken from the trade press. According to Variety, it
was Burton Lane's letter which led to the payola enquiry. 94 Whether this is
true or not, the great payola enquiry followed.
The hearings on "payola and other deceptive practices"95 opened with a
statement by the chairman of the subcommittee, Representative Oren Har-
ris, in which he referred to the Hess testimony and to Burton Lane's letter.
He continued: "Since that time, the subcommittee has been flooded with
complaints ... about ... the selection of material sent over the airwaves
[being] influenced by undisclosed economic inducements. When this hap-
pens, we are told, the public interest suffers in many ways. The quality of
broadcast programs declines when the choice of program materials is made,
not in the public interest, but in the interest of those who are willing to pay to
obtain exposure of their records. The public is misled as to the popularity of
the records played. Moreover, these practices constitute unfair competition
with honest businessmen who refuse to engage in them. They tend to drive
out of business small firms who lack the means to survive this unfair compe-
tition. "96 Mr. Harris said that the subcommittee had not "prejudged any of
these matters,"97 although this was not evident from the questioning which
followed.
The first witness was Mr. Norman Prescott, who had been a disc jockey
with WBZ, Boston, and who had accepted from record distributors, over
approximately a three-year period, payments totaling about $10,000. He had
been reluctant to testify (apparently because he did not wish to incriminate
others) but had agreed to cooperate with the subcommittee, according to its
counsel, after they confronted him "at every turn" with "documentary proof'
collected by the subcommittee's investigators. Mr. Prescott explained that he
left WBZ in July, 1959, because, among other things, he was "disgusted
with the payola conditions in the industry; and I walked away from it for
that reason." (There is some conflict about this in the testimony-the man-
ager of WBZ said that Mr. Prescott was fired.) Mr. Prescott testified that he
considered payola to be bribery and explained that it comes about because
"it is impossible to play the big percentage of the output of the manufactur-
ers. That is why payola is functioning today and will continue to function if
something is not done about it." Payola led to the playing of "rock and roll"
records:
94 Variety, Nov. 11, 1959, at l.
95 Responsibilities of Broadcasting Licensees and Station Personnel: Hearings before a Sub-
comm. of the House Comm. on Interstate & Foreign Commerce on Payola and Other Decep-
tive Practices in the Broadcasting Field, 86th Cong., 2d Sess. (1960).
96 /d. at l.
97 /d. at 2.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 293
MR. BENNETT: Well, do you think without payola that a lot of this so-called junk
music, rock and roll stuff, which appeals to the teenagers would not be played, or do
you think that kind of thing would be played anyway, regardless of the payola?
MR. PRESCOTT: Never get on the air.
MR. BENNETT: Do you think payola is responsible for it?
MR. PRESCOTT: Yes; it keeps it on the air, because it fills pockets. 98
The effect of Mr. Prescott's testimony was to suggest that payola was
widespread, that it was immoral, that it prevented the broadcasting of "good
music," and that it should be stopped by new legislation. Mr. Harris com-
plimented Mr. Prescott on his "frank and forthright" testimony. "Even
though you were at first, understandingly so, reluctant to provide informa-
tion or talk about it to the investigators or our staff, after you got into it and
found out what the situation was, you have been very helpful, explaining for
the record just how this business operates from the standpoint of an experi-
enced man."99
Later witnesses, record manufacturers and distributors who made the
payments and the disc jockeys who received them, denied, when pressed by
members of the subcommittee, that the payments were wrong or improper.
Indeed they usually denied that these payments were "payola," in the sense
that the disc jockeys agreed to play records in return for the payments. The
payments were made for taking charge of record hops (dances at which the
records were played), for consultation, for advice, for listening to records, or
were gifts. The congressmen, as was to be expected in men of their experi-
ence, expressed scepticism or outright disbelief at these explanations. Nor
need we doubt that whatever the ostensible reason for these payments, the
aim was to increase the likelihood that the records of the suppliers would be
played. But the fact that the transactions might be held to constitute com-
mercial bribery in New York State, where many of the transactions took
place, doubtless made many witnesses reluctant to be completely candid
about them.
The remainder of the hearings were largely devoted to the affairs of Dick
Clark, who was responsible for an ABC network television show on which
he played records while teenagers danced and also another show on which
the performers sang the songs they had recorded. Until late in 1959, when,
under pressure from ABC, Mr. Clark disposed of most of his outside inter-
ests, he had been an owner or part owner of several music-publishing and
record-manufacturing corporations and also of a record-pressing corpora-
98 I d. at 39.
99 I d. at 42. Mr. Norman Prescott's testimony is found in id. at 3-45. The testimony of Mr.
Paul O'Friel, general manager of WBZ, denying that Mr. Prescott left WBZ voluntarily is
found in id. at 1548-49.
294 THE JOURNAL OF LAW AND ECONOMICS
tion. It was implied that Mr. Clark received payola in an indirect form, that
individuals or firms who had their music published by or recorded by or
pressed by one of the corporations in which he had an interest were more
likely to have their records played or music performed on his programs. Mr.
Clark denied that he had ever agreed to play records or select songs in return
for business given to his corporations or that he had ever taken payola. The
closest Mr. Clark ever came to an admission that his outside interests may
have influenced him in his choice of records was the following: "The truth,
gentlemen, is that I did not consciously favor such records. Maybe I did so
without realizing it." The questioning by members of the subcommittee and
its counsel was unable to shake Mr. Clark's contention that he had not
accepted payola in any form. too
Nonetheless, the testimony made it clear that the acceptance of payola by
disc jockeys was widespread, a conclusion confirmed by information uncov-
ered by the FTC. The FTC started its investigations late in 195 9 after
receiving "a letter of complaint ... dated about November 2, from a record
manufacturer who offered to supply some names, dates, and places."101 The
publicity given to payola by the congressional committee also brought com-
plaints "from the public ... in unprecedented volume." 102 The investiga-
tions of the FTC revealed the pervasive character of payola and the many
forms that it assumed. In his testimony to the subcommittee, Mr. Earl W.
Kintner, Chairman of the FTC, said that the investigations had revealed 255
disc jockeys or other employees of broadcast licensees and 7 broadcast licens-
ees as having received payola. Payola took the form of cash payments
(which might be on a regular weekly or monthly basis), royalties on the sales
of records, a share in a record company, advertisements in the disc jockeys'
hit sheets, the reimbursement of recording stars' fees for appearances on the
disc jockeys' programs or at record hops which they organized, expensive
gifts, and mortgage loans on disc jockeys' homes. The FTC also investigated
what had come to be known as "plugola," the kind of activity in which Mr.
Hess had been involved and found that there were firms which regularly
engaged in securing such "plugs" on broadcast programs. That such
"plugola" was extremely common was made evident by published reports
about performers who received payments or gifts for mentioning certain
products in the course of their programs. 103 The FTC seems to have taken
100 /d. at 1182. Mr. Clark's testimony will be found in id. at 1168-233.
101 /d. at 658.
102 1960 FTC Annual Report 52.
103 Mr. Kintner's testimony is in Responsibilities of Broadcasting Licensees, supra note 95, at
640..66. For a published report about the prevalence of "plugola," see Time, Nov. 23, 1959, at
63-66.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 295
no legal action to deal with "plugola," no doubt because the change in the
law in 1960 made the FCC the agency primarily responsible for regulating
these activities. The FTC issued many complaints against record manufac-
turers and distributors and, in most cases, these firms entered into a consent
decree whereby they agreed not to give "without requiring full public disclo-
sure" money or other material consideration to anyone to select and broad-
cast records in which they had "a financial interest of any nature" or to
influence the employee of a broadcasting station or anyone else to do so. 104
The basis for this action by the FTC seems to have been that the "conceal-
ment of such payments is a deceptive act within the meaning of Section 5 of
the Federal Trade Commission Act since listeners are misled into believing
that the recordings played are selected strictly on their merits or public
popularity."105 These payments were also likened to "push money" (paid to
the employees of retail stores to "push" certain products) and constituted
unfair competition since the records of those who paid payola would be
played more frequently than "those who made no such contribution or re-
fused to pay tribute."106
The congressmen on the subcommittee were consistently hostile to payola.
It was "bribery," "immoral," "wrong," "reprehensible," and so forth. Rec-
ords were played because of undisclosed economic inducements rather than
because it was in the public interest. These feelings were undoubtedly en-
hanced by the press accounts of a convention of disc jockeys held in Miami
Beach, Florida in June, 1959, at which the record manufacturers and dis-
tributors seem to have attended to the disc jockeys' every need with a lack of
restraint which recalled Rome under the emperors. 107 And in the back-
ground of the questioning was a hostility to "rock and roll" (the music played
by many disc jockeys), defined as "raucous discord" by Congressman Moss,
who argued that "good music did not require the payment of payola."108 As
has been said, in these hearings there was "an assumption that rock was
'bad' music . . . and that it could only have been forced on the public by
illegal business activities." 109 The upshot of these deliberations was that the
subcommittee recommended, among other things, amendments to the
Communications Act which would make payola a crime in the broadcasting
industry. These amendments became law on September 13, 1960.
104 Supra note 102, at 52-53.
10s Supra note 95, at 641.
106 Supra note 102, at 52.
1°7 See Time, June 9, 1959, at 50.
108 Responsibilities of Broadcasting Licensees, supra note 95, at 869.
109 Charles Belz, The Story of Rock 109 (1969).
296 THE JOURNAL OF LAW AND ECONOMICS
V. THE 1960 AMENDMENTS TO THE COMMUNICATIONS ACT
Up to September, 1960, the only authority which the FCC had to regulate
payola came from Section 317 of the Communications Act of 1934. It read as
follows: "All matter broadcast by any radio station for which service, money,
or any other valuable consideration is directly or indirectly paid, or promised
to or charged or accepted by, the station so broadcasting, from any person,
shall, at the time the same is so broadcast, be announced as paid for or
furnished, as the case may be, by such person." This section, which was
taken, substantially unchanged, from the Radio Act of 1927, had apparently
been based on a section of the Postal Appropriations Act of 1912 under
which editorial and other published material appearing in newspapers re-
ceiving second-class mailing privileges had to be clearly marked "advertise-
ment" if money or other valuable consideration had been paid in return for
publication. 110
Until 1959, the administration of Section 317 does not appear to have
created any great difficulty for the FCC. 111 However, the situation revealed
by the congressional enquiries presented the FCC with a new problem.
Section 317 referred to the disclosure of payments or other valuable consid-
eration made to the station. But payola in the 1950s did not, generally
speaking, involve payments to stations; rather they were made to disc jock-
eys. It was presumably this fact that led to the FTC being the administra-
tive agency which took action to stop payola rather than the FCC. However,
in December, 1959, as a result of the publicity given to payola, the FCC sent
an enquiry to all broadcast licensees and the answers received led the FCC to
conclude that broadcast stations were not complying with Section 317. In
March, 1960, the FCC issued a public notice in which it explained what, in
its view, compliance with Section 31 7 implied. The playing of free records
should be accompanied by an announcement indicating that the station had
received consideration for playing them and stating from whom the consid-
eration had been received. All mentions of, or the playing of records to be
featured at outside activities, such as "record hops," where a profit would be
derived or where broadcast exposure is provided in exchange for payment of
a performer's fee or the donation of records, prizes, or the use of a hall should
110 See the discussion at 67 Cong. Rec. 5488.
111 Only two policy statements seem to have been issued by the FCC before 1960: one related
to how a sponsor should be identified and the other to "teaser" announcements. 40 FCC 2
( 1950); 40 id. 60 (1959). Only one incident seems to have called for extensive FCC action. When the
National Association of Manufacturers supplied broadcast stations with a film of the Senate
Hearings on the Kohler labor dispute, the FCC intervened to require that an announcement be
made stating that the film had been made available by the association. KSTP, Inc., 17 Radio Reg.
(P. & F.) 553 (1958); Storer Brodcasting Co., id. at 556a; Westinghouse Broadcasting Co., id. at
556d.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 297
be accompanied by an announcement. This would identify those who ben-
efited financially from the activity "as well as other parties providing con-
sideration in any form whatsoever in exchange for ... broadcast exposure."
Announcements were also required when transportation, accommodation,
and other expenses were paid for in "remote" pickups as an inducement to
broadcast material about "a place, product, service or event." This was
required because otherwise "the public may reasonably believe that the
licensee considered the place, event, etc., to be of sufficient news or enter-
tainment value so as to justify extraordinary expenditures in order to provide
broadcast coverage when, in fact, consideration offered by a party or parties
other than the licensee or commercial sponsor of the program was responsi-
ble, to a degree, for the decision to broadcast the particular program mate-
rial. "112 The commission rejected the argument that no announcement is
called for because these are normal business practices and the press are
regularly given such favors, since special requirements have been imposed
on broadcasting stations. The commission also explained that "plugola" and
"sneaky commercials" violated Section 317. 113
The FCC's interpretation of Section 317 brought protests from the broad-
casting industry, protests which became part of the discussion of the
amendments to the Communications Act which were then being considered
in Congress. There was general agreement that change in the law was re-
quired to deal with payola. Late in 1959, the attorney general sent a report to
the president on "Deceptive Practices in Broadcasting Media." The attorney
general argued that when a broadcast license is awarded the broadcaster
"enters into an agreement with the government to serve the public interest in
return for the valuable privilege he is granted."114 In particular, program-
ming should not be determined by "naked commercial selfishness. "115 A disc
jockey receiving payola "does not disclose that he is being paid to play the
record and creates the impression that it is being broadcast because of its
merit. "116 Given his view that the government could impose extensive regu-
lation in return ·for the license, it is not surprising that the attorney general
concluded that the FCC and the FTC "appear to have authority adequate
under existing law to eradicate most, if not all, of the deceptive and corrupt
practices in broadcasting which have been disclosed-particularly if the
agencies are accorded the full cooperation of the broadcasting industry. "117
Ill 40 FCC 73 (1960).
113 Jd. at 69-75.
114 U.S. Dep't of Justice, Report to the President by the Attorney General on Deceptive
Practices in Broadcasting Media iii (1959).
115 ld. at iv.
116 Id. at 9.
117 Id. at v.
298 THE JOURNAL OF LAW AND ECONOMICS
However, since the FCC's authority was limited to the actions of stations
and did not extend to employees, "Legislation should be enacted which
would make it a criminal offense for employees of stations to accept payola
for material which is broadcast without making arrangements with the
broadcaster for an appropriate sponsorship announcement. "118
The problem was to devise a wording (and interpretation) of the new law
which would secure "the full cooperation of the broadcasting industry." In
testimony to the subcommittee, it was argued on behalf of the industry that
the FCC's interpretation of Section 317 was too restrictive. Mter this tes-
timony, the staff of the subcommittee submitted draft amendments to the
Communications Act to representatives of the industry, including the Na-
tional Association of Broadcasters and the networks ABC, CBS, and NBC.
There followed several meetings with the staff of the subcommittee, at
which representatives of the FCC were present. Later, the conclusions of the
broadcasting industry, about how the Communications Act should be
amended, were sent to Representative Oren Harris, who was both chairman
of the subcommittee and of the main committee on Interstate and Foreign
Commerce. These conclusions set out not only what the law should be but
also a series of illustrations on how the 'law should be interpreted. 119
The sections in the act relating to payola substantially followed the pro-
posals of the broadcasting industry. To the old Section 317 was added a
proviso: "Provided, That 'service or other valuable consideration' shall not
include any service or property furnished without charge or at a nominal
charge for use on, or in connection with, a broadcast unless it is so furnished
in consideration for an identification in a broadcast of any person, product,
service, trademark, or brand name beyond an identification which is rea-
sonably related to the use of such service or property on the broadcast." 120
The effect of this proviso was to allow broadcasting stations to accept prod-
ucts or services without charge for use in broadcasting without any an-
nouncement being required provided that its use was reasonably related to
the program. The illustrations, which were reproduced in the report of the
committee recommending that the amendments be passed, and which there-
fore became part of the legislative history, indicate what this proviso was
intended to accomplish. 121 For example, if a Coca-Cola distributor fur-
nished a Coca-Cola dispenser for use in a drugstore scene, no announcement
was required. And, of course, it was made clear that the playing of free
records would no longer require an announcement (unless more were
118 /d. at 52.
119 Communications Act Amendments: Hearings before a Subcomm. of the House Comm. on
Interstate & Foreign Commerce, 86th Cong., 2d Sess. 157-63 (1960).
120 H.R. Report No. 1800, 86th Cong., 2d Sess. at 20 (1960).
121 /d. at 1-26.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 299
supplied than were needed for broadcast purposes), thus reversing the previ-
ous legal position, at any rate as the FCC believed it to have been. (The
complete list of illustrations will be found in Appendix B.)
Other parts were added to Section 317. In the case of "any political pro-
gram or any program involving the discussion of any controversial issue,"
subsection (a) (2) provided that the FCC could require an announcement if
films, records or other materials or services were provided free or at a
nominal charge "as an inducement to the broadcast of such program." It
should be noted, however, that "news releases" furnished to stations by
government, business, labor unions, or similar organizations or by private
persons did not require any announcement even though "editorial comment
therefrom is used on a program" (illustration 11). By subsection (d), the FCC
was empowered to waive any requirement of the section if this would serve
"the public interest, convenience, or necessity."
A new section, 508, was added to deal with payments which were made
not to the stations but to employees of the station or program producer. It
was provided that the station's employee who received payments to include
material in programs and also the person who made them had to inform the
station about them, and, in the case of payments to a program producer's
employee, disclosure had to be made to the employer, or to the person for
whom the program was being produced or to the licensee of the station over
which the program was to be broadcast. A supplier of a program had to
disclose any information about such payments of which he had information
to the person to whom it was supplied for broadcasting. In Section 317, an
obligation was placed on the station to make an appropriate announcement
when there were such payments and also to "exercise reasonable diligence"
to obtain this information. The proviso to Section 317 also applied to Section
508. Violation of Section 508 could result in a fine of $10,000, imprisonment
for one year, or both.
VI. IMPLEMENTATION OF THE 1960 AMENDMENTS TO THE
COMMUNICATIONS AcT
With the passage of the amendments to the Communications Act, im-
plementation of the law prohibiting payola became the responsibility of the
FCC. The FTC stopped issuing complaints against record manufacturers
and distributors and dismissed several complaints which were still outstand-
ing (these appear to have been cases in which the FTC complaint had been
contested). The basis for these dismissals was that the public interest was
now fully protected by the amendments to the Communications Act and that
continued prosecution by the FTC would be "an unnecessary expenditure of
300 THE JOURNAL OF LAW AND ECONOMICS
time, effort and funds." 122 Some firms which had earlier entered into consent
decrees attempted to have them set aside but, although Commissioner
Elman thought this should be done, mainly because not to do so would mean
that only those firms which had cooperated with the FTC would be subject
to decrees, the rest of the commission decided to let their earlier orders
stand. 123
The FCC, in its enforcement of the new law, had been given illustrations
by the House Committee on Interstate and Foreign Commerce, worked out
in cooperation with industry representatives, indicating how the amend-
ments should be interpreted. In short, the aim was to prevent "extreme
types" of payola while avoiding "some of the hardships" which would have
resulted from the FCC's interpretation of the old sponsor identification pro-
vision as set out in its public notice of March 16, 1960. 124 These con-
gressional illustrations made it clear that payments in cash or in kind to
bring about the inclusion of material in programs required that an an-
nouncement be made but that, when it came to the provision of free material
without any agreement for identification beyond its use on the program, the
law was to be liberally interpreted. In particular, the provision of free rec-
ords for playing on a program did not require an announcement (illustration
1). We have seen that the supply of a Coca-Cola machine for use in a
drugstore scene did not require an announcement (illustration 11). Similarly,
the supply of an identifiable automobile to be driven by a detective to chase
the villain did not require an announcement (illustration 17). In the same
way, the supply of a refrigerator for a kitchen scene did not require an
announcement (illustration 15), but this would be required if the actress
made a reference to the brand (illustration 22). However, if the refrigerator is
furnished as a prize on a give-away show and the brand name, cubic capac-
ity, and the particulars are mentioned, no announcement was required be-
cause "the costly or special nature of the prizes is an important feature of this
type of program" (illustration 23a). Again, if an aircraft manufacturer fur-
nished free transportation to the cast of a show and the arrival of the cast is
shown on the program (the name of the manufacturer being identifiable on
the fuselage), no announcement was required, although it would be if an
extra close-up of the insignia was shown (illustration 24). (The full list of
illustrations will be found in Appendix B.)
The FCC was soon to add two more illustrations of its own. The networks
122 See, for example, Chess Record Corp., 59 FTC 361 ( 1961). Other cases will be found at 58
FTC 1016 (1961); and in 59 FTC 166, 209, 230, & 302 (1961).
123 See Bernard Lowe Enterprises et al., 59 FTC 1485 (1961). However, in at least one case
(involving the Radio Corporation of America), an earlier order was set aside, 62 FTC 1291
(1963).
124 See pp. 296-97 supra.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 301
and the National Association of Broadcasters submitted to the FCC in De-
cember, 1960, new illustrations relating to automobiles and hotels. These
were accepted by the FCC with some minor changes in wording and became
illustrations 28 and 29. The effect was to broaden the previous exemptions.
FCC illustration 28 amended illustration 17 to allow the supply of automo-
biles "for other business purposes in connection with the production of the
programs, such as transporting the cast, crews, equipment and supplies
from location to location or transporting executive personnel to business
meetings in connection with the production of the programs." Similarly,
congressional illustration 14 had allowed a hotel to originate programs on its
premises without an announcement. FCC illustration 29 allowed a hotel also
to provide room and board for "cast, production and technical staff' and to
provide other services such as electrical and cable connections without an
announcement being required.
The other illustrations of the FCC (30 to 36) did not significantly change
the position from what it had been before the 1960 amendments. lllustration
33 made clear that the regulations against payola applied to political broad-
casts and required that "the true identity of the person or persons by whom
and in whose behalf payment was made" should be disclosed. 125 In illustra-
tion 35, the FCC reaffirmed its earlier opinion (made in connection with the
supply of a film of the Senate Kohler hearings by the National Association of
Manufacturers) that an announcement of the name of the supplier of a film
was required. The full list of the FCC's illustrations will be found in Appen-
dix c.
The waiver from the payola regulations which the FCC granted for fea-
ture films produced initially for theater showing should also be noted. The
early negotiations about the interpretation of the 1960 amendments had been
carried out with representatives of the broadcasting industry. The film in-
dustry does not appear to have become aware of the possible effect of these
amendments on its operations until later, and it was not until the final debate
in the Senate that serious questions were raised about their impact on the
industry. It was then stated that these amendments could be interpreted in
such a way as to make illegal many of the normal business arrangements of
the film industry. 126 Shortly after the new law came into effect, the FCC
held a conference with representatives of the film industry. 127 Following
this, in October, 1960, the Alliance of Television Film Producers filed a
petition with the FCC asking for a ruling that the old law applied to all films
produced before the date of the new law and for the issue of a waiver for
125 This requirement was to cause some difficulty for the FCC. See 52 FCC 2d 701 (1975).
126 106 Cong. Rec. 17625-26 (Aug. 25, 1960).
127 See 34 FCC 829, 832 (1963).
302 THE JOURNAL OF LAW AND ECONOMICS
films produced after that date. That the amendments did not apply to films
produced before September 13, 1960, when the new law came into effect,
was readily conceded by the FCC. The problem that remained concerned
films produced after this date. The FCC proposed to issue a regulation
stating that all such films would "in the absence of an adequate showing to
the contrary, be presumed to have been intended for television exhibi-
tion,"128 and therefore subject to its regulations on payola. The FCC's view,
which it buttressed with facts it had gathered about the film industry, was
that "one of the purposes behind the production of virtually all 'feature' films
produced today is eventual television exposure."129
The film industry argued that FCC regulations concerning payola should
not be applied to films produced for theater distribution, even though they
might be broadcast in future years. They claimed that the film industry was
commonly supplied with "props" such as automobiles for use in films or for
other corporate purposes without payment and that to require "credit lines"
would greatly reduce the value of such films for second-run syndication,
since sponsors making products competitive with those mentioned in the
"credits" would not use the films. This would reduce the number of films
available for broadcast purposes and/or would lower the quality of those
produced. 130
Although the FCC continued to claim that it had the right to regulate
feature films, it did not adopt the subsection under which all films would be
presumed to be "intended for television exhibition," and it also decided to
waive the requirements of the new Section 317 for feature films produced
initially for theatrical exhibition. To justify this action, the FCC stated that
its "prior experience with respect to the administration and enforcement of
Section 31 7, of course, contains nothing which would indicate that the theat-
rical motion picture industry has engaged in practices which were felt to be
contrary to the public interest as it relates to broadcasting." This is under-
standable since the previous law did not call for the FCC to look into the
practices of the motion picture industry. The FCC continued: "Lacking any
such indications in our own experience, we next turn to the ... proceedings
before the Special House Subcommittee on Legislative Oversight. A
thorough ov~rview of the proceedings . . . similarly fails to indicate the
existence of practices in the motion picture industry" similar to those which
had been found to exist in the broadcasting industry. This again is hardly
surprising since the subcommittee was largely concerned with the broadcast-
ing industry and particularly with the activities of disc jockeys. After acting
128 /d. at 833 & 834.
129 /d. at 838-39.
130 /d. at 833.
PA VOLA IN RADIO AND TELEVISION BROADCASTING 303
in a manner which recalls Nelson placing a telescope to his blind eye, the
FCC is able to conclude that "we are aware of no public interest con-
siderations which dictate the immediate adoption of a rule similar to that
proposed ... before we adopt a rule which might have some disruptive and
dislocating economic effects and which might inhibit program production
... we believe that we should have evidence indicative of a need for such
a rule." 131
There is something paradoxical about the contrast between the consider-
able efforts made by the film industry to avoid being subject to the new law
and the opinion of the FCC that there did not appear to be any practices in
the industry which would justify the enforcement of the anti-payola provi-
sions. There can be no doubt that if these feature films had been produced to
be shown first on television, the business arrangements involved in their
production would have required special announcements. Perhaps what the
FCC had in mind was that the film industry did not appear to engage in the
cruder forms of payola, such as were disclosed in the 1959 congressional
enquiry. But, as the Begelman affair indicates, the film industry is not
without employees capable of engaging in them. 132 It is hard to believe that
the business arrangements in making feature films are not essentially the
same as those found in making films for the broadcasting industry (and
which have been held to require regulation).
The House Committee on Interstate and Foreign Commerce explained
that the 1960 amendments only dealt with payments in cash or their equiva-
lent. They did not cover indirect benefits which accrued to licensees and
their employees, and which might affect the selection of program material,
such as stock ownership or other interests in the production of programs or
program material. However, the committee added that "disclosure of such
benefits may be required by the commission under its general rulemaking
powers." 133 In 1961, the FCC published proposed rules covering indirect
benefits (with examples). 134 All comments filed with the commission opposed
the proposed rules. Some argued that the FCC lacked the authority to make
such rules. The FCC issued a new notice setting out proposed new rules in
1970. The FCC maintained that the selection of program material, such as
the records to be played on a radio program should be made "on its merits--
i.e., not on the basis of what will further the non-broadcast financial inter-
131 /d. at 841-42.
132 In February 1978, David Begelman resigned as president of Columbia Pictures Industries
Inc. amid allegations of a cover-up within the company involving forgery charges. The Begelman
affair brought on investigations of financial practices throughout the film industry. See the New
York Times, Feb. 7, 1978, at 1, col. 2; and N.Y. Times Index 1978, at 221.
133 See H.R. Report No. 1800, supra note 120, at 19-20.
134 40 FCC 119 ( 1961).
304 THE JOURNAL OF LAW AND ECONOMICS
ests of the licensee or someone else involved in the selection process. "135 To
make this possible, persons having such a financial interest should be insu-
lated from the selection process and if this could not be done, steps should be
taken to ensure that such financial interests were not a factor influencing the
selection of program material. To the extent that this was done, no an-
nouncement would be required. However, if such insulation was not possi-
ble, and where such financial interests were, or might be, a factor influenc-
ing the selection of program material, an announcement should be made
except where the financial interest was "readily apparent." The FCC, in a
series of examples, dealt with the practical problems that would be faced by
licensees and others in conforming to such rules. Up to the present time, the
FCC has not issued rules relating to indirect benefits.
According to the House Committee on Interstate and Foreign Commerce,
reporting on the 1960 amendments, their main purpose was to stop the
"extreme types" of payola and in particular the cash payments (and other
favors) given to disc jockeys by record producers and distributors. 136 What
has been the effect of the change in the law? Those writers on the record
industry who deal with the subject state that payola has continued. 137 Re-
ports in the press tell the same story. 138 The FCC's own investigations
confirm the essential accuracy of these accounts. In 1964, the FCC an-
nounced that it had received "allegations from many sources indicating the
continued existence of 'payola,' 'plugola' and other related practices by
broadcast licensees,'' 139 and, as a consequence, the FCC, starting in 1966,
conducted non-public hearings on the subject. These hearings left little
doubt that payola had not been stopped by the change in the law. 140
Starting in 197 3, the Department of Justice (assisted by the Internal Reve-
nue Service and the FCC), as well as four grand juries, investigated payola
in the record industry for two years, as a result of which they concluded that
payola had been received by radio station employees in sixteen cities. Sixteen
135 35 Broadcast Announcement of Financial Interest, Fed. Reg. 7983 (released May 18,
1970).
136 H.R. Report No. 1800, supra note 120 at 19.
137 See Arnold Passman, The Deejays, 242-43 & 258-59 ( 1971); R. Serge Denisoff, Solid Gold:
The Popular Record Industry 232, 260, & 273-79 (1975); Paul Hirsch, The Structure of the
Popular Music Industry 54 (Survey Res. Center, Inst. for Soc. Res., Univ. of Michigan, n.d., c.
1967); and Steve Chapple & Reebee Garofalo, Rock 'n' Roll Is Here to Pay 183 (1977).
138 See Jack Anderson, New Disc Jockey Payola Uncovered, Washington Post, March 31,
1972; and Disc Jockey Play-for-Drugs Outlined, Washington Post, Apri121, 1972; The Specter
of Payola '73, Newsweek, June 11, 1973, at 74 & 79.
139 See "Payola," "Plugola," and Other Related Practices (FCC 64-1101) 29 Fed. Reg. 16220
(released Nov. 27, 1964).
140 I was given permission by the FCC to read most of the transcript of the non-public
hearings (Docket No. 16648) at the Washington office of the FCC.
PA VOLA IN RADIO AND TELEVISION BROADCASTING 305
individuals and six corporations were indicted by grand juries in Newark,
Philadelphia, and Los Angeles for "violating the federal statute banning
under-the-table payoffs for playing records, as well as for travelling between
states to commit bribery, for mail and wire fraud, for filing false income tax
returns and for perjury." In addition, a fourth grand jury, in New York
City, indicted a former president of the CBS/Record Group and a former
director of artist relations for CBS Records, for income tax evasion. Both
had earlier been fired by CBS after allegations that they had engaged in
payola. 141 In April, 1976, four executives of the Brunswick Record Com-
pany were fined and given prison terms, after a trial in which radio station
music directors (who had been granted immunity), gave testimony that they
had received cash payments from representatives of the company. The law-
yers for the executives had argued that "cash payments were a way of life in
the record industry and part of the promotion end of the business," to which
the judge replied, "If this is true, then the record business is a dirty business
indeed."142 It should be noted that although these cases are usually referred
to in the press as "payola" cases and the headline in theN ew York Times said
that the Brunswick executives were sentenced "for payola," the charge in
such cases, whether because of plea bargaining or for some other reason, is
usually income tax evasion, perjury, or some similar offense, rather than
infringing the Communications Act. In the case of the Brunswick execu-
tives, they were found guilty of a conspiracy to sell records for cash and not
report the income and defrauding recording artists and song writers of their
royalties. In December, 1976, the FCC announced that it had received "new
information and new complaints from the public" and it resumed its pro-
ceedings on payola. 143 The proceedings have not yet terminated.
So far as I know, no action has ever been taken by the FCC to prosecute
any licensees or their employees, using the 1960 amendments to the Com-
munications Act. Even in the investigations of the Department of Justice in
1973-1975 the FCC seems to have played a minor role. The chief of the
FCC's Complaints and Compliance Division has indicated that he lacks the
resources for a full-scale investigation of payola. 144 However, in its regula-
tion of individual licensees, the FCC does take into account any information
which it uncovers about payola and imposes administrative sanctions when
the licensee has not exercised "reasonable diligence" in preventing payola. 145
This has given the individual licensee an incentive to set up procedures
141 See Broadcasting, June 30, 1975, at 27-29.
142 See the New York Times, April 13, 1976, at 66; and Broadcasting, Feb. 23, 1976, at
53-54, and April 19, 1976, at 47.
143 FCC Notice (released Dec. 30, 1976).
144 See Broadcasting, June 30, 1975, at 27.
1•s I d.
306 THE JOURNAL OF LAW AND ECONOMICS
which make the giving of payola more difficult. A common way in which
this has been done is for the program director of the station to prepare
play-lists from which disc jockeys are required to choose the records which
they play on their programs. 146 Although, no doubt, payola is on occasion
received by the man who prepares the play-list, the procedure must discour-
age the making of such payments and has almost certainly had the effect of
reducing the number of transactions involving payola and, very probably,
the total amount paid.
Other evidence points in the same direction. There is now said to be
greater reliance by record companies on the promotion man (the equivalent
in the record industry of the song-plugger) to do what is necessary to obtain
"exposure" for their records. "With the diminuation of direct payola, the
industry representative or promo man was restored to a position of impor-
tance .... In part, this restored the majors to a place of competitive advan-
tage over the [independents] since many of the smaller companies, having
relied heavily upon payola, did not have a promotional apparatus of any
magnitude. "147 Promotion includes advertisements in trade papers, mail-
ings, personal appearances by recording stars, visits to radio stations, the
supply of records, as well as other activities which build "goodwill" and
which, if not payola, border on it.
Although payola continues, there can be little doubt that its incidence has
been reduced since 1960. The fact that there have been no prosecutions by
the FCC does not mean that the 1960 amendments to the Communications
Act have been without effect.
VII. THE RATIONALE OF THE 1960 AMENDMENTS
The payola enquiry by the House subcommittee which preceded the
enactment of the 1960 amendments to the Communications Act was con-
ducted as if everything that really mattered had already been discovered.
The underlying purpose seems to have been to obtain confessions of guilt
from the witnesses and to demonstrate the high moral standards of the
congressmen. No attempt was made to understand the phenomenon under
consideration, to enquire what would happen if the proposed legislation was
passed, or to consider, if payola had adverse consequences, whether there
were alternative ways of dealing with it. In the circumstances it is hardly
surprising that widely held misconceptions about payola were perpetuated
by the enquiry.
In spite of the fact that payola is commonly referred to as commercial
146 SeeR. Serge Denisoff. s.u/Jra note 137, at 234; Paul Hirsch, supra note 137, at 63; Charles
Belz, supra note 109, at 116.
147 R. Serge Denisoff, supra note 137, at 233.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 307
bribery, 148 most cases of payola do not involve commercial bribery as that
term is generally understood. A person is guilty of commercial bribery,
according to the New York Penal Law, "when he confers, or agrees to
confer, any benefit upon any employee, agent or fiduciary without the con-
sent of the latter's employer or principal, with intent to influence his conduct
in relation to his employer's or principal's affairs."149 The victim of commer-
cial bribery is the employer, whose employees are induced to perform acts
inimical to his interest. It is obvious that payola would not constitute com-
mercial bribery if the employer was aware that it was being given and did
not object to its acceptance or even encouraged it. As was said by a judge in
New York: "It would seem that there could be no violation of the [commercial
bribery] statute if the principal or employer had knowledge and either ap-
proved or condoned the act of his employee or agent." 150
What is apparent from the history of payola is that it has not been the
employers who objected to the acceptance of payola by their employees. Nor
can there be much doubt that in most cases they were aware of what was
going on. It was the music publishers who wished to put a stop to the
payments made to dance band leaders and singers rather than the hotels and
dance halls in which they performed or the radio stations on which their
programs were broadcast. When payola was banned in the NRA code for the
broadcasting industry, this provision was inserted, not at the behest of the
broadcasters, but of the music publishers. And later, when the music pub-
lishers wanted the FTC to approve a code of fair practice which would make
payola illegal, the Fair Practice Board of the FTC noted that "the employers
of such musicians, singers or artists, for the most part at least, have no
objection to such professional employees receiving such payments or
gifts."151 Still later, in the 1950s, when payola was directed to disc jockeys, it
was apparently a letter from Burton Lane, representing the American Guild
of Authors and Composers, which led to the payola enquiry and it was a
record company's complaint which set into motion the FTC's investigation
of the payments which record companies made to disc jockeys.
While all this was happening, the operators of radio stations remained
passive. The inference that I draw from this conduct is that most of them did
not consider the acceptance of payola by disc jockeys as particularly harmful
to their interests. This inference is strengthened if we have regard to the
actions of the FCC, which since the change in the law in 1960, has used fines
and other administrative sanctions, to make sure that broadcast licenses
148 See, for example, the Attorney General's Report to the President, supra note 114, at 39-40.
149 N.Y. Penal Law, § 180 at 326 (McKinney).
ISO June Fabrics v. Teri Sue Fashions, 194 Misc. 267, 270, 81 N.Y.S. 877 (1948).
Is I See p. 282 supra.
308 THE JOURNAL OF LAW AND ECONOMICS
show "reasonable diligence" in combatting payola. This is something which
one would have supposed that they would do without FCC prodding if
payola really harmed them.
The lack of any serious effort on the part of the broadcasting industry in
the 1950s to prevent payola suggests that there was a broad congruence of
interest between the operators of radio stations and the disc jockeys. This
was undoubtedly true. And the reason for this becomes clear if we compare
the results of a system without payola with one in which payola is received
by disc jockeys. Assume that the operator of a radio station (no doubt in the
person of the music director or some similar officer) chooses the records to be
played and there is no payola (although the records are supplied free). He
would select records so as to attract as large an audience as possible, which
would enable him to maximize the revenue obtained from the sale of com-
mercial time. He may also be concerned about the composition of the audi-
ence but this complication will be ignored for the time being. Now assume
that the choice of records to be played is made by the disc jockey, who
receives payola. That such payments are made does not necessarily imply
that there has been a change in the records played from what it would have
been without payola. Suppose, for example, that the disc jockey wished to
play the same records as those the station operator would have chosen. The
disc jockey would not be denied an income from payola. Record companies
would be willing to pay the disc jockey to play these records since there
would presumably be other records which could be substituted for them
without any great loss of audience and for which payola could be obtained.
The ability of disc jockeys to obtain payola would lower the salary for which
they would be prepared to work for radio stations and would therefore
increase station profits. But disc jockeys would receive a reward for the extra
work in which they engaged to obtain payola and so their earnings would
also rise. Payola would benefit both the operators of radio stations and the
disc jockeys.
Although it is unlikely that the records selected would remain exactly the
same in the new situation, the claim of some disc jockeys that their accep-
tance of payola had not affected their choice of records is not perhaps as far
from the truth as might at first appear. To induce a disc jockey to play a
particular record, a record company would be willing to pay up to the .
increase in profits which would result from playing the record. But a disc
jockey would not simply play those records for which he was offered the
greatest payola. Like the radio station operator, he would also want to have
a large audience since a fall in the rating of his show would lead both to a
reduction in his salary and to a reduction in the amount which record com-
panies would offer as payola for playing any given record. In assessing his
PAYOLA IN RADIO AND TELEVISION BROADCASTING 309
gain from playing a record, a disc jockey would have to deduct from the
payola he would receive from playing a less popular record both the fall in
his salary and the loss of payola received from playing other records. This
calculation would make a disc jockey reluctant to play less popular records.
But even if there were some loss in revenue from commercials the station
operator would not suffer since this would be offset by the reduction in the
disc jockey's salary. Station profits would rise or, at the least, remain the
same.
The harmony between the interests of the broadcast licensee and the disc
jockey is probably even greater than this analysis would indicate. It has been
assumed that since a station operator (not receiving payola) would wish to
maximize the size of the audience, to entrust the selection of records to a disc
jockey (receiving payola) could not increase but could only reduce the sta-
tion's audience. But this would not necessarily happen. It seems probable
that disc jockeys, who are not part of management, would be able to see
more representatives of the record companies, would be closer to their audi-
ence, would be more aware of trends in popular music, and would also know
better which records were suitable for their own particular programs. As a
consequence, a transfer of the choice of records to the disc jockey need not
entail a reduction in audience and may indeed lead to an increase.
Payola is also likely to have some effect on the character of programming.
Since record programs will become more profitable with payola, there may
be a tendency for such programs to displace non-record programs. There
may also be a change in the character of the record programs themselves. Up
to now it has been assumed that the revenue from commercials depended
solely on the size of the audience. But it is obvious that the composition of
the audience may also be of importance since advertisers prefer an audience
more heavily weighted with persons likely to buy their products. The addi-
tion of payola as a source of income for the disc jockey (and, indirectly, for
the station) would almost certainly mean that the records played would be
such as to attract an audience which included more record buyers than if the
aim of the program was simply to gather an audience for commercials for
clothing, cosmetics, cameras, or whatever was advertised in the commer-
cials. Such a change in audience would, of course, only come about if the
gain from the additional payola offset the loss in revenue from the sale of
commercial time. All in all, it is easy to see why the operators of radio
stations were not in the forefront of those opposing payola and therefore why
it is hard to regard payola as constituting commercial bribery.
But the view that payola was commercial bribery was not the sole basis
for objecting to it. It was also argued that it fosters deception. As the attor-
ney general said in his report to the president: "A disc jockey who receives
310 THE JOURNAL OF LAW AND ECONOMICS
such a payment does not disclose that he is being paid to play the record and
creates the impression that it is being broadcast because of its merit. " 152 The
FTC adopted a similar point of view except that the phrase it used was
"merits or public popularity. "153 This deception, according to the attorney
general and the FTC, comes about because listeners assume (in the absence
of any disclosure that the disc jockey is receiving money from record com-
panies) that a disc jockey has picked what he considered to be the best of the
current records and they are therefore led to buy these records without
checking or hearing others. The result is a disappointment for the pur-
chasers, who become tired of playing the record sooner than they (although
not necessarily their families) had hoped. Or they may discover that a record
which they had been led to believe would be extremely popular is not and
this may adversely affect the enjoyment they derive from playing the record.
That this may happen is not open to dispute. But it seems improbable that
such deception would occur on a large scale. Purchasers not only hear the
disc jockey-they also hear the record before buying. And a disc jockey who
receives payola would not wish to disappoint his listeners often since oth-
erwise they would cease to take his recommendations seriously and his in-
come would fall.
It has been suggested to me that even though a disc jockey receiving
payola would tend to play records which would appeal to his particular
audience, deception would still exist in that, if there were disclosure of the
fact that the disc jockey was being paid by record companies, the attitude of
his listeners would be adversely affected and this would result in them being
less willing to purchase the records played on his programs. As it is generally
agreed that hearing a record is the most powerful factor bringing about its
purchase, presumably this disclosure of payola would lead to a decline in the
sales of records (as well as less pleasure from the programs). Whether
listeners would be happier with disclosure is another matter. The prevalence
of self-deception suggests that there are many truths that we prefer not to
know. Unfortunately, those conducting the congressional inquiry thought it
unnecessary to investigate what listeners thought the motives of the disc
jockeys were or how they felt about them or what their record-buying habits
really were, and so it is difficult to come to any conclusion on these ques-
tions. One may, however, doubt whether the disclosure of the existence of
payola would make much difference since disc jockeys are skilled in han-
dling commercials, an art in which sincerity (or the appearance of sincerity)
is generally considered important.
The puzzle to be explained is why the stations did not make a direct
152 Supra note 114, at 9.
153 FTC Notice (released Dec. 6, 1959).
PAYOLA IN RADIO AND TELEVISION BROADCASTING 311
charge for playing records and thus eliminate, at least to a large extent, the
opportunities for payola. The sales staff of a station are expert in the pricing
and selling of commercial time, and it would be surprising if they could not
carry out this function more efficiently than most disc jockeys. There would
appear to be three possible explanations for this failure to make a direct
charge. First, payola is more difficult to trace and may therefore be omitted
from an income tax return with less risk than a salary. Consequently, the
amount by which the station could reduce the disc jockey's salary would be
more than the amount of the payola (since income tax would be paid on his
salary). Second, the amount which the stations could charge for playing
records would be reduced to the extent that disclosure of these payments
diminished the sales of records, a factor which obviously would not affect
the payola received by disc jockeys. I am, however, inclined to lay more
stress on a third explanation, namely that the obstacle to direct charges was
the form of announcement which the FCC would have required the stations
to make. I base this on the FCC's ruling in 1960 on the announcements
required in connection with the broadcast use of "free records" and on the
response to this of the stations, who regarded the FCC's requirements as
completely unacceptable. They complained that the announcements which
had to accompany the playing of each record turned a large part of the
program into a commercial and imposed a great hardship on the listening
public. 154 It is easy to see that such policies on the part of the FCC would
discourage the stations from attempting to introduce a charge for broadcast-
ing records. The FCC never seems to have thought that a charge for
broadcasting records was desirable and was therefore never led to search for
a form of announcement which would have been acceptable to the stations
but which would let listeners know that payments were made by record
companies.
The objection to payola by the attorney general and the FTC should be
differentiated from much that was said by congressmen in the payola en-
quiry. Echoing what the music publishers had said about the choice of songs
in the period before World War II, the congressmen argued that the records
should be chosen because of their "merit" or because they served "the public
interest." The attorney general and the FTC argued that since the disc
jockey did not disclose that he had accepted payola he created the false
impression that the records broadcast were chosen on their merit. Their
objection would be removed if there were disclosure of the payments. The
congressmen's objection would apply whether or not the payments were
disclosed. However, it is an objection of little practical importance. The
alternative in the United States to a system involving payola is not one in
154 See FCC File 13454, Original Vol. 3 (National Archives, Washington, D.C.).
312 THE JOURNAL OF LAW AND ECONOMICS
which the choice of program depends on merit but one in which program
content is determined by its success in assembling the right kind of audience
for the commercials. The main effect on the programs of the abolition of
payola would be to displace record programs which were attractive to record
buyers by record programs which appealed to buyers of other goods and
services. It seems difficult to argue that such programs would have more
"merit" (considered as record programs). What undoubtedly caused the con-
gressmen (and others) to think in this way was their belief that the records
actually played (mainly rock and roll and similar music) lacked merit, were
corrupting, and would not be played in the absence of payola. The music
may have been corrupting, but the congressmen seem to have thought that
the choice of "immoral" music was due to "immoral" business practices. But
payola has always been a feature of the popular music industry. In times
past, when the public enjoyed songs with music (and lyrics) very different
from those of today, it was these songs which were promoted by payments to
performers. What has been promoted by payola has always depended on
what the public would buy (sheet music earlier and records more recently)
after they had heard the music. And this has depended on the tastes of the
period. But the congressmen were not wholly wrong. Although there has to
be a receptivity to a type of music if it is to be successfully promoted, without
promotional activity (which includes payola), the movement towards a new
type of music would undoubtedly be slower (because the opportunity of
hearing it would be less). So the abolition of payola, if it would not necessar-
ily have stopped or reversed the trend towards rock and roll music, would
have slowed it down and would therefore have resulted, at least for a period,
in more "good music" being broadcast. Another factor would work in the
same direction. Payola, by leading to the playing of records which appealed
to record buyers rather than to consumers of the goods advertised in the
commercials, would result in the audience containing relatively more teen-
agers who are more likely than other age groups to enjoy rock and roll music.
The FCC, in justifying the "sponsor identification" rule (under which
payola is prohibited), has adopted a point of view similar to that of the FTC:
" ... the public is entitled to know by whom it is persuaded." 155 In its notice
about indirect benefits, the FCC added that "the public is no less entitled to
know of the existence of such benefits and motivations as in the other kind of
case where the inducement is created by payments or the furnishing of
programs without charge." 156 Concealment of the fact that program mate-
rial was broadcast because of a payment or other consideration constituted
IB 40 FCC 105 (1961).
1s6 40 FCC 119 (1961).
PAYOLA IN RADIO AND TELEVISION BROADCASTING 313
"deception."157 Of course there is usually no problem. A soap, automobile,
drug, or cosmetics concern, which has paid for the expenses of a program will
normally want everyone to know that it sponsored the program. But even if
there is concealment, what prompted a supplier to provide program material
may not matter to the radio and television audience. A consumer's ability to
choose wisely between what is offered to him may not depend on knowing
the "benefits and motivations" which prompted its supply. Of course, it was
the FCC's contention that knowledge of whether a disc jockey received a
payment from record companies helps the audience to appraise the worth of
the disc jockey's opinions-and this may be true. But there are other pro-
grams in which knowing who paid for it or the motivations of the supplier
can influence even more the response to the program. For example, in the
case of news programs and commentaries, knowledge of the source of
finance and the political and religious doctrines and affiliations of the
speaker is likely to influence the degree of confidence one has in the accuracy
of the news and the responsibility of the comment. However, in this case full
disclosure is not required. There need be no announcement when "[n]ews
releases are furnished to a station by Government, business, labor and civic
organizations, and private persons, with respect to their activities, and
editorial comment therefrom is used on a program" (House committee illus-
tration 11). It is not easy to reconcile this exemption in an area in which the
case for disclosure is strong with the FCC's view of what the anti-payola
provisions are intended to accomplish, or with the attitude taken towards
the acceptance of payola by disc jockeys.
On the other hand, it would not seem important in choosing between
programs or in one's enjoyment of them to know how the salaries of the
performers are determined. Among the House committee's illustrations of
cases to which the anti-payola provisions did not apply was the following: "A
well-known perfor:rper appears as a guest artist on a program at union scale
because the performer likes the show, although the performer normally
commands a much higher fee" (illustration 20). Philanthropy being rare in
the entertainments industry, it is easy to imagine the circumstances which
would lead a performer to like a show and to be willing to work at less than
his normal fee. These include boosting the sales of his records, increasing the
likelihood of obtaining concert engagements or roles in films and so on. A
similar question has arisen in relation to performers whose normal fee is not
much higher than the union rate. The FCC has held that it violates the
anti-payola provisions for a performer, paid the union rate, to arrange for a
recording company or_ other business to reimburse the producer for part or
all of his fee, even though it is announced at the end of the program that
157 25 Fed. Reg. 2406 (1960).
314 THE JOURNAL OF LAW AND ECONOMICS
"promotional assistance" has been received from that recording company or
business. Similarly, it is a violation for a group to make a similar arrange-
ment under which the producer is reimbursed for the difference between the
union rate for a single performer and that for a group. Again, it is a violation
for a performer to reimburse the producer for special expenses involved in
his act. For example, it would violate the anti-payola provisions for a per-
former "to reimburse the producer for the fees paid by the latter to musi-
cians, not normally provided in the program, who accompanied the per-
former."158 Payola, in effect, exists whenever an attempt is made to circum-
vent union restrictions on methods of payment. The result is to allow well-
known performers to take into account the other benefits which flow from
appearing on a broadcast program but to restrict or deny this possibility to
less well-known performers. The aim of this regulation, if we believe the
FCC, is to prevent the public from being deceived.
If we have regard not to what congressmen and government agencies
have said about the purpose of the anti-payola provisions but to the business
interests which, over the years, have sought to curb payola, it becomes easier
to discern what these provisions were expected to accomplish. Up to World
War II, there is no doubt about the businesses that wanted payola to be
abolished. The music publishers tried to secure this on many occasions and
for those of them still alive in 1960, the amendments to the Communications
Act would have represented the final passage into law of the anti-payola
provisions of the NRA codes. After the war, when payola was paid by record
companies to disc jockeys, it was the suppliers of "good music" (the music,
that is, of composers such as Oscar Hammerstein, Richard Rodgers, Irving
Berlin, and Burton Lane) who objected to payola. This hostility to payola
came to the fore in 1958 and 1959 and was, it seems clear, in large part a
response to the changes which took place in the 1950s in the kind of music
purchased.
In the 1950s, particularly from 1955 on, "rock and roll" music became
extremely popular. Many new record companies were formed, mainly con-
centrating on the new music. The effect on the market shares of existing
companies was dramatic. In the years 1948 through 1955, four companies
(Capitol, Columbia, Decca, and RCA-Victor) had, on an average, 78 per
cent of the records which were ever on Billboard's top ten Hit Parade, and
the figure was never less than 71 per cent (in 1953). In 1956, the share of the
hit records of these four companies was 66 per cent, in 195 7, 40 per cent, in
1958, 36 per cent, and in 1959, 34 per cent. 159 These changes in the popular-
158 23 FCC 2d 588-89 (1970).
159 See Richard A. Peterson & David G. Berger, Cycles in Symbol Production: The Case of
Popular Music, 40 Am. Soc. Rev. 158, 160 (1975).
PAYOLA IN RADIO AND TELEVISION BROADCASTING 315
ity of different kinds of music also affected the relative positions of the two
major royalty collecting agencies, ASCAP and BMI. BMI was heavily con-
centrated in country and western music and rhythm and blues while ASCAP
was more evenly spread over all types of music. During the period 1948
through 1955, 68 per cent of the tunes which were number 1 on Billboard's
top hits were controlled by ASCAP, and ASCAP's share was never less than
50 per cent (in 1951). In 1956, its share was 23 per cent, in 1957 and 1958, 25
per cent and in 1959, 31 per cent. 16o
In the circumstances, it is hardly surprising to find that the suppliers of
"good music" came to the conclusion that something was wrong with the
economic organization of the popular music industry. In the 1958 hearings,
it was argued that the networks and broadcasting stations, as a result of their
ownership of BMI, had encouraged the playing of BMI-controlled pieces on
disc jockey programs and that this was the main reason why "good music"
had been displaced by "bad music." But it was also claimed that disc jockeys
had been induced to play BMI records by means of payola. In the 1959
hearings, no reference was made to BMI and the growth in the popularity of
rock and roll music was ascribed solely to payola.
That payola in the late 1950s was used in the main to promote the playing
of rock and roll and similar music is true. Indeed, as early as 1951, it had
been reported in Billboard that "By universal agreement in the music trade,
the payola situation is at its worst among the rhythm and blues spinners."l6t
There can be no doubt that the new companies, which entered the business
in the 1950s and succeeded in securing such an important share of the record
market, relied on payola to obtain "exposure" for their records. In an article
in Variety in January, 1958, dealing with the inroads which the "indies"
[independents] had made into the markets of the major record companies,
there is a barely disguised reference to the part played by payola in the
operations of the independents:
Another aspect of the indie breakthrough is its free-wheeling operation. Working
without the problems of a fixed overhead and a 'loose' bookkeeping system, the indies
have been able to knock the majors out of the box in key areas. Working with
hustling freelance distributor setups, the indies have been able to kick off their
product in the areas that serve as a springboard for nationwide prominence. It's on
the local level, particularly, that the indies have been outscoring the majors with
giveaway deals and 'special' considerations for deejays but this is all the start they
ask. And, as has been evidenced by the mopup during the past year, it's all they need.
Since it's open season in the disk business all year round, more small labels than
ever before have been able to climb on the national hit lists. Some of the labels
160 I am grateful to Professor Richard A. Peterson, Vanderbilt University, who provided me
with these figures.
161 Billboard, Jan. 13, 1951, at 1, col. 4.
316 THE JOURNAL OF LAW AND ECONOMICS
weren't even around the year before. The market became wide open for such left field
diskery entries as Keen, Phillips International, Cameo, Imperial, Chess, Aladdin,
Roulette Sun, Speciality, Gone, Ember, Checker, Ebb, Lance, Paris, Class, Vee-Jay
and Argo. 162
To sell music on a large scale it is necessary that people hear it. Payola is
one way of inducing people to play it so that it can be heard. From a business
point of view, the ban on payola is therefore simply a restraint on one kind of
promotional or advertising expense. Before World War II, when it was the
music publishers who wished to see payola abolished, their aim was to
eliminate one dimension of competition and thereby to increase their total
profits. What they wanted was similar to the more general bans on advertis-
ing which have been instituted by various professional associations. After
World War II, when opposition to payola came from those segments of the
popular music industry which were hurt by the rise of the new music and the
associated development of new record companies, the aim of the business
interests which sought to curb payola seems to have been not so much to
secure a general benefit for the industry as to hobble their competitors. 163
Mr. Paine, in justifying the anti-payola provisions of the NRA code, said
that it would protect the small publisher, 164 and Congressman Oren Harris,
in his introductory remarks to the payola enquiry, said that "we are told"
that payola tends "to drive out of business small firms who lack the means to
survive this unfair competition."165 Such statements convey a completely
false impression. Although the music publishers' attempts to regulate payola
do not seem to have been designed to harm the small publisher, it was, in
fact, small firms which protested to the FTC in the 1930s about the harm
they would suffer if payola was banned. 166 In the period after World War II,
all record companies seem to have given payola to disc jockeys, but, as we
have seen, the smaller companies thrived on it. These companies lacked the
name-stars and the strong marketing organization of the major companies,
and payola enabled them to launch their new records in a local market and,
if success there was achieved, to expand their sales by making similar efforts
in other markets. There is no reason to suppose that a ban on payola would,
162 Variety, Jan. 8, 1958, at 215.
163 Seep. 314 supra. Richard A. Peterson & David G. Berger state that "[in] an effort to curb
the influence of the new independents, and protect their investment in the crooners they had
promoted into stardom, the older established Tin Pan Alley-oriented companies 'exposed' the
payola practices of these new entrepreneurs in 1958." Three Eras in the Manufacture of Popular
Music Lyrics in The Sounds of Social Change 295-96 (edited by R. Serge Denisoff & Richard A.
Peterson, 1972). This statement is in part based on confidential sources and cannot therefore be
checked. But it is not inconsistent with what can be learnt from published sources.
164 See p. 280 supra.
16S See p. 292 supra.
166 See pp. 283, 284, 285 supra.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 317
in general, have helped the small music publishers or has helped the small
record companies.
Since the 1960 amendments to the Communications Act impose a restraint
on a particular kind of advertising expenditure, it is to be expected that it
would lead firms to increase other forms of promotional activity, trade press
advertising, mailings, visits by salesmen, personal appearances by perfor-
mers and, in general, all other forms of "plugging." And this appears to have
happened. We have seen that shortly after payola became illegal, there was
apparently an increased activity by the promotion departments of record
companies. 167 An article in Fortune, published in April, 1979, by Peter W.
Bernstein, indicates that this heightened activity has continued. It notes that
record companies are "vastly increasing promotion expenses, while the most
powerful form of advertising-radio play-remains free." At the same time
the smaller companies have lost ground: " ... small record companies, and
small divisions of big companies have been making deals with, or selling out
to, their big competitors-principally because the majors have built up dis-
tribution systems so powerful that smaller companies using wholesale mid-
dlemen have lost their ability to compete in the retail marketplace .... Six
major companies-CBS, Capitol, MCA, Polygram, RCA, and Warner
Communications-now control more than 85% of the U.S. market." 168
This growth in concentration was probably largely a result of the larger
companies adjusting to the new taste in music but the 1960 amendments,
which made payola illegal, undoubtedly helped in the process.
It is consistent with the view that a ban on payola would lead to an
increase in other promotional activities that, in the past, support for curbing
payola has come from those likely to benefit from this diversion of advertis-
ing expenditures: Variety early in the century and the song-pluggers at the
time their union was formed. What the song-pluggers then said that they
feared was that the "publisher's check book would finally obviate the neces-
sity of maintaining a plugging staff.''169 This makes clear one of the disad-
vantages of the ban since, leaving aside its anti-competitive aspects, adver-
tising is diverted from a form which, apart from the expenses involved in
giving payola, does not use resources to a form that does. By leading to the
employment of more resources in promotional activity, the ban on payola
has a tendency to reduce the national product elsewhere.
Of course, firms will only expand their other promotional activities up to
the point where they yield sufficient additional net income to cover their
167 See p. 306 supra.
168 Peter W. Bernstein, The Record Business: Rocking to the Big-Money Beat, Fortune,
April 23, 1979, at 59, 61.
169 See p. 285 supra.
318 THE JOURNAL OF LAW AND ECONOMICS
cost, and it could be that the increase in the amount spent on these promo-
tional activities would be less than the amount previously paid as payola. In
this case industry profits would rise by the amount by which the payola
previously paid exceeded the increase in expenditures on other promotional
activities. This was presumably the belief of the music publishers before World
War II. But the rise in profits inherent in this situation would have other
effects. In the case of the record companies, such an increase in profits would
lead to an increase in the supply of new records. Previously, record com-
panies would have been deterred from expanding their output of new titles
because they thought that the probable additional receipts would not war-
rant increasing the additional cost. But in the new situation, the probable
net income from producing a record would have risen. The effect would be
for the output of new titles to expand. And this would lead to a decrease in
the probable receipts from any given new title. When these probable receipts
have fallen sufficiently to make it no longer worthwhile to incur the costs of
producing additional records, the expansion in output would cease. If the
records in the additional supply induced by the ban on payola were on
average essentially the same as those already produced in terms of the plea-
sure given to their audience, it seems clear that the expansion in the output
of records would entail a waste of resources.
What has been described as happening after the ban on payola is the
normal result of a situation in which no price is exacted for the receipt of a
valuable service. 170 Indeed, in the early days, what we now call payola was
termed the "payment system," or, as economists would say, the pricing
system. When a pricing system is not used and something of value is pro-
vided for nothing, people are willing to incur costs up to its worth in order to
secure the benefits of that service. One reason, among others, for pricing a
service is to avoid this unnecessary use of resources. Normally we consider
such pricing as natural without considering the advantages it brings. If
locating stores on a particular street or in a particular section of a town
enables those stores to achieve greater sales, we expect that the rent charged
will reflect this. In the same way, if the playing of a record by a radio station
increases the sales of that record, it is both natural and desirable that there
should be a charge for this. If this is not done by the station and payola is not
allowed, it is inevitable that more resources will be employed in the produc-
tion and distribution of records, without any gain to consumers, with the
result that the real income of the community will tend to decline. In addi-
tion, the prohibition of payola may result in worse record programs, will
tend to lessen competition, and will involve additional expenditures for
170 Susan Rose-Ackerman adopts a somewhat similar position in Corruption: A Study in
Political Economy (1978). See esp. 204-05.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 319
regulation. The gain which the ban is thought to bring is to make the
purchasing decisions of record buyers more efficient by eliminating "decep-
tion." It seems improbable to me that this problematical gain will offset the
undoubted losses which flow from the ban on payola. But no attempt was
made, before the 1960 amendments were adopted, to estimate the gains and
losses which would flow from the change in the law and an assessment of its
effects must remain very imprecise. Futhermore, no attempt was made to
discover whether it might be possible to devise a form of announcement
which would alert listeners to the fact that payments were made by record
companies whose records were played (so that "deception" could be pre-
vented) without the clutter of announcements to which broadcasters ob-
jected when the FCC wanted the stations to make announcements when free
records were used. If this could be done, it would be possible to prevent the
deception without bringing about those other disadvantages which result
from the present regulations of the FCC.
It is not enough to outlaw payments simply because they can be described
as "improper." Some attempt should be made to discover why such pay-
ments are made and what would in fact happen in the world as it exists if
they were made illegal.
APPENDICES
APPENDIX A
NRA Code of Fair Competition for the Music Publishing Industry No. 552
Article VIII Trade Practice Rules
1. No member of the Industry shall pay or give, directly or indirectly, or in any
other manner present to any performer, singer, musician, or orchestra leader, em-
ployed by or otherwise performing under contract for another, or to their agents or
representatives, any sum of money, gift, rebate, royalty, favor, or any other thing or
act of value, when the purpose is to induce such person to sing, play, perform, or to
have sung, played, or performed, any works published, copyrighted, owned, and/or
controlled by such member of the Industry.
2. No member of the Industry shall furnish without charge to any performer,
singer, musician, orchestra leader, or other professional person, any copies other
than regular professional copies of musical compositions published by such member
or regularly published orchestrations of such musical compositions; it being intended
that no member of the Industry shall furnish special arrangements of such profes-
sional copies or such orchestrations to any performer, singer, musician, orchestra
leader, or other professional person, or to any one designated by, or representing, or
associated with such persons, nor pay such persons for the making of any such
arrangements. If, howeve~, any member of the Industry permits such persons to
320 THE JOURNAL OF LAW AND ECONOMICS
make a special arrangement, then no member of the Industry shall extract parts or
otherwise copy such special arrangement thus made, either in whole or in part, nor
pay for such extractions or copying; but nothing contained herein shall be deemed to
limit the transposition of any musical work from one key to another.
3. No member of the Industry shall: (a) purchase tickets, or pay for any advertise-
ment in the program, for any benefit, performance, dance, or si11,1ilar function, if the
purchase is in effect a gift to, or a favor for, any performer; (b) pay for any advertise-
ment in a catalogue of a mail-order house; (c) pay for any advertisement in a dealer's
and/or distributor's catalogue or house-organ; (d) insert advertising in any trade
paper, or other like periodical, if the advertisement is intended to "puff," flatter,
compliment, or exploit any performer, singer, or orchestra leader.
4. No member of the Industry shall pay, present, or otherwise give any money,
service, favor, or thing or act of value, to any owner, lessee, manager, employee, or
other person in control of or interested in, any talking machine company, radio
broadcasting company or station, electrical transcription company, motion picture
company, or any place of public entertainment, for the privilege of performing,
recording or reproducing, or having performed, recorded or reproduced, in such
places, any works published, copyrighted, owned and/or controlled by such member
of the Industry. Any member of the Industry may engage the facilities of a broadcast-
ing studio or hire any theatre or other place of public entertainment for the purpose of
having performed therein any of the musical compositions published, copyrighted,
owned and/or controlled by such member, provided however, that a public an-
nouncement is made at such performance that the performance is at the expense of
such member and for the purpose of exploiting the said musical compositions of such
member.
5. No member of the Industry shall pay, or contract to pay any compensation, of
any nature whatsoever, either as royalties or otherwise, to any performer, singer,
actor, musician or orchestra leader, or any agent or representative thereof, either
directly or indirectly, in connection with the publication in printed form of any song
or other musical composition, unless such person shall be the bona fide composer,
arranger, or writer of the words and/or music of such song or musical composition.
6. No member of the Industry shall give, permit to be given, or offer to give,
anything of value for the purpose of influencing or rewarding the action of any
employee, agent, or representative of another in relation to the business of the em-
ployer of such employee, the principal of such agent or the represented party, without
the knowledge of such employer, principal or party. This provision shall not be
construed to prohibit free and general distribution of articles commonly used for
advertising except so far as such articles are actually used for commercial bribery as
hereinabove defined.
7. No member of the Industry shall give away, directly or indirectly, or through
any subsidiary or associated company, or through any person employed by such
member, copies of music or other musical material except for the bona fide purposes
of "sampling," either to the trade or to professional performers. All such copies of
music and musical material given away under the provisions of this Article must be
PAYOLA IN RADIO AND TELEVISION BROADCASTING 321
plainly marked in some appropriate manner to indicate that they are not for resale.
Each member of the Industry shall keep in some appropriate manner an accurate
account of the merchandise thus given away.
8. No member of the Industry shall publish advertising (whether printed, radio,
display, or any other nature), which is misleading or inaccurate in any material
particular, nor shall any member of the Industry in any way misrepresent any ser-
vices, policies, values, credit terms, products, or the nature or form of the business
conducted.
9. No member of the Industry shall publish or sell any book of songs, pamphlet,
song sheet, or other compilation of songs, or the lyrics of songs, without the special
written permission of the several copyright owners whose works appear in such
compilation.
10. No member of the Industry shall pay, furnish, bestow, or in any other manner,
directly or indirectly, present to any customer, teacher, or any person, firm, or
corporation whatsoever, or to their agents, or any one representing them, any sum of
money, gift, bonus, refund, rebate, royalty, service, or any other thing or act of value
in excess of published rates and discounts, as a bribe, secret rebate, or other induce-
ment to acquire any business or custom from such person, firm, or corporation.
11. No member of the Industry shall pay transportation charges in any form
whatsoever upon any musical works sold, consigned, or otherwise designated for
shipment to a purchaser or prospective purchaser, except in instances where musical
works are sold for cash or where delivery is to be made within the recognized local
delivery limits of the city within which such member is situated.
12. No member of the Industry shall wilfully induce or attempt to induce the
breach of existing contracts between competitors and their customers or sources of
supply, either foreign or domestic, or otherwise interfere with or obstruct the perfor-
mance of any such contractual duties or services, with the purpose and effect of
hampering, injuring, or embarrassing competitors in their business.
NRA Code of Fair Competition for the Broadcasting Industry
Article VII-Trade Practices
4. General Provisions
(d) No broadcaster or network shall accept or knowingly permit any performer,
singer, musician, or orchestra leader regularly employed by such broadcaster or
network to accept any money, gift, bonus, refund, rebate, royalty service, favor, or
any other thing or act of value from any music publisher, composer, author, copy-
right owner, or the agents or assignees of any such persons for performing or having
performed any musical or other composition for any broadcaster or network when
the purpose is to induce such persons to sing, play, or perform, or to have sung,
played, or performed any such works.
322 THE JOURNAL OF LAW AND ECONOMICS
APPENDIX B
Interpretative Illustrations of the House Committee on Interstate and Foreign Com-
merce from H.R. Rep. No. 1800, 86th Cong., 2d Sess. 20-26 (1960)
A. Free Records
1. A record distributor furnishes copies of records to a broadcast station or a disc
jockey for broadcast purposes. No announcement is required unlt:ss the supplier
furnished more copies of a particular recording than are needed for broadcast pur-
poses. Thus, should the record supplier furnish 50 or 100 copies of the same release,
with an agreement by the station, express or implied, that the record will be used on a
broadcast, an announcement would be required because consideration beyond the
matter used on the broadcast was received.
2. An announcement would be required for the same reason if the payment to the
station or disc jockey were in the form of cash or other property, including stock.
3. Several distributors supply a new station, or a station which has changed its
program format (e.g., from "rock and roll" to "popular" music), with a substantial
number of different releases. No announcement is required under Section 317 where
the records are furnished for broadcast purposes only; nor should the public interest
require an announcement in these circumstances. The station would have received
the same material over a period of time had it previously been on the air or followed
this program format.
4. Records are furnished to a station or disc jockey in consideration for the special
plugging of the record supplier or performing talent beyond an identification rea-
sonably related to the use of the record on the program. If the disc jockey were to
state: "This is my favorite new record, and sure to become a hit; so don't overlook it,"
and it is understood that some such statement will be made in return for the record
and this is not the type of statement which would have been made absent such an
understanding, and the supplying of the record free of charge, an announcement
would be required since it does not appear that in those circumstances the identifica-
tion is reasonably related to the use of the record on that program. On the other hand,
if a disc jockey, in playing a record, states: "Listen to this latest release of performer
'X,' a new singing sensation," and such matter is customarily interpolated in the disc
jockey's program format and would be included whether or not the particular record
had been purchased by the station or furnished to it free of charge, it would appear
that the identification by the disc jockey is reasonably related to the use of the record
on that particular program and there would be no announcement required.
B. Where payment in any form other than the matter used on or in connection with
the broadcast is made to the station or to anyone engaged in the selection of
program matter
5. A department store owner pays an employee of a producer to cause to be
mentioned on a program the name of the department store. An announcement is
required.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 323
6. An airline pays a station to insert in a program a mention of the airline. An
announcement is required.
7. A perfume manufacturer gives five dozen bottles to the producer of a giveaway
show, some of which are to be identified and awarded to winners on the show, the
remainder to be retained by the producer. An announcement is required since those
bottles of perfume retained by the producer constitute payment for the identification.
8. An automobile dealer furnishes a station with a new car, not for broadcast use,
in return for broadcast mentions. An announcement is required; the car constituting
payment for the mentions.
9. A Cadillac is given to an announcer for his own use in return for a mention on
the air of a product of the donor. An announcement is required since there has been a
payment for a broadcast mention.
C. Where service or property is furnished free for use on or in connection with a
program, but where there is neither payment in consideration for broadcast expo-
sure of the service or property, nor an agreement for identification of such service
or property beyond its mere use on the program
10. Free books or theater tickets are furnished to a book or dramatic critic of a
station. The books or plays are reviewed on the air. No announcement is required.
On the other hand, if 40 tickets are given to the station with the understanding,
express or implied, that the play would be reviewed on the air, an announcement
would be required because there has been a payment beyond the furnishing of a
property or service for use on or in connection with a broadcast.
11. News releases are furnished to a station by Government, business, labor and
civic organizations, and private persons, with respect to their activities, and editorial
comment therefrom is used on a program. No announcement is required.
12. A Government department furnishes air transportation to radio newscasters so
they may accompany a foreign dignitary on his travels throughout the country. No
announcement is required.
13. A municipality provides street signs and disposal containers for use as props on
a program. No announcement is required.
14. A hotel permits a program to originate on its premises. No announcement is
required. If, however, in return for the use of the premises, the producer agrees to
mention the hotel in a manner not reasonably related to the use made of the hotel on
that particular program, an announcement would be required.
15. A refrigerator is furnished for use as part of the backdrop in a kitchen scene of a
dramatic show. No announcement is required.
16. A Coca-Cola distributor furnishes a Coca-Cola dispenser for use as a prop in a
drugstore scene. No announcement is required.
17. An automobile manufacturer furnishes his identifiable current model car for
use in a mystery program, and it is used by a detective to chase a villain. No
announcement is required. If it is understood, however, that the producer may keep
the car for his personal use, an announcement would be required. Similarly, an
announcement would be required if the car is loaned in exchange for a mention on the
324 THE JOURNAL OF LAW AND ECONOMICS
program beyond that reasonably related to its use, such as the villain saying: "If you
hadn't had that speedy Chrysler, you never would have caught me."
18. A private zoo furnishes animals for use on a children's program. No an-
nouncement is required.
19. A university makes one of its professors available to give lectures in an educa-
tional program series. No announcement is required.
20. A well-known performer appears as a guest artist on a program at union scale
because the performer likes the show, although the performer normally commands a
much higher fee. No announcement is required.
21. An athletic event promoter permits broadcast coverage of the event. No an-
nouncement is required in absence of other payment by the promoter or agreement to
identify in a manner not reasonably related to the broadcast of the event.
D. Where service or property is furnished free for use on or in connection with a
program, with the agreement, express or implied, that there will be an identifica-
tion beyond mere use of the service or property on the program
22. A refrigerator is furnished by X with the understanding that it will be used in a
kitchen scene on a dramatic show and that the brand name will be mentioned.
During the course of the program the actress says: "Donald, go get the meat from my
new X refrigerator." An announcement is required because the identification by
brand name is not reasonably related to the particular use of such refrigerator in this
dramatic program.
23. (a) A refrigerator is furnished by X for use as a prize on a giveaway show, with
the understanding that a brand identification will be made at the time of the award.
In the presentation, the master of ceremonies briefly mentions the brand name of the
refrigerator, its cubic content, and such other features as serve to indicate the mag-
nitude of the prize. No announcement is required because such identification is
reasonably related to the use of the refrigerator on a giveaway show in which the
costly or special nature of the prizes is an important feature of this type of program.
(b) In addition to the identification given in (a) above, the master of ceremonies
says: "All you ladies sitting there at home should have one of these refrigerators in
your kitchen," or "Ladies, you ought to go out and get one of these refrigerators." An
announcement is required because each of these statements is a sales "pitch" not
reasonably related to the giving away of the refrigerator on this type of program.
The significance of the distinction between the identification in (a) and that in (b) is,
that in (a) it is no more than the natural identification which a broadcaster would give
to a refrigerator as a prize if he had purchased the refrigerator himself and had no
understanding whatever with the manufacturer as to any identification. That is to
say, in situation (a), had the broadcaster purchased the refrigerator he would have
felt it necessary, in view of the nature of the show, adequately to describe the
magnitude of the prize which was being given to the winner. On the other hand, the
broadcaster would not, where he had purchased the refrigerator, have made the type
of identification in situation (b), thus providing a free sales "pitch" for the manufac-
turer.
PAYOLA IN RADIO AND TELEVISION BROADCASTING 325
24. (a) An airplane manufacturer furnishes free transportation to a cast on its new
jet model to a remote site, and the arrival of the cast at the site is shown as part of the
program. The name of the manufacturer is identifiable on the fuselage of the plane in
the shots taken. No announcement is required because in this instance such iden-
tification is reasonably related to the use of the service on the program.
(b) Same situation as in (a), except that after the cameraman has made the forego-
ing shots he takes an extra closeup of the identification insignia. An announcement is
required because the closeup is not reasonably related to the use of the service on the
program.
25. (a) A station produces a public service documentary showing development of
irrigation projects. Brand X tractors are furnished for use on the program. The
tractors are shown in a manner not resulting in identification of the brand of tractors
except as may be recognized from the shape or appearance of the tractors. No
announcement is required since the identification is reasonably related to the use of
the tractors on the program.
(b) Same situation as in (a), except that the brand name of the tractor is visible as it
appears normally on the tractor. No announcement is required for the same reason.
(c) Same situation as in (b), except that a closeup showing the brand name in a
manner not required in the nature of the program is included in the program, or an
actor states: "This is the best tractor on the market." An announcement is required as
this identification is beyond that which is reasonably related to the use of the tractor
on the program.
26. (a) A bus company prepares a scenic travel film which it furnishes free to
broadcast stations. No mention is made in the film of the company or its buses. No
announcement is required because there is no payment other than the matter fur-
nished for broadcast and there is no mention of the bus company.
(b) Same situation as in (a), except that a bus, clearly identifiable as that of the bus
company which supplied the film, is shown fleetingly in highway views in a manner
reasonably related to that travel program. No announcement is required.
(c) Same situation as in (a), except that the bus, clearly identifiable as that of the
bus company which supplied the film, is shown to an extent disproportionate to the
subject matter of the film. An announcement is required, because in this case by the
use of the film the broadcaster has impliedly agreed to broadcast an identification
beyond that reasonably related to the subject matter of the film.
2 7. (a) A manufacturer furnishes a grand piano for use on a concert program. The
manufacturer insists that enlarged insignia of its brand name be affixed over normal
insignia on the piano. An announcement is required if an enlarged brand name is
shown.
(b) Conversely, if the piano furnished has normal insignia and during the course of
the televised concert the broadcast includes occasional closeups of the pianist's
hands, no announcement is required even though all or part of the insignia appears in
these closeups. Here the identification of the brand name is reasonably related to the
use of the piano by the pianist on the program. However, if undue attention is given
the insignia rather than the pianist's hands, an announcement would be required.
326 THE JOURNAL OF LAW AND ECONOMICS
APPENDIX C
lnterpretatve Illustrations of the Federal Communications Commissionfrom 40 FCC
141, 149-51.
28. (a) An automobile manufacturer or dealer furnishes to a producer of television
programs a number of automobiles with the understanding that the producer will use
them, or some of them, in some of his programs which call for the use of automobiles;
and that the automobiles may be used for other business purposes in connection with
the production of the programs, such as transporting the cast, crew, equipment and
supplies from location to location or transporting executive personnel to business
meetings in connection with the production of the programs. There is no understand-
ing that there will be any identification on the television programs beyond an iden-
tification which is reasonably related to the use of the automobiles on the programs.
No other consideration is involved. Under such uses, no announcement is required.
29. (a) A hotel permits a program to originate from its premises and furnishes hotel
services, such as room and board, for cast, production and technical staff, and also
furnishes other elements for use in connection with the programs to be broadcast,
such as electricity and cable connections, free of charge, and with no other considera-
tion. There is no understanding that there will be an identification of the hotel on the
program beyond that reasonably related to the use made of the hotel on the program.
No announcement is required.
(b) If the hotel pays money or furnishes free or at a nominal charge any services or
items which are not for use on or in connection with the program (e.g., furnishing free
or at a nominal charge room and board for the producer for any period of time not
related to the production of the program at the hotel site), an announcement is
required.
E. Effective Date
30. Does Section 317 as amended on September 13, 1960 apply to programs or
portions of programs produced or recorded prior to September 13, 1960?
No, unless valuable consideration was provided to a broadcast station (rather than
to a producer or other person) for the program or the inclusion of any program matter
therein and the program was broadcast after said date.
F. Nature of the Announcement
31. A station broadcasts spot announcements which solicit mail orders from listen-
ers. The sponsor is merely referred to in the announcements and in the mail order
address as "Flower Seeds" or "Real Estate" or "the Record Man." Such a reference to
the sponsor of the announcements is insufficient to constitute compliance with the
Commission's sponsorship identification Rules because it is limited to a description of
the product or service being advertised. The announcement requirement con-
templates the explicit identification of the name of the manufacturer or seller of
goods, or the generally known trade or brand name of the goods sold . . . .
PAYOLA IN RADIO AND TELEVISION BROADCASTING 327
32. A station broadcasts "Teaser" announcements utilizing catch words, slogans,
symbols, etc., designed to arouse the curiosity of the public by telling it that some-
thing is "coming soon." The sponsor of the announcements is not named therein, nor
is any generally known trade or brand name given, but it is the intention of the
station and the advertiser to inaugurate at a later date a series of conventional spot
announcements at the conclusion of the "teaser" campaign. Announcements of this
type do not comply with the Commission's sponsorship identification rules. All com-
mercial matter must contain an explicit identification of the advertiser or the gener-
ally known trade or brand name of the goods being advertised . . . .
33. A station carries an announcement (or program) on behalf of a candidate for
public office or on behalf of the proponents or opponents of a bond issue (or any other
public controversial issue). At the conclusion thereof, the station broadcasts a "dis-
claimer" or states that "the preceding was a paid political announcement." Such
announcements per se do not demonstrate compliance with the sponsorship iden-
tification rules. The Rules do not provide that either of the above-mentioned types of
announcements must be made, but they do provide in such situations that an iden-
tification be broadcast which will fully and fairly disclose the true identity of the
person or persons by whom or in whose behalf payment was made. If payment is
made by an agent, and the station has knowledge thereof, the announcement shall
identify the person in whose behalf such agent is acting. If the sponsor is a corpora-
tion, committee, association or other group, the required announcement shall contain
the name of such group; moreover, the station broadcasting any matter on behalf of
such group shall require that a list of the chief officers, members of the executive
committee or members of the board of directors of the sponsoring organization be
made available upon demand for public inspection at the studios or general offices
. . . of the station . . . .
34. Must the required sponsorship announcement on television broadcasts be made
by visual means in order for it to be an "appropriate announcement" within the
meaning of the Commission's Rule?
Not necessarily. The Commission's Rule does not contain any provision stating
whether aural or visual or both types of announcements are required. The purpose of
the Rule is to provide a full and fair disclosure of the facts of sponsorship, and
responsibility for determining whether a visual or aural announcement is appropriate
lies with the licensee . . . .
G. Controversial Issues
35. (a) A trade association furnishes a television station with kinescope recordings
of a Senate committee hearing on labor relations. The subject of the kinescope is a
strike being conducted by a labor union. The station broadcasts the kinescope on a
"sustaining" basis but does not announce the supplier of the film. The failure to make
an appropriate announcement as to the party supplying the film is a violation of the
Commission's sponsorship identification rules dealing with the presentation of pro-
gram matter involving controversial issues of public importance. Moreover, the
Commission requires that a licensee exercise due diligence in ascertaining the identity
of the supplier of such program matter. An alert licensee ~hould be on notice that
328 THE JOURNAL OF LAW AND ECONOMICS
expensive kinescope prints dealing with controversial issues are being paid for by
someone and must make inquiry to determine the source of the films in order to make
the required announcement . . . A station which has ascertained the source of
kinescopes is under an additional obligation to supply such information to any other
station to which it furnishes the program.
(b) Same situation as above, except that the time for the program is sold to a
sponsor (not the supplier of the film) and contains proper identification of the adver-
tiser purchasing the program time. An additional announcement as to the supplier of
the films is still required, for the reasons set forth above.
(c) Same situation as in (a) or (b), above, except that only excerpts from the film are
used by a station in its news programs. An announcement as to the source of the films
is required ...
36. A church group plans to film the proceedings of its national convention and
distribute film clips "dealing with numerous matters of profound importance to
members of (its) faith" in order to "disseminate to the American people information
concerning its objectives and programs." The group requests a general waiver under
Section 317(d) of the Communications Act so that it need not "waste" any of the short
periods of broadcast time donated to it by making sponsorship identification an-
nouncements. In the below-cited case, the Commission did not grant such a waiver
because of the absence of information indicating that the subject matter of the clips
was not controversial and because the alleged "loss" of a few seconds of air time was
not of decisional significance vis-a-vis Congressional and Commission policy relating
to issues of public importance.
EXHIBIT G
Fredric Dannen,
HIT MEN (1990)
•
POWER BROKERS
AND FAST MONEY
INSIDE THE MUSIC BUSINESS
Ill
FREDRIC DANNEN
Vintage Books
A Division of Random House, Inc.
New York
FIRST VINTAGE BOOKS EDITION, JULY 1991
Copyright© 1990, 1991 by Fredric Dannen
All rights reserved under International and Pan-American Copyright
Conventions. Published in the United States by Vintage Books, a division of
Random House, Inc., New York, and simultaneously in Canada by Random
House of Canada Limited, Toronto. Originally published in hardcover by Times
Books, a division of Random House, Inc., New York, in 1990.
Grateful acknowledgment is made to the following for permission to reprint
previously published material:
Hudson Bay Music Inc.: Excerpt from the lyrics of"Yummy Yummy Yummy"
by Arthur Resnick and Joe Levine. Copyright© 1968 by Alley Music Corp. and
Trio Music Company, Inc. Used by permission. All rights reserved.
William Morrow & Company, Inc.: Excerpts from Clive: Inside the Record
Business by Clive Davis. Copyright © 1975 by Clive Davis. Reprinted by
permission of William Morrow & Company, Inc.
National Broadcasting Company, Inc.: Excerpts from transcripts of NBC News
broadcasts of February 24, 1986, and March 31, 1986, concerning payola.
Copyright© 1986 by National Broadcasting Company, Inc. Excerpts reprinted
courtesy of National Broadcasting Company. All rights reserved.
Straight Arrow Publishers, Inc.: Excerpts from 'The Godfather ofRock-n-Roll"
by Fredric Dannen (these excerpts constitute a portion of Chapter 3) from the
November 17, 1988, issue of Rolling Stone magazine. Copyright© 1988 by
Straight Arrow Publishers, Inc. All rights reserved. Reprinted by permission.
Library of Congress Cataloging-in-Publication Data
Dannen, Fredric.
Hit men: power brokers and fast money inside the music business/Fredric
Dannen.-1st Vintage Books ed.
p. em.
Includes bibliographical references and index.
ISBN 0-679-73061-3 (pbk.)
l. Sound recording industry-United States. 2. Rock music-United States
-History and criticism. I. Title.
ML3790.D32 1991
338.4'778166'0266-dc20 90-55680
CIP
BOOK DESIGN BY]. VANDEVENTER
Manufactured in the United States of America
9B8
1rmer air
>fficer of
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at intro-
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ted that
•er CBS
e black.
e entire
nerican
put it,
n. But
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like a
ide red
:man-
ied on
tiator,
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ghhe
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Lildn't
•eight
t and
e felt
'alter
~t.
:cord
very-
-ked.
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>ster
rbra
Dia-
ton.
THE EDUCATION OF DICK ASHER
Asher felt he had to fight to get the American company interested
in his overseas acts. One artist Dick championed was a Spanish
singer named Julio Iglesias. He was vindicated when Iglesias's al-
bums sold millions of copies in the United States. "Not chopped
liver," he pointed out.
Asher knew he was a poor politician, though he was probably
worse than he realized. The rank and file hated the new deputy on
sight. To them, he was a spy sent down from Corporate, that
mysterious enclave on the thirty-fifth floor of Black Rock, CBS
headquarters in Manhattan. Dick did not help his cause with di-
plomacy. He detained people in endless meetings and wore them
down with interrogation. He thought CBS Records was out of
control and that no one was accountable. He would make them
accountable.
Asher set out right away to cut perks. He issued stern direc-
tives: buses instead of limos, less dining at fine restaurants, fewer
trips. People grumbled, but Dick was adamant. When his eye fell
on a huge ledger item, the millions being spent on independent
promotion, he was less certain what to do. It baffled him. Who
were these guys? Why were they paid so much? Of course, Dick
knew what independent promotion was. He had been one of the
first to use outside consultants to help plug records to radio. But
that was a long time ago. Before Dick went to London in 1972,
in die promotion was a small expense. You might hire a freelance
promoter to work a record for, say, $100 a week, because your
internal staff was overloaded. In seven years the decimal point had
moved three spaces. It now ran you as much as a hundred grand
to hire a top promoter for one pop song. The service had gone
from a tiny line item to the company's biggest expense after sala-
ries.
Dick knew that good Top 40 promotion was crucial and diffi-
cult. Each big record company had Top 40 promoters on staff in
every region of the country. The staff promoters called on stations
in their territories and attempted to urge new singles on the pro-
gram directors, the radio people with power to add a song to the
playlist. Top 40 radio was a paradox, though. It alone could make
a hit record in most cases, yet it strived to play only records that
were already hits. No Top 40 station wanted to be first on a new
song, and this made lhe program director a tough sell. Each
month the PD was assaulted with more than two hundred new
7
t the
over
You
orne
Top
with
1ce).
1s m
that
o be
tcert
page
hese
1rted
ized
. He
with
ords
the
·ears
ekly
ons.
1dies
was
o to
1sn't
e an
l bit
the
.me.
; an
i no
tists
y. A
rbra
dop
vent
/
THE EDUCATION OF DiCK ASHER
You were dependent on Top 40 radio for that. People did not
buy pop music they had never heard. But it was axiomatic that for
each single in the Top Ten, you could sell a million albums. So
promotion, the art and science of getting songs on the air, drove
the record business. Not marketing, because no amount of adver-
tising or even good reviews and publicity were enough to sell mil-
lions of albums. Not sales, because record stores only reacted to
demand and did not create it. Even the best A&R-artist and
repertoire-staff in the world couldn't save you if radio gave you
the cold shoulder.
Dick immediately formed some dark suspicions about inde-
pendent promotion, but he put them aside. He had other worries
that had nothing to do with possible illegality or even the high
price. It was simply dangerous to have a power base like that out-
side your company. The more powerful it became, the harder it
was to control. It was a slap in the face of your own people. Dick
kept insisting to the heads of promotion at Columbia and Epic, If
your staff can't do the job as well as the independents, get rid of
them and hire better people. They told him he was missing the
point.
It became imperative for Asher to prove them all wrong. But
how to do that? By taking a single and breaking it without indepen-
dent promotion. Easier said than done. If he chose a new group
for his experiment and failed to make the pop charts, what did that
prove? It was hard to break a new act under the best of circum-
stances. If he picked a star act, he was asking for trouble. The
torturing would start right away. He could see it: The artist's man-
ager or lawyer would blow up, and it was always a variation on the
same theme-One Career. My act has only One Career. How
dare you make my act an experiment. My act could sign with
another label.
So when Pink Floyd's The Wall hit the album charts and rose
to number one, Dick believed his prayers were answered. Nor-
mally, you could not have a hit album without a hit single, but
Pink Floyd was not normal. Pink Floyd's manager, Steve
O'Rourke, was barely conscious of Top 40 radio. He'd probably
never heard of independent promotion. He would not torture.
From a commercial standpoint, it hardly mattered if The Wall
generated a hit 45 or not. Your objective was to sell albums; you
never made much money from singles, even hit ones. If Asher
used Pink Floyd, his experiment carried little financial risk. Dick
9
in the
Top 40
~iment:
~ick off
Bruce
.IS own
.ecords
in the
; song,
.rket, a
in Los
ities to
of the
y con-
ong to
lid not
lration
milton
ay the
were
, even
;imply
'op 40
l
every-
~t that
asked,
.ourke
ourke
ed he
ts big-
~k re-
s and
after
~noon
.. A. It
THE EDUCATION OF DICK ASHER
was unbelievable. By mid-March KFI reported the song at number
1 KEARTH at number 3, and KHJ at number 9. A month later
"Another Brick" remained the top song at KFI and KEARTH.
KRLA never played the record, so for the purposes of the experi-
ment, the station was meaningless.
But the result was clear. It conjured images of the stone wall
on stage, standing impenetrable until unseen hands brought it
crashing down. How many bands, Asher wondered, could book
five back-to-hack dates in one of the largest indoor halls in America
and pack them in every night? How could you blackball any rock
act so popular? It was not a possibility that Dick had even allowed
for, because until now he had imagined that independent promo-
tion was at worst a powerful positive force, not an invincible neg-
ative one. Only when he considered the implications of what had
happened in Los Angeles did Asher realize what he was up against.
1111
They were called the Network, an informal alliance of the
dozen or so top independent promotion men. The Network was
rumored to have been formed at a summit meeting in New York
in 1978. The term surfaced, apparently for the first time, in a
November 1980 Billboard article. It was probably coined by its own
members; a few independent promoters even had "The Network"
embroidered on their golf shirts. Billboard identified some of the
key men of the Network in 1980. Among others, the magazine
named Joseph Isgro of Los Angeles; Fred DiSipio of Cherry Hill,
New Jersey; Gary Bird of Cleveland; Dennis Lavinthal of L.A.;
Jerry Brenner of Boston; and Jerry Meyers of Buffalo.
Though the term "Network" conjured images of a powerful,
secret society, it referred to the tendency of the promoters to work
as a loosely knit team. Each member had a "territory," a group of
stations over which he claimed influence. If a record company
wanted national airplay for a new single, it could choose to hire
one of the Network men, who would in turn subcontract the job
to the other members of the alliance.
The Network was mostly a phenomenon of Top 40. * To a
lesser degree, it promoted records to "urban" radio, an industry
euphemism for stations with a predominantly black audience.
* For several years, the preferred term for Top 40 has been CHR, or contempo-
rary hit radio, to reflect that such stations often play even fewer than forty records
at a time. "Top 40" is used throughout this book to mean CHR.
11
THf DEPUTY AND THE PRESIDENT
There were non-Network indies who promoted to Top 40 and
urban stations, but they were not nearly as well rewarded. There
were also indies who worked country and album-oriented stations.
The money in these formats was apparently not great enough to
interest the Network.
The two leading figures of the Network were Fred DiSipio and
Joe Isgro. According to one estimate, DiSipio, who worked out of
a squat office building in a shopping center near Philadelphia, had
influence over ninety key stations. One station DiSipio routinely
took credit for was KEARTH of Los Angeles, one of the Pink Floyd
holdouts. It might seem odd that a man who worked in Cherry
Hill, New Jersey, could deliver an L.A. station, but the Network
promoter's territory often had nothing to do with where he lived.
Joe Isgro of Los Angeles took credit for records added at L.A.'s
KFI-another station in Asher's experiment-but also KAMZ in
El Paso and WCIN in Cincinnati.
Not long after the Pink Floyd incident, Asher began to en-
counter Isgro and DiSipio, mostly in social situations. He found
them distasteful and dealt with them as little as possible. Joe Isgro,
a native of Philadelphia and only thirty-three at the time of the
Wall tour, could have passed for a hood. He wore black shirts and
custom-made suits and gold jewelry, and flashed big wads of C-
notes. He employed two beefy British bodyguards. Isgro was
broad-shouldered, with furtive eyes, a pencil mustache, a peren-
nial three-day beard. He referred to himself as a "street guy." It
was hard to imagine him making it as a promoter, let alone one
who could afford a marble-floored mansion in the San Fernando
Valley and a Rolls-Royce Corniche. He was humorless and men-
acing. Isgro said he was haunted by his tour of duty in Vietnam.
He kept a box full of photographs of the Vietcong he had slain.
Fred DiSipio was twenty-one years older and more polished
than Isgro. He was short, spectacled, and appeared to wear a rug.
He had a rapid-fire repartee and a surprising command of Yiddish.
"Freddy could open the shul and close it," said one man who
heard DiSipio speak. DiSipio also had a reputation for discourag-
ing competition. Like Isgro, he went around with a huge body-
guard, Big Mike.
It seemed incredible to Asher that the record industry was
paying millions to these "grade-B movie characters," as he called
some of the promoters and their retinue. After emerging from his
seven-year cocoon running CBS Records UK and then the com-
12
>p 40 and
ed. There
1 stations.
~nough to
iSipio and
~ed out of
lphia, had
routinely
'ink Floyd
n Cherry
Network
he lived.
at L.A.'s
~AMZ in
an to en-
1e found
foe Isgro,
ae of the
;hirts and
1ds of C-
sgro was
a peren-
: guy." It
lone one
i'ernando
md men-
vietnam.
slain.
polished
ar a rug.
Yiddish.
1an who
scourag-
ge body-
.stry was
1e called
from his
he com-
THE EDUCATION OF DICK ASHER
pany's entire foreign operation, Dick had not expected to find men
like Isgro and DiSipio as power brokers in the American record
business.
Asher had been involved with the music business for a long
time-since 1958, in fact, as a young associate at a mid-sized New
York law firm-and had seen a lot. This Network business was
something new, yet disturbingly familiar at the same time. Shortly
before the fifties had ended, payola-a contraction of "pay" and
"Victrola"-became a household word when disc jockey Alan
Freed went down for taking bribes to play records on WINS. Asher
long remembered the public outcry, the congressional hearings,
the ruined careers. Freed, who became a symbol of the payola
scandal, drank himself to death in 1965.
But payola did not go away. It was rampant again in the early
seventies, which brought a fresh round of scandals. Even then it
persisted. Payola was an unpleasant fact of life, but never all that
noticeable at the corporate level. It was pretty much a nickel-and-
dime affair. After all, how much did it take to bribe a low-paid
record-picker at a radio station?
Indie promotion in the eighties, however, was not a matter of
nickels and dimes. Asher did a quick calculation. CBS Records
was spending $8 million to $10 million a year on the indies. This
meant the entire industry was probably laying out at least $40
million. Dick had no idea what percentage was being used to bribe
radio stations, but if the indies could keep a monster group like
Pink Floyd off the air, it had to be a significant amount.
In time, indie promotion would be dubbed the "new payola,"
which indeed it was. Perhaps a better term would have been "in-
stitutionalized payola."
During the seventies, the record business had coagulated into
six large multinational companies, of which CBS and Warner
Communications were the biggest, and a handful of key indepen-
dent labels. But unlike other businesses-such as car manufactur-
ing or fast-food restaurants-bigness provided few competitive
advantages in records, at least in terms of having hits. In fact, it
could be a disadvantage. The small labels were often quicker to
spot a new trend, and they could make a record as cheaply as a big
company. And radio airplay was free to the label with the best
record.
The large record companies understood on some level that if
radio airplay were not free, it would mean a major competitive
13
TH ~ D~PUTY AND TH f PR~SID~NT
edge. The big companies had budgets sufficient to outbid the small
labels for airplay. Payola had always been the means to put a price
on free airplay, but it had never been institutionalized. To get a
lock on pop radio across the nation would take a big outlay of
cash. The large companies had the money, but they could not
allow their staff people to make payments to radio stations. It had
become too risky. The antipayola statute of 1960 was feeble and
rarely enforced. But the seventies gave rise to the Racketeer Influ-
enced and Corrupt Organizations statute, known as RICO, which
can inflict heavy penalties on a company that engages in bribery.
In the words of a law journal study on the "new payola": "The
threat of RICO liability created an incentive for record companies
to retain independent contractors for record promotion in order
to insulate themselves from imputed criminal liability or com-
plicity."
The Network proved the ideal insulation. Membership in the
Network did not necessarily mean you were a payola conduit.
Some top indies had clean reputations. Other Network men, how-
ever, plied station program directors with cash, cocaine, expensive
gifts, and hookers. The former program director of a medium-
sized California radio station, for example, admitted in 1987 that
he had taken about $100,000 in cash from an independent pro-
moter over a three-year period. Every week he got a "birthday
card" in the mail, delivered to a post office box he had set up under
an assumed name, as instructed by the indie. Each week he added
three or four songs for the promoter and found between $500 and
$1,000 in his birthday card.
There were other methods of delivering the payoff money.
One promoter stuffed the money in empty cassette boxes. Others
used record jackets. "There are programmers," one label executive
laughed, "who take the record up in the sleeve and go like this."
He held an imaginary 45 to his ear and shook it. "Sounds good,
sounds good. I like it, I like it."
The Network served its purpose. After 1978, records put out
by small labels began to vanish from the Top 40 airwaves. But
indie promotion was a two-edged sword. At first the big labels were
bidding against the small ones, but before long they were bidding
against each other. The price of indie promotion rose steadily. By
1985 it was costing the industry at least $60 million and perhaps as
much as $80 million a year. A label might spend as much as
$300,000 to promote one record.
14
L
wa
ce]
th:
pn
dis
sa1
co
thl
01
lO
di<
an
va
Tl
of
N
th
th
la·
bt
cc
at
as
re
ta
le
h;
bJ
w
lli
pl
S(
n
e:
ll!
mall
)rice
get a
ty of
l not
~had
:and
nflu-
Thich
bery.
"The
anies
order
com-
n the
1duit.
how-
~nsive
iium-
7 that
t pro-
thday
under
added
10 and
loney.
)thers
cutive
this."
good,
ut out
s. But
.s were
>idding
ily. By
wps as
Jch as
r-
THE EDUCATION OF DICK ASHER
This was vastly more money than was needed to rig the air-
waves. The leftover millions made a few top indie promoters ex-
ceptionally rich. Meanwhile, a few label bosses expressed fears
that indie promo dollars were being kicked back to some vice-
presidents of promotion at the record companies, the men who
disbursed funds to the Network. Mo Ostin, head of Warner Bros.,
said in a deposition, "There was ... a suspicion that [the indies]
could be corrupting promotion men who might work for us," al-
though, he added, "we had no indication that that had happened."
One former promotion VP, requesting anonymity, confirmed that
10 percent was a typical kickback, and admitted taking money. ''I
didn't steal enough,"he said. "I'm real fucking sorry; I saw many
an opportunity." Vice-president of promohori, he added, "is a very
valuable job. And nobody ever gets nailed. You know why?
They're all working for public companies. Nobody breathes a word
of what happened."
Though institutionalized payola remained a good deal for the
Network, the bribe-takers at radio stations, and promotion VPs on
the take, it eventually turned into a very bad deaHorthe labels
that had created it. The $60 million to $80 million in annual out-
lays might not sound oppressively large, but it was for the record
business. Despite its powerful influence on culture and fashion, re-
corded music is a relatively small industry. Americans today spend
about the same amount on breakfast cereal-$6.8 billion a year-
as they do on compact discs, tapes, and records. In 1985, the U.S.
record industry grossed no more than $4.5 billion and made pre-
tax profits of perhaps $200 million-and this is a generous estimate.*
Therefore, in 1985 the U.S. record industry was spending at
least 30 percent of its pretax profits on indie promotion. By then it
had become a financial crisis, one of the worst an industry has ever
brought upon its own head.
Even before it became unbearably expensive, the Network
was not a good investment. For all its power, the Network could
not make a hit record. No one could do that except the market-
place. You could saturate the airwaves with an uncommercial
song and have some moderate success, but in the end you could
not force people to buy a record they did not like. It is easy to find
examples of "turntable" hits: records that got loads of airplay but
* Maybe too generous. That year, four of the nation's six largest record compa-
nies lost money or were only marginally profitable.
15
TH~ D~PUTY AND TH~ PR[SID(NT
did not sell. Consider Cady Simon's hit single "Jesse," on Warner
Bros. Records. Said an executive at a competing label, " 'Jesse is
legendary as one of the most expensive singles of all time in the
amount of indie promotion money spent on it. I don't know
the actual number, but if you told me $300,000, I wouldn't blink.
The amusing thing is, it was top ten, it got a lot of airplay, but they
didn't sell any albums. It was perceived as a hit record. But the
album was a stiff. So was it a successful project? Not for anybody.
Except for the independent promoters. You can't blame them for
taking the money."
In fact, the Network's power came not from its ability to make
a hit record but to prevent one. This was deliberate, since the
Network was the means to deprive small labels of access to the
Top 40 airwaves and increase the market share of the large labels.
Unfortunately, market share isn't worth anything if you can't ac-
quire it profitably. In business, a company that buys market share
at a heavy price is tagged with the unflattering name of "loss
leader." The Network was the ultimate loss-leader deal.
Some of the record companies felt they had no choice but to
hire the indies. Dick Asher, for example, complained that "it
wasn't payola, it was extortion-the price you had to pay to be in
business." Said Elliot Goldman in mid-1986, when he was presi-
dent of RCA Records: "You got the feeling you had to hire them
so bad things wouldn't happen."
To make matters worse, the Network became adept at getting
money for nothing. "I call them claim-jumpers," said Paulie Gal-
lis, a non-Network indie promoter who had got his start in radio in
1948. One time, in the late seventies, Callis, who worked on re-
tainer for Motown Records, persuaded a friend at a radio station
in Tallahassee to add a Motown single to his playlist. A promotion
executive at Motown called Callis to thank him but said he was
unable to pay him a bonus for landing the station. "He says, That
station belongs to somebody else, and I have to pay that guy,"
Callis recalled. "I said, What do you mean it 'belongs' to somebody
else? Wait a minute! Are you that fucking stupid? You're going to
pay a guy for a station that I got?"
The Network men, some of them, were obstinate about being
paid, and you did not want to cross them. This seemed especially
true of Fred DiSipio. "The line about Freddy," said one promotion
vice-president, "was that if he flew in a plane over an antenna, he
claimed the station. Any time he could do one, he would turn it
16
in.
tot
del
the
tra~
hin
his
tip1
reh
rati
rna
rec
kn<
a s1
Aft
san
sta
bUJ
of1
Bo
the:
OUI
its
on
ke1
ev<
ho1
wo
m·
1 Warner
'Jesse is
1e in the
1't know
1't blink.
but they
But the
mybody.
:hem for
to make
ince the
s to the
e labels.
~an't ac-
et share
of "loss
e but to
that "it
to be in
ts presi-
re them
getting
lie Gal-
radio in
I on re-
station
motion
he was
s, That
t guy,"
nebody
oing to
t being
>ecially
notion
ma, he
turn it
r-m
THE EDUCATION OF DICK ASHER 4'
in. I admit, I allowed him to intimidate me." It always came down
to the Network's ability to stop a hit.
What's more, when a Network indie demanded a bonus for
delivering a station, it was hard for record companies to verify that
the station was playing the song in question. The standard con-
tract given to a Network promoter by a record company entitled
him to a bonus, or "spiff," of up to $7,500 each time a station in
his "territory" told Radio & Records magazine, the industry's top
tipsheet, it had added a specific song. If a radio programmer was
reluctant to add a song because he feared it would hurt his station's
ratings and endanger his job, he could still help a Network pro-
moter get his spiff by lying to Radio & Records. This common ruse
was called the "paper add." (An alternate ploy was to add the
record, but only during off hours-say, after 2:00A.M. This was
known as putting a record into "lunar rotation.")
Paper adds infuriated Radio & Records publisher Bob Wilson,
a scrupulously honest man who valued the integrity of his charts.
After he discovered the practice in the late seventies, about the
same time the Network came into being, he issued a warning that
stations caught reporting songs they never played would be
bumped from R&R's Top 40 survey. Wilson so warned a number
of offending stations, including KEARTH, after program director
Bob Hamilton reported a Doobie Brothers song he never put on
the air. Hamilton's KEARTH was one of the stations that had held
out on "Another Brick in the Wall."
As Dick Asher learned more and more about the Network and
its methods, it heightened the sense of eerie dislocation he had felt
on returning to U.S. operations after his long absence. Why, he
kept asking himself, did the industry allow it to continue? Why was
everyone around him so complacent? Surely, Asher figured, his
boss and longtime colleague Walter Y etnikoff, another attorney,
would share his concerns about independent promotion. He was
in for a surprise.
17
EXHIBIT H
R. Serge Denisoff,
SOLID GOLD, THE POPULAR RECORD INDUSTRY
(1975)
~OIILIID>
~OILI1D)
THE POPULAR RECORD
INDUSTRY
R. SERGE DENISOFF
• Transaction Publishers
New Brunswick (U.S.A.) and London (U.K.)
Copynghted matenal
. --- .
Fourth printing 1995
Copyright C 1975 by Transaction Publishers, New Btu.nSwlck, New Jersey
08903.
AU r:ighls rHMVed und~ In~etnJtionaJ and Pan.Arnerkan Copyright Con-
ventions. No part of this book ~y be reprochu:ed or transmitted in ally
fonn or by any means, electtonie or meebanical, including photocopy, re-
oonllila. or any information storage and retri.eval system, without prior
permission in writing from the publisher. All inquiries should be addressed
to 'Jnmsaction Publishets, R11tger.s- The State University, New Brunswick,
New Jersey 08903.
This book Is printed on acid-free paper that meets the Amerlean National
Standard for Permanence of Paper for Printed Library Material•.
Libru:y ofConpess Cataloa Number: 74-20194
ISBN: 0.818SS-S86-2 (paper)
Printed in the United States of America
Copynghted matenal
~-------------------------' ~-- .
THE VINYL CRAP GAME 97
ally has been a key factor in their approach to corporate dice
playing. Unlike their smaller counterparts, they have greater
resources to spend and consequently try more often to win.
A $50,000 gamble with possible winnings in the millions
means little to corporations with annual earnings of $200
million or more. Parent companies in conglomerate struc-
tures are sometimes only too happy to subsidize such activi-
ties for tax purposes. Yet, despite the obvious advantages of
size these bonuses are not as dedsive as one might expect.
THE BUCKSHOT THEORY OF RECORD
RELEASING: GOUATH VERSUS DAVID
CBS Records, with its plant and catalog, must produce an
enormous amount of product to keep its various bureaus,
agencies and departments busy. Of every I 0 records released,
only 2 or 3 wiJl sell. Consequently, large companies must
produce massive amounts of product to sustain their larger
corporate bodies. Huge investments are made and must be
maintained. A concentration upon proven talent, coupled
with the 7 to 3 ratio, motivates the larger companies to treat
newcomers indiscriminately, at the same time competing with
each other for sure-fire sellers. According to Mike Ochs:
They need that, they have to have that. Columbia owns aU their
own distributors. They've got like hundreds of hundreds of peo-
ple employed. So that the guy in St. Louis works only on Colum-
bia product. So to keep that kind of major overhead up. it's got
to have a lot of superstars. They can't afford no L to have like
10-20 acts that sell a million out because they have all that ma-
cllintry that has to lttep going.
Brown Meggs argues, "A company the size of Capitol
Records needs 20 LPs per month to support the overhead.''
"Or," David Lawhon, the marketing chief adds, "4,000 peo-
98 SOLID GOLD
ple geL spooky." Capitol operates on what Meggs calls For-
mula 10, which is nearly identical to Columbia's 7 to 3 ratio.
Capitol's advertising department head believes that in 10 re-
leases at least one should be gold with several others bringing
in a sizeable return. Companies with a smaller overhead, like
A&M, can be more selective about when they wish to chal-
lenge Lady Luck.
Still, companies with their own distribution systems
(branches) appear to have a tactical advantage in servidng
radio stations and retail outlets. Richard Schulenberg recaJls:
I was with two other companies before coming to Columbia, and
my first week was right at the height of Johnny Cash's "Boy
Named Sue." I was amazed to find out d1at every week, "Boy
Named Sue" had sold over 750,000 units, the single, which com-
pletely blew my mind because 1 had come from a company where
when we had sold 30,000 or 40,000 total on a single, we had
gotten very excited. we figured we were on the way. The idea that
Columbia had just sort of opened up the pipeline and the three-
quarter million units of one record had moved through that pipe-
line very easily without any returns in that week was a complete
mind blower to me.
The "throw it up against the wall, and see if it sticks" or
"buckshot" philosophy of the larger companies is highly con-
troversial. Many majors, including Columbia and Warner/ Re-
prise, officially condemn the practice. Conversely, artists,
agents and many company executives, all for different rea-
sons, decry the vast amount of product released each year.
Roy Silver, whose concern lies with artists , claims that the
major obstacle in the music business is getting ''the record
company behind the artist. .. Many artists feel lost at major
companies. A United Artists executive observed, "There's no
way of having 200 acts and keeping artists happy." uno you
know how many people from Columbia Records were here
when I opened the other night? .. asked blues singer john Paul
Hammond. "There were none ... not one person from my
~----------------~~----------------------------------~
THE GATEKEEPERS OF RADIO 253
Diego market will not be dismissed easily at future sessions of
the annual Gavin, Hamilton and Billboard broadcasters con-
ference.
The diminishing idiom of free-form radio continues to be
the record companies' favorite outlet. Bill Roberts, who broke
"American Pie," explains: "At progressive stations you can go
in the studio and sit down with the deejay and rap to him while
he's on the air in between records, and sometimes you can
hand him a record. And if he has enough trust in you as a
music expert, he'll put it on immediately and you tell him
what cut you want played and he'll play it." On Top 40, he
maintains, the situation if different: .. All they give you is 15
minutes to promote maybe 20 singles and 15 albums. If you
don't talk fast your chances of getting a record on are not too
great.''
GETTING THE NEEDLE ON THE RECORD
In a survey of Florida high-school students, George Allen
Booker found that 54 percent of his respondents listed the
disk jockey as the most important influence in the develop-
ment of their musical tastes.33 Despite the artists' dues paying
and record-company mixing and hype, it all comes down to
getting a deejay to play that record so a sufficient number of
people can hear it. Some of these listeners hopefully will like
it well enough to buy it.. The more people who hear a record
the greater its chances for success. This relatively simple pro-
cess is complicated by the sheer volume of product. AM Top
40 stations are deluged by dozens of record companies with
at least 7,000 singles each year, 2,000 more than in the payola
years. AM and FM stations receive that many singles plus
approximately 4,000 LPs, a thousand more than in the late
1950s. Since the average album has 12 cuts, the program
director has a hypothetical choice of 48,000 cuts and 7,000
single selections from which to choose. Obv·iously, all 55,000
---------------------------------------------------~
260 SOLID GOLD
records. The Rolling Stones early m their career wrote, "Un-
der-Assistant West Coast Promo Man" with the line, "Sitting
here and thinking just how sharp I am, I'm a necessary talent
for every rock and roll band.'' Richard Robinson, author,
deejay and producer, portrayed the promo man as "a breed
apart, resembling human beings, but living Jives based on
plastic being the true essence of good. To say, therefore, that
the promotion man is, ofne<'essity,jive is simply to state a sad
fact of Jife. "31 Despite the disapprobation hurled upon the
promo man by Robinson and the Rolling Stones, to the com-
pany he is the pulse of the people. He is closest to the street.
His sole function is to get precious air time for his records.
This is no simple feat, given the amount of product available.
Promotion departments use standard techniques of selling:
visits, caUs, artist biographies and an adequate supply of sam-
ple copies. Occasionally, the promotion man is assigned to
escort a touring act from station to station. Beyond this is the
shady area of "goodwill." One Detroit program director de-
fined goodwill: · ~The game of the promoter is to get you
obliged, be it through exclusives, dinner, theater tickets, or
what have you. "31 The "what have you" is a sticky subject.
Various favors are frequently exchanged in some markets and
none in others. Some underground stations consider plastic
bags containing .. grass'' or pills inserted in an album jacket
a token of goodwill. At the easy·listening station a bottle of
Chivas Regal or j&B is still welcome. The soul·music market,
which is nearly identical to the Top 40 milieu of the late
1950s, is the most susceptible to under-the-table promotion.
Small black companies vie with the Hollywood giants for air
time. Payola is an important promotional technique with soul
radio stations. Because of this situation many industry execu·
tives do not accept soul charts as accurate. Kal Rudman re·
fuses to have a soul section in his tip sheet. He says, "I started
the whole R&B thing, and I want no part of it. "40 Most profes~
sionals consider themselves corporate executives and conse-
quently frown upon activities which are openly beyond the
FCC or other legally prohibited rules of the game. However,
-----------------------------------------------------r~
264 SOLID GOLD
not only talk to a music director or program director about what
kind of music he should be programming, but they can walk down
the hall, up to a sales manager or the general manager of the
station, talk to him about fixing an advertising program, and then
go back to the program director and incorporate these two
things. This makes them much more professional and vital to the
total successful operation of the radio station and not just a
delivery boy.
The buying of advertising has increasingly become a pro-
motional tool. Spots provide the record company a minUle in
which to expose their acts before T op 40 audiences without
having to go through the program director's screening pro-
cess. TheoreticaJly. with enough advertising revenue a com-
pany can break an act in this manner. Spots feature one or
more cuts on an album followed by an announcement of the
title and the closing '~on Warner Brothers Records." There
is sufficient precedent to believe that spots are going to accel-
erate both on radio and television. Warner Brothers has been
experimenting, especially in England, with television adver-
tisements for Deep Purple. Company executives are ex-
tremely high on this possibility. The validity of spots,
perhaps, has best been illustrated by the popularization of
two commercials as popular songs. "It's Only Just Begun"
was originally a theme for a California savings and loan firm.
The song earned the Carpenters a gold record. The New
Seekers followed this success with "I'd Like to Teach the
World to Sing in Perfect Harmony"-·· a Coca.Cola commerA
cial. Spots, according to Dennis Killeen, Capitol advertising
director, do not always work. Shelter Records•s Freddie King
did a spot with minimal results . while j.]. Gale's radio ad was
a success. The reason for this differentiation was probably
due to the infectious guitar opening to CaJe's " Pretty
Women.'' Warner/Reprise, as Stan Cornyn is quick to obA
servet will try any method available to solve the problem of
getting the sound to the "folks out there ...
A&M, considered by many to be "the hot company of the
1970s." concentrates a large segment of its public·relations
------------------------------------------------------~ I · ~--
268 SOLID GOLD
a McLean recording of the song was being aired in the New
York area as a public service announcement, hopefully cre-
ating a "built-in market." Tapes of the album were sent to
progressive FM stations in areas where McLean was known
either through his college concerts or his slint on Pete See~
ger's ecology boat the Clearwater. His acceptance on FM radio,
particularly in the Chicago area where the singer was appear-
ing at the QJ.tiet Night club, hastened the issuance of the
album. Roberts and Cerf envisioned "American Pie" as a hit
single on AM radio. There were two major barriers: the AM
program director and the artist himself. " America n Pie" is
8~ minutes in duration, violating the 2:37 or 3:05 minute
length so popular with AM programming. The second prob-
lem was McLean's anti-record company attimde. A veteran of
the Broadside (NYC) New York folk-protest scene. McLean was
anti-establishment and Top 40 radio is, as free enterprise, as
"dog-eat-dog•• as any of john D. Rockefeller's early o il com-
panies. Bill Roberts , in time, convinced Don to "go around to
the radio s tations and meet some people with [him]." He was
never able to get McLean to explain the message of " Ameri-
can Pie." This problem was minor in contrast to breaking an
8 ~ minute folk song on AM radio. According to Marty Cerf,
United Artists ignored many of the traditional avenues. At
firs t tbey went around the Top 40 PD to the progressive sta-
tions, this being done with a two-week national tour of FM
stations and a mailing. Also, "we didn't buy one ad. We didn't
buy one T-shirt. We didn't buy one button. We went after it
as straight AM product. It was a lo t of money." UA allotted
the largest album expenditure on "American Pie" in its his-
tory, at least $100,000. Cerf recalls, "It was the greatesl suc-
cess this company ever had. but had it not been it would have
been the greatest expenditure in a flop we ever had." Nearly
all of the money was spent on AM radio spots, again going
around the program director to the people . This was all prior
to releasing the shortened single version. Mike Stewart, UA
president, personally ordered the field men to break it in best
jay Lasker style. " Mike would have looked bad if it bombed,"
-------------------------------------------------------r 1 · ~--
THE GATEKEEPERS OF RADIO 269
said one UA employee. College radio play was arranged. All
this was done prier to issuing the single. "It was," says Marty
Cerf, "a totally planned committed promotion . . . we totally
committed ourselves. We tried to develop it and sincerely
tried to bring it in." Both the album and the single have sold
nearly five million copies.
United Artists's media relations staff uses an interesting
mix of techniques introduced at other companies as well as
their own original innovations. UA's approach to program
directors includes the traditional "people-to-people" game
with goodwiJI, and Bill Roberts's attempts to indoctrinate his
some 25 field people on the aesthetics of UA product. He
says, "We have to turn them on to our product or they're
ineffective. They're really ineffective because they'Ll go in and
promote something else they like." As with A&M, the empha-
sis is first placed upon energizing the field people. If this fails,
Roberts and Cerfwould frequently go directly to the program
or music directors, as they did with "American Pie.'' UA also
places considerably more emphasis on the significance of me-
dia .
In the summer of 1971 United Artists introduced 7 -inch
scale miniatures of the 33 ~ album with a full-color deluxe
design down to the printed dust cover. United Artists an-
nounced the miniature album saying, "It's something the ra-
dio stations have been demanding for some time .. . with new
acts ... we must find as many areas as possible to promote the
groups, for PDs and Djsjust simply don't have time to dredge
through 45 minutes with every new act that crosses their
desk.·· The United Artists experiment with the mini-album
was fundamentally an attempt to get around the barrier of
getting people into the albums. These mini-albums contain
four cuts from the parent album which the United Artists staff
feels are the most salable. Another technique developed by
Cerf and Roberts consists of direct promotional mailings to
record-store per-sonnel, not just the dealers. Coupled with
their innovations was Phonograph Record magazine, which un-
like Circular and Fluff was a fuJJ-scaJe Roili1tg Stone size rock
EXHIBIT I
Michael C. Keith,
THE RADIO STATION
(8th ed. 2010)
Michael C. Keith
ELSEVIER
Broadcast, Satellite & Internet
EIGHTH EDITION
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Digital and HD Radio Revolution
Digital and HD
Radio Revolution
DAB makes analog AM and PM outmoded
systems. With the great popularity of home
and portable digital music equipment (CD,
MP3s, iPods), broadcasters are forced to
convert their signals to remain competitive.
Thus, DAB, or High Definition (HD) as it
is more popularly called, looms large in the
future of radio. The days of analog signal
propagation are numbered. (For an explana-
tion of both digital and analog signaling, see
Chapters 9 and 10.)
In the mid-1980s, compact disc players
were introduced to the consumer market.
Today, CD players no longer rank as the
top consumer item for home music repro-
duction, because they have all but been
replaced by iPods and MP3s. Turntables
have long gone by the board, and the analog
tape cassette market is consigned to the
history books. Digital is here to stay, at least
until something better comes along.
At first broadcasters viewed DAB as a
threat. The National Association of Broad-
casters (NAB) looked at the new sound
technology adversarially. In an interview
in the July 23, 1990, issue of RadioWeek,
John Abel, NAB's executive vice president
of operations, stated, "DAB is a threat and
anyone who plans to stay in business for a
while needs to pay careful attention."
As time went on, DAB was regarded as
a fait accompli, something that was simply
going to happen. Soon broadcasters assumed
a more proactive posture regarding the
technology, and then the concern shifted to
where to put the new medium and how to
protect existing broadcast operations.
Early on, NAB proposed locating DAB
in the L-band portion of the electromag-
netic spectrum. It also argued for in-band
placement. Eventually the FCC saw fit to
recommend that DAB be allocated room in
the S-band, and it took its proposal to the
World Administrative Radio Conference
(WARC) held in Spain in February 1992.
This spectrum designation is expected
to help in-band terrestrial development.
In-band, on-channel (IBOC) digital signal-
ing, developed by iBiquity Digital Corpora-
tion's Glynn Walden, permits broadcasters
to remain on their existing frequencies.
This is something they favor, as satellite
DAB signal transmission is regarded as a
significant threat to the local nature of U.S.
broadcasting. On the other hand, many
countries are fully supportive of a satel-
lite DAB system because they do not have
the number of stations the United States
possesses and thus lack the coverage and
financial investment.
Of course, digitized terrestrial radio
(called HD Radio) renders existing analog
receivers obsolete. This is cause for some
anxiety among broadcasters who wonder
how quickly the buying public will convert.
However, considerable confidence exists
since consumers' huge appetitite for new
and improved sound shows no sign of
abating. As of this writing, several manu-
facturers are offering HD receivers at prices
that are becoming more and more afford-
able and competitive and a number of car
manufacturers provide HD Radio in their
latest models. Digital converters are also
available at a modest price.
Considered another plus of digital radio is
its capacity to do other things. For example,
iBiquity has developed a technology that
allows those stations broadcasting digitally
to transmit data to portable digital services,
including cell phones. This is attractive
to the station operator's bottom line. The
ability to multicast (provide side-channel
transmissions) is yet another major plus
for HD Radio. Known as HD2, it allows
the medium to provide additional program
streams (two to eight channels) to the lis-
tening audience.
America is a nation of audiophiles, demand-
ing high-quality sound. Analog broadcasting
cannot compete with the interference-free
23
FIGURE 1.19
HD Radio
advertisement.
Courtesy iBiquity.
24
reception and greater frequency dynamics
of digital signals. Digital signaling heralds
a new age in radio broadcasting. Jeff Tellis,
former president of the IBS, explains why.
"The reason for the great interest in digital
broadcasting is its considerable number of
advantages." Among them are:
• Significantly improved coverage using sig-
nificantly less power
• Dramatic improvement in the quality of
the signal; compare CD to vinyl
• More precise coverage control using mul-
tiple transmitters similar to cellular phone
technology
• No adjacent channel reception problems
• On-channel booster capabilities eliminat-
ing the need to use separate frequencies
to extend the same signal
• Easy transmission of auxiliary services,
including format information, traffic,
weather, text, and selective messaging
services
• Sharing of transmitting facilities- common
transmitter and antenna
Telecommunications professor Ernest
Hakanen expands on the cost advantages
of digital broadcasting. "DAB also promises
to be economically efficient. Since there
is no interstation interference between
digital signals and because of the appeal
of the spectrum efficiency provided by the
interleaved environment, all of the channel
operators in an area could utilize the same
transmitter. The transmission facilities could
be operated by a consortium for the con-
struction, operation, and maintenance of
the common transmission plant. Antenna
height for DAB systems is also lower than
current FM standards. Electrical power con-
servation and savings are a huge advantage
of DAB."
Picking up on Hakanen's point about
consolidating broadcast operations, Lynn
Christian says, "The consortium (radio
station malls or clusters) approach to main-
taining and operating a station is common-
place because of economic reasons, and HD
Radio is very conducive to a collaborative
relationship among broadcasters."
Prior to the WARC meeting in 1992,
NAB's DAB Task Force proposed a set of
standards to ensure that the technology
CHAPTER 1 STATE OF THE FIFTH ESTATE
would operate effectively. The specifications
included:
• CD-quality sound
• Enhanced coverage area
• Accommodation of existing AM and FM
frequencies
• Immunity to multipath interference
• Immunity to stoplight fades
• No interference to existing AM and FM
broadcasters
• DAB system interference immunity
• Minimization of transmission costs
• Receiver complexity
• Additional data capacity
• Reception area threshold
After nearly a century of analog signal
transmission, radio is venturing into the
digital domain, which will keep it relevant
to the demands of a technologically sophis-
ticated listening marketplace as it embarks
on its next 100 years. As of this writing
hundreds of radio stations across the country
offer digital signals, and the majority are
also providing expanded listening options
with HD2 service. At several industry gath-
erings in the first half of the 2000s, former
NAB president Eddie Fritts presciently pro-
claimed HD Radio as the wave of the medi-
um's future, saying "Transitioning to digital
will give radio even better opportunities to
serve [its] listeners."
Today, not all industry observers see HD/
HD2 as the solution to the drop in music
radio listening. Observes Mark Ramsey of
Mercury Media Research, "Will digital help
reverse radio's declining audience? Abso-
lutely not." Counters Dave Neugesser, "It's
not something that's going to happen over-
night. HD 2 gives radio an infinite dial with
incalculable choices, but it won't impact the
market as fast as some would like. Before this
happens, it has to be standard equipment in
new cars, and people have to buy HD radios.
It's a steep hill, but it can be surmounted."
Satellite and Cable Radio
Radio broadcasters retain a wary eye on the
ever-evolving digital audio services being
made available by satellite companies (see
Figure 1.20). It is the threat of increased
h
Satellite and Cable Radio
competition that inspires concern for the
new and evolving audio options. Although
broadcasters have long employed satel-
lite programming and network services to
enhance their over-the-air terrestrial signals,
the idea of a direct-to-consumer alterna-
tive has not been greeted with enthusiasm,
especially since these nonterrestrial signals
are available in digital sound, something
broadcasters are just beginning to offer. For
several years, the FCC debated the ques-
tion of satellite radio. In the waning years
of the 1990s, the feds gave licenses to com-
panies, such as CD Radio and XM Satellite
Radio, to launch their services. Meanwhile,
the NAB vociferously argued against its
introduction into the local marketplace.
Despite all the brouhaha, XM Satellite
launched its service in September 2001
and a year later claimed nearly a quarter of
a million subscribers. Less than a year after
XM Satellite rolled out its audio service,
Sirius Satellite Radio debuted. It quickly
became clear to terrestrial broadcasters
that there was a new kid in town, one
who would further accelerate the splinter-
ing of the radio listening audience. In 2008,
both satellite radio services merged, with
Mel Karmazin at the helm of the renamed
SiriusXM.
Over the air broadcasters contend that
their local orientation betters the services
of the satellite audio companies, which
are nationally based programmers. Former
Infinity Broadcasting senior vice president,
David Pearlman, says, "Broadcast radio
is locally rooted and the satellite compa-
nies can't fulfill that need at the present
time. This will be its saving grace and
aid in its ability to withstand this frontal
attack. With its selling of local news, traffic,
weather, events, personalities, and services,
the product differentiation will work in the
industry's favor."
Satellite radio is fee driven and offers
a wide array of program options, which
include an array of famous personalities,
among them Howard Stern, Bob Dylan,
and Martha Stewart. In all, satellite radio
provides some 200 channels to subscrib-
ers. A monthly cost of $12.95 is charged
for the coast-to-coast signals (continuously
in receiver range), but subscribers also
have to invest money for receiver equip-
ment. SiriusXM has signed contracts with
car manufacturers to install their digital
receivers and predicts the acquisition of an
impressive segment of the drivetime listen-
ing audience in the not too distant future. At
this writing, satellite radio was approaching
14 million subscribers, which for a company
whose primary revenue is based on "sign-
ups" is encouraging.
In the mid-2000s, many longtime broad-
cast radio listeners were making the switch
to satellite for reasons similar to those
articulated by media scholar and author
Christopher Sterling: "Like many older
Americans, I used to listen to radio, espe-
cially in the car . . . but in the past year
here in Washington, the medium has left
me in the lurch. I used to listen to three
stations (usually one at a time), but all have
dumped friendly formats to slave after
programming already available on other
outlets in this market. The main public
radio station dropped a decades-long clas-
sical music and talk format to rely totally
on the latter - including British talk shows
that keep giving me numbers I can call
in London (I note with an 'I told you so'
feeling that their audiences and donations
are down as a result). The remaining com-
mercial classical music station got caught
in a shift of Clear Channel station frequen-
cies and now uses a fringe transmitter that
can't put a decent signal into downtown.
And most recently, the oldies station that
25
FIGURE 1.20
Courtesy National
Association of
Broadcasters.
I ~
26
had played music from the 60s and 70s
'moved ahead' and now focuses on the
late 70s and the 80s. Why do programmers
presume nobody of 55 matters? Thank
heaven for satellite radio where genuine
choice thrives. I almost never turn on a
radio anymore."
Former XM programming chief Lee
Abrams discounted the potential impact on
his medium of terrestrial HD Radio. "''m
pretty sure these guys will screw up HD.
They'll add a Blues channel but it'll play 200
blues songs and be run by guys who don't
know much about the blues beyond Stevie
Ray Vaughn." And about the potential of
increased local programming on broadcast
radio stations influencing the fate of his
medium, Abrams said, "I doubt local radio
will ever get back to the so-called 'commu-
nity.' In fact, they're going the other way
by cutting costs and taking on more remote
voice track and syndicated programming."
To compound the competition for
the listening audience, cable companies
provide in-home music services for most
of their subscribers. For example, Comcast
cable users receive more than 50 chan-
nels of music that are often quite niche
specific. These commercial-free channels
of diverse nonstop music, replete with on-
screen information about what is being
played, are very attractive to subscribers
and frequently result in the loss of yet
another portion of traditional radio's lis-
tening audience.
That said, many media observers believe
satellite radio's prospects for succeeding
in the face of myriad new audio com-
petitors and mounting debt is not good.
Jason Insalaco of The Kelton Agency says,
"Satellite radio's subscription-based model
has not yet reach critical mass, and I'm not
sure it ever will."
Internet Radio
In the early 2000s, many listeners accessed
their favorite radio station via their com-
puters. However, with the specter of
costly copyright royalty fees imposed on
stations streaming music, their numbers
dwindled and the future of Internet radio
was cast in doubt. To mollify the situation,
CHAPTER 1 STATE OF THE FIFTH ESTATE
a proposed royalty rate compromise bill,
known as the Small Webcaster Settlement
Act (H.R. 5469), was passed by Congress.
It was designed to mitigate the burden, so
the future for the medium has brightened.
Rates established by the Digital Millennium
Copyright Act of 1998 had forced many
radio broadcasters - both commercial and
noncommercial - to reconsider their plans
to Web cast. At the time radio industry
publisher Eric Rhoads made this observa-
tion, "With the current fees, the econom-
ics do not make sense for anyone intent
on building a business from this. Unless
Congress steps in and makes a change, the
RIAA fees are unreasonable and will kill
the music side of online radio."
Despite the upheaval resulting from the
"pay for play" issue, most broadcasters felt
that it was important to retain a Web pres-
ence, even if it meant offering no music
programming. It was thought that stations
broadcasting news, sports, talk, and other
nonmusic forms of programming were the
likeliest to remain in the webcasting busi-
ness. Maintaining a Web site for promotional
purposes, even without audio streaming,
was perceived as a worthwhile endeavor.
Commented Jay Williams, Jr., "In the initial
surge of the dot.com boom, radio stations
rushed to create web sites that included
station, music and local event information
as well as billboard ads. After the Inter-
net bloom faded in 2001, many stations
stopped streaming audio and many radio
web sites languished. Station web sites are
again considered essential, and streaming
over the Internet is seen as a critical, addi-
tional distribution platform for terrestrial
radio stations. As more national and local
advertisers demand a web site presence as
part of their radio buys, stations have also
learned the benefits of using these sites to
relate programming and promotion infor-
mation. Station web sites can give listeners
direct and immediate access to personali-
ties and can be used for listener research,
both of which can improve a station's con-
nection with the audience and the on-air
product."
In spite of the formidable issues con-
fronting webcasters, the RAB determined
that over 4000 stations were streaming
their content as of April2002, andArbitron/
~
E
t
Internet Radio
Edison Media Research calculated that online
radio listening actually grew from 14% in
1999 to 23% in 2001. Meanwhile, Measure-
Cast reported that Internet radio listening
was continuing to grow a year later, so the
practice was far from moribund. Radio Ink
magazine cited Jazz FM and Virgin Radio
in London, L-Love Radio in Sacramento,
ESPN Radio in Connecticut, and WQXR/
FM Radio in New York as the top five simul-
cast streamers during the summer of 2002.
Indeed, today stations continue to view
the Internet as a viable supplement to their
on-air signals, especially for promotion and
audience research purposes. Interactive
radio is a growing reality, as is the oppor-
tunity for everyone with the right com-
puter and software to be a broadcaster or
cybercaster. With an Internet encoder, the
home user can transmit to an international
audience. This prospect prompts a collective
sigh from station managers, who are losing
track of the new forms of competition.
Notes longtime broadcaster Lynn Chris-
tian, "The major concern regarding the
future of radio is centered on new competi-
tion from satellite, cable, and online sources.
Those companies that are planning to
partner with these new media choices, and
develop data services, will undoubtedly be
the big winners in the twenty-first century.
Broadcast radio, as I have known it during
the past 50 years, will not be the same in the
next few years. But what American business
is the same now? These are revolutionary
times in radio and in the world."
Jason Insalaco, observes:
Radio executives programming in the rapidly
changing media landscape must embrace the
technological revolution that is upon them.
Cell phones, the Internet, MP3 players, the
iPod, and videogames are vying for the audi-
ence's attention. Programmers must heed these
encroachments on terrestrial radio or else
accept extinction. Rather than fear the new and
evolving audio media, traditional radio needs to
embrace it for its own benefit. Radio websites
are great places for listeners to find out about
the station's personalities, music, contests, and
events. Websites are cyber-extensions of the
over the air station brand. Station websites also
enhance audience interactivity and constitute
another revenue source for a station.
27
FIGURE 1.21
Stations employ
websites to extend
their brand. Courtesy
97lFMTalk.
~+·' ....................................... .........
28
FIGURE 1.22
The Apple iPod
represents yet
another competitive
threat to broadcast
radio. The youth
listening market
has enthusiastically
embraced the new
audio alternative,
causing further
anxiety among
already besieged
radio station
programmers and
managers.
In 2009, the biggest challenge confront-
ing Internet presence related to fees charged
to provide music. States Paul Kemp of
Backbone Networks, an Internet radio soft-
ware provider:
The performance royalty rates is probably
the largest obstacle. Currently, in the US, there
are a number of different rates and laws that
apply to internet performance royalty rates.
This includes the Small Webcasters Settlement
that requires stations of a certain size to pay a
percentage of their revenue. There is also the
commercial Copyright Review Board (CRB)
rate that requires internet radio stations to
track performances of a particular piece. This
rate escalates through next year [2009] when
it is up for renewal again. The reason this is a
big challenge for internet radio is that the rate
is higher than for other broadcast mediums,
like terrestrial and satellite broadcasts. If the
rate was equal across all broadcast media we
suspect there would be a rush to internet
broadcasting because of the more precise lis-
tener statistics that can be generated and the
opportunity to more precisely advertise to a
particular target. The royalty rate discussion
masks a broader issue that needs to be con-
fronted. The strength of the internet is that it
is worldwide. As such an internet broadcaster
would have to pay performance royalties to
all of the Professional Rights Organizations
where a connection terminates (the country
from where the listener connects).
Cognizant of the many obstacles and chal-
lenges that exist in the age of the Internet,
most radio broadcasters forecast a long-term
CHAPTER 1 STATE OF THE FIFTH ESTATE
relation between the two mediums, one that
will benefit both. As radio heads warp speed
into this "future world," it is obvious that
aspiring broadcasters will have to know their
way around a computer, because the audio
studio will exist both in the ether and in
cyberspace. For those interested in this aspect
of the medium, Radio and Internet Newslet-
ter (RAIN) provides a daily update on the
key issues involving radio and the Internet.
Mobile Music Services
Cell phones, with music downloading capa-
bilities, and MP3s and iPods constitute the
biggest competitive challenge to radio, and
with the ever-expanding WiFi and WiMax
universe, this will only increase. Mark
Ramsey says, "We are fast-entering a time
when 'radio' will become a feature of other
things rather than simply a destination unto
itself, as it has been up until now." Although
many media observers predict that down-
loading will continue to draw huge numbers
of young listeners away from traditional
radio, Emmis Communication's VP of Pro-
gramming, Jimmy Steal, thinks otherwise:
I don't agree that there is a mass exodus of
young people away from radio to downloading
media. According to the Paragon Media Youth
Radio and New Media study conducted earlier
this year (Spring 2008), 14-2 4 year old males
and females who "listen to music on FM over
the air more than they listen to music from
other sources" surged from 27% in 2007 to 41%
in 2008. All MP3 players need to be fed new
music~ Check out the latest generation Micro-
soft Zune model withe built in FM receiver. You
can bet Microsoft did a lot of research Before
making this radio upgrade. Can we be doing an
even better job of attracting young listeners?
Absolutely, in the future radio needs to perme-
ate cell phones as well as all mobile media.
Steal's boss at Emmis, Jeff Smulyan,
agrees:
While there has been a migration to iPods,
recent research indicates that most new music
is discovered by traditional radio (65%). That's
why Zune has added a tagging device to its new
Zunes, which lets people buy songs they hear
on the radio included in the Zune. Our goal
as an industry is to have a radio embedded in
all portable devices (iPods, PDAs, and all cell
J
LPFM (Low-Power FM)
phones) within the next five years We think
radio is a perfect complement to portable music
consumption in the future. Nearly half of all cell
phones sold outside the United States include
radios. There is a Paragon research study that
was featured in The New York Times recently
the showed that among younger listeners, radio
consumption has actually increased in the last
year as iPod fatigue begins to occur.
Michael A. Krasness, head of Oxysys, a
mobile music networking service, expands
on the virtues of his enterprise:
For the listener, traditional music radio -
both over-the-air and Internet delivery - is
about listening to tracks the user already
knows, plus music discovery by the radio sta-
tion's playlist, driven by an ad-based revenue
model. Mobile music services add to that by
allowing interactive user selection of music,
active participation in the music discovery
process, and social networking. As similar ad-
based revenue model may be augmented by
e-commerce through integration of a store.
Traditional radio certainly provides comple-
mentary services for our users. As a feature for
our users, Oxy phling1 includes simple, inte-
grated access to a number of Internet radio
stations. For the radio station, they now have
access to our community of mobile users.
With Pandora Radio, Slacker, and other
Internet-based mobilized audio services
likely venturing into nonmusic areas, such
as talk and sports, the competitive threat
to broadcast and satellite radio looms larger
than ever. On the upside, Consultant Ed
Shane says, "these services have new apps
for mobile phones that allow reception of
terrestrial radio."
LPFM (low-Power FM)
A microradio movement surfaced in the
1990s and raised the ire of both broadcast
regulators and the industry. The debate
positioned the NAB against what it labeled
radio "pirates." After lengthy reflection,
FCC Chairman William Kennard proposed
rule-making designed to legitimize these
unauthorized, tiny wattage outlets. The
argument used to justify support of LPFMs
cited the erosion of programming diversity
in commercial radio as the consequence
of widespread consolidation and mergers.
According to Kennard this new species of
broadcaster would give voice to those alien-
ated or disenfranchised by mainstream cor-
porate radio. The FCC's proposal sought to
create two types of new licenses on the FM
band. Power would span 1 0 (LP 1 0) to 1 00
(LP 1 00) watts with service areas restricted
to three to nine miles. Among many stipu-
lations, the FCC requires that LPFM licens-
ees be nonprofit organizations. This rule
helped placate commercial broadcasters'
concerns that the new category of stations
would represent yet another competitive
threat. The LPFM rules further require that
this "sub" or "secondary" category of radio
stations not interfere with the signals of
regular full power outlets. As the FCC
states, "LPFM stations are not protected
from interference that may be received
from other classes of FM station."
Perhaps the greatest threat to the existence
of microstations is the looming conversion
of regular radio outlets to IBOC digital. This
will all but squeeze out any chance for the
continued survival of the community-centric
medium. Meanwhile, many proponents of
LPFM have been alarmed by the microme-
dium's takeover by conservative religious
broadcasters, which have been scooping up
as many noncommercial frequencies (both
primary and secondary) and translators as
possible to spread their gospel.
Former executive director of now defunct
Allston-Brighton Free Radio, Stephen
Provizer, gives this view of the threatened
medium. "As an open platform for all voices,
we had two goals: to disseminate program-
ming that would otherwise be unavailable
and to empower our participants which, to
the greatest extent possible, encompassed
the entire community. The first goal becomes
increasingly important as the range of con-
sumer choice becomes narrower due to
ongoing corporization and an obsession with
demography-driven advertising. The second
goal, participation, is driven by our belief that
direct participation is the key to empower-
ment. If an individual in our media-drenched
culture is going to be able to exercise critical
judgment toward mainstream media, he or
she must have the process demystified and
clarified. Perhaps if media literacy educa-
tion was more available in lower school this
would not be necessary, but such is not now
and has never been the case."
29
~6 ................................................ .........
l 06
I
L
is not always the case. At some stations, the
position is primarily administrative or cleri-
cal in nature, leaving the PD to make the
major decisions concerning airplay. In this
instance, one of the primary duties of the
music director might be to improve service
from record distributors to keep the station
well supplied with the latest releases. A
radio station with poor record service may
actually be forced to purchase music. This
can be prevented to a great extent by main-
taining close ties with the various record
distributor reps.
Over the years the music industry and
the radio medium have formed a mutu-
ally beneficial alliance. Without the product
provided by the recording companies, radio
would find itself with little in the way of
programming material, since 90% of the
country's stations feature recorded music.
At the same time, radio serves as the princi-
pal means by which the recording industry
gets word of its new releases to the general
public. Succinctly put, radio sells records.
Although radio stations seldom pay for
their music (CDs) - recording companies
send demos of their new product to most
stations - it must pay annual licensing fees
to American Society of Composers, Authors,
and Publishers (ASCAP), Broadcast Music
Incorporated (BMI), or SESAC (Society of
European Stage Authors and Composers)
for the privilege of airing recorded music.
ASCAP provides a "blanket" license for
music stations. Fees are a percentage of a
station's annual income, usually 1-1 Vz% of
gross income. According to ASCAP, non-
commercial radio stations "pay an annual fee
determined by the U.S. Copyright Office."
These fees range from a few hundred
dollars at small, noncommercial, educational
stations to tens of thousands of dollars at
large, commercial, metro market stations.
The music licensing fees paid by stations
are distributed to the artists and composers
of the songs broadcast.
When music arrives at the station, the
music director (sometimes more appropri-
ately called the music librarian or music
assistant) processes them through the
system. This may take place after the PD
has screened them. Records are catego-
rized, indexed, and eventually added to
the library if they suit the station's format.
CHAPTER 3 PROGRAMMING
Programmer Jon Lutes designates music
categories in the following manner: New
Music, Medium Current, Hot Current, Hot
Recurrent, Medium Recurrent, Bulk Recur-
rent, Power Gold, Secondary Gold, Tertiary
Gold, and so forth. Each station approaches
cataloging in its own fashion. Here is a
simple example. An AC outlet receives an
album by a popular female vocalist whose
last name begins with an L. The PD audi-
tions the album and decides to place three
cuts into regular on-air rotation. The music
director then assigns the cuts the following
catalog numbers: Ll06/U/F, Ll06/D/F, and
L 1 06/M/F. L 106 indicates where the album
may be located in the library. In this case,
the library is set up alphabetically and then
numerically within the given letter that rep-
resents the artist's last name. In other words,
this would be the 1 06th album found in the
section reserved for female vocalists whose
names begin with an L. The next symbol
indicates the tempo of the cut: U (p) tempo,
D(own) tempo, and M(edium) tempo. The
F that follows the tempo symbol indicates
the artist's gender: Female.
When a station is computerized (and in
this day and age, few are not), this informa-
tion, including the frequency or rotation of
airplay as determined by the PD, will be
entered accordingly.
Playlists are then assembled and printed
by the computer. The music director sees
that these lists are placed in the control room
for use by the deejays. This last step is elimi-
nated when the on-air studio is equipped
with a computer terminal. Deejays then
simply punch up the playlists designed for
their particular airshifts. Ed Shane offers, "To
hone the music mix for proper balance and
rotation, stations use music rotation software
from a variety of suppliers. The most used
software program is Selector from Radio
Computing Services (which also supplies
music test analysis software, traffic software,
and a digital studio operation system). Other
popular music rotation software is Power-
Gold and Music Master" (see Figure 3.22).
Without a doubt, the use of computers in
music programming has become standard,
especially in larger markets where the cost
of computerization is absorbed more easily.
The number of computer companies selling
both hardware and software designed for use
Syndicator Services
syndicated programming of some type,
which may consist of as little as a series
of one- or two-minute features or as much
as a 24-hour, year-round station format.
Longtime program specialist Dick Ellis
cites economics as the primary reason
why stations resort to syndicators. "When
I programmed for Peters Productions
they supplied high-quality programming
and engineering at a relatively low cost.
For instance, for a few hundred dollars
a month a small market operator gets
a successful program director, a highly
skilled mastering engineer, all the music
he'll ever need (no service problems
with record companies) recorded on the
highest quality tapes available. It takes a
programmer eight hours to program one
twenty-four-hour cut reel. It takes a mas-
tering engineer eight hours to remove all
the pops and clicks found on even brand
new records, plus place the automation
tones. All of this frees the local operator
to concentrate his efforts on promotion
and, of course, sales."
William Stockman, who led Schulke
Radio Productions (SRP was purchased by
Bonneville Broadcasting System in the mid-
19 80s), says that stations are attracted to
syndicators because of the highly profes-
sional, major market sound they are able to
provide. "By using SRP's unique program-
ming service, a smaller station with limited
resources can sound as polished and sophis-
ticated as any metro station."
Both economics and service motivate
radio stations to contract syndicators, con-
tends former Satellite Music Network
(now part of ABC Radio) programmer
Lee Abrams (now heading the program-
ming effort of XM Satellite). "Stations are
attracted to our affordable, high-quality
programming. It's just that simple. Syndies
provided an excellent product within a
cost-effective context. Their expertise in
delivering niche concepts was very appeal-
ing to radio operators."
The late and great Rick Sklar observed,
"In today's cost-conscious economic climate,
more and more radio station operators are
turning to suppliers of twenty-four-hour
formats for their programming. Whether
delivered via satellite, conventional tape,
CD or DAT, these increasingly sophisticated
Pro's and con's of using a consultant:
* Objective, experienced view
* Exposure to new ideas
* Ongoing evaluation of the
station
* Input about stations from
around the country
* Overreliance on consultant
and not enough local input
* Program director gets too
much advice from too many
sources
* National research and information
* Experience/assistance in a wide
range of areas including music,
promotion, marketing, talent
management, etc.
products are not only penetrating new
markets but larger markets as well, where
until now, traditional thinking has held that
locally originated programming was the only
way to go."
The demand for syndicator product has
paralleled, if not exceeded, the increase in
the number of radio outlets since the 1960s.
Again, the new millennium has brought a
change in the field of program syndication
with the large radio corporations often
assuming the chore of program generation
in-house.
Every part of the broadcast day is served
by syndicators, and morning drive in par-
ticular, observes Ed Shane. "Syndicated
morning shows are widespread and prolif-
erating. There are almost too many to keep
track of. At a quick glance, you've got Bob
and Sheri, John Boy and Billy, Bob and Tom,
Mark and Brian, Steve and DC, Big D and
Bubba, Mancow, Opie & Anthony, and on
and on."
Syndicator Services
The major program syndicators usually
market several distinctive, fully packaged
radio formats. "In its heyday, Peters Pro-
ductions made available a complete format
service with each of their format blends.
They were not merely a music service. Their
programming goal was the emotional grati-
fication of the type of person attracted to
a particular format," says Dick Ellis, whose
former company offered a dozen differ-
ent formats, including Beautiful Music,
Easy Listening, Standard Country, Modern
FIGURE 11.7
Courtesy Jacobs
Media.
313
314
~--------------------------
CHAPTER 1 1 CONSULTANTS AND SYNDICATORS
Country, Adult Contemporary, Standard
MOR, Super Hits, Easy Contemporary, and
a country and contemporary hybrid called
Natural Sound.
Century 21 Programming also was a leader
in format diversity, explains Dave Scott.
"Our inventory included everything from
the most contemporary super hits sound to
several Christian formats. We even offered a
full-time Jazz format. We had programming
to fit any need in any market."
Drake-Chenault Enterprises (now owned
by Jones Satellite Networks) was among
the oldest and largest of syndicators and
specialized in Beautiful Music. Today, Clas-
sical Music Network, TM Century, Jones
Satellite Network, Westwood One, United
Station Radio Network, and NBG Radio
Networks also are among the most success-
ful of those syndicators marketing several
program formats. Some syndicators prefer
to specialize in one or two programming
areas. For example, Bonneville Broadcast-
ing and Churchill Productions primar-
ily specialize in the adult Easy Listening
format.
Syndicator formats are fully tested before
they are marketed, explains Stockman. "At
Schulke our strategy was to reorient the
music from essentially a producer-oriented
to a consumer-oriented product. Music
was tested on a cut-by-cut basis in several
markets coast-to-coast. Using patented and
proven methodology, music was carefully
added or selectively deleted. By determin-
ing what songs the listeners like to hear
and which songs they dislike, SRP assem-
bled a totally researched library that has
been on the air via our subscriber stations
since March 1983. Every song played on
our stations has been rated by the listeners
as a 'winner' and all the 'stiffs' that have
a high dislike factor have been eliminated
altogether."
Customized sound hours are designed
for each format to ensure consistency
and compatibility on the local station
level. "An exact clock is tailored for our
client station after our market study. The
format we provide will perfectly match
the station in tempo, style, music mix,
announcing, promos, news, weather, and
commercial load," says program syndicator
Dave Scott. Observes Ed Shane, "The key
to using syndicator or network program-
ming is to make it sound like it belongs
to the station. Even big personality shows
like Rush and Dr. Laura can make use of
local avails and bumpers for personalized
call letters and promos."
Audience and market research and anal-
ysis are conducted by syndicators before
implementing a particular format. "Our
clients receive comprehensive consulting
services from our seasoned staff. We begin
with a detailed study of our client station's
market. We probe demographics, psycho-
graphics, and population growth trends of
a station's available audience. We analyze a
client's competition quantitatively through
available ratings and qualitatively from
airchecks. Then the programming our
service provides is professionally positioned
to maximize our client's sales, ratings, and
profits. All of our programming is solidly
backed by systematic studies of the listening
tastes of each format's target audience. Our
research includes call-out and focus group
studies, in-depth market analysis, attitudinal
audience feedback, psychographic patterns
and tests, and several in-house computers
with ratings data online," says Dave Scott.
Format programming packages include
hundreds of hours of music, as well as
breaks, promos, and IDs, by seasoned metro
market announcers. Customized identity
elements, such as jingles and other special
forma tic features (taped time checks), are
made available by the majority of syndica-
tors. "We try to cover all bases to ensure
the success of our clients. We back each
of our formats a dozen different ways. For
example, image builders in the form of
promotions, contests, and graphics also are
an element of our programming service
at Radio Arts," says programmer Larry
Vanderveen.
To stay in step with the ever-changing
marketplace, syndicators routinely update
the programming they provide their sub-
scribers. "When you want people to listen
to a station a lot, you've got to keep them
interested in it. To do so you have to air
a sound that's always fresh and current.
Tape updates are plentiful. We give sta-
tions the most extensive initial collection
s
Syndicator Services
Proara11mina
Power
More OpltillflS tar Better Radio
Jones Music Programming is tile single source tor all of your
music programming needs. Whether you need an hour of music Pregramminl ~~~~~~~-word of advice or an entire makeover, we have the
s,n,•lli~e-111<•1lt~<•r"fl Formats
Choose from 11 targeted, localized, and talent driven formats to give your station a
competitive edge. With our satellite-delivered formats you can put ymn- mind at ease
and your resources to work on other issues important to your business.
Select Logs and the music scheduling is clone for you. Receive tully
researched music logs in a tor·mat designed to fit your market and your hard drive. We
provide you with the complete music library, 24/7 music logs, Chartbreakers \>Veekly
Hits music elise along with the expertise of our programming and consulting team.
Schedule Plus
We make it easy to build your own music logs. Schedule Plus provides you with the
software, researched music, song database, clocks, music policies and r·ules.
Chartbfea!rnrs Hlts
Stay up-to-date with our Chart breakers Weekly Hits CDs. Available for Country, AC,
CHR, Rock. Urban, Hip Hop, Christian, Latin Pop, Srnooth Jazz, and moret
of music tapes available. Then we follow
them up with hundreds more throughout
the year. For instance, our CHR, AOR,
and Country subscribers receive over 1 00
updates annually. All categories have fre-
quent updates, so our client's sound stays
fresh and vital," says Dave Scott, who adds
that the lines of communication are kept
open between the client and syndicator
long after the agreement has been signed.
"Since the success of our clients is very
important to us, continuing consultation
and assistance via a toll-free hotline is
always available twenty-four hours a day.
Automation-experienced broadcasters
are in our production studios around the
clock, and consultants can be reached at
work or home any time. Help is as close
as the phone."
Syndicators assist stations during the
installation and implementation stage of a
format and provide training for operators
and other station personnel. Comprehen-
sive operations manuals are left with sub-
scribers as a source of further assistance.
Syndicators offer programs on a barter
basis, for a fee without presold spots or for
a fee containing spots. Leasing agreements
generally stipulate a minimum 2-year term
and assure the subscriber that the syndica-
tor will not lease a similar format to another
station in the same market. Should a station
choose not to renew its agreement with the
syndicator, all material must be returned
unless otherwise stipulated.
The majority of format syndicators also
market production libraries, jingles, and special
features for general market consumption.
What is the difference between a network
and a syndicator? Ed Shane explains,
"Networks and syndicators are essentially
or almost the same. Premiere calls Rush
Limbaugh a 'network' and Dr. Laura a
'syndicated show.' United Stations Radio
Network works the same way. (It has more
to do with the way spots are sold than the
realities of programming.) Westwood One
is more of a network, combining CBS News,
CNN Radio, long form music programs,
Metro Traffic and News with syndicated
programming like country music specials.
ESPN is networked for all talk shows and
live sports (NFL football play-by-play, for
example) by ABC"
315
FIGURE 11.8
"Full-service
syndicators for every
programming need.
Courtesy Jones Radio
Networks."
l
.. J~----------............................... J
316
FIGURE 11.9
Century 2ls catalog
of syndicated
formats in the 1990s.
Courtesy Century 21.
CHAPTER 11 CONSULTANTS AND SYNDICATORS
Wltting's
Syndicaticn.net Shews List
~~
~Nat
Kere are just some of the shews we
represent. Click en an image to learn more.
Stvn up for our FREE
Syndication E-mail
N&wsletterl
Billy Bush
FIGURE 11.1 0
Billy Bush.
~-
Jay Williams- Billy, although you're
best known as a TV star, you began
your career in radio. What attracted
you to radio?
Billy Bush -The intimacy of radio.
I got to talk with people in a one-
on-one conversation and that was
extremely cool and it still is.
•.. ,,.,
Interviewed by Jay Williams Syndication
JW - What kinds of jobs did you
have in radio, and which were the
most rewarding for you?
B8 - I had the luxury of starting in
a small market where I had every job.
I was a sales guy during the day, and
boy is that a humbling experience, and
I was on the air one night a week, and
on the weekends I did promotions. I
pumped up the station balloon and I
handed out hundreds of fliers. There
is not a job in radio I have not done
outside of management, and I never
want to do that.
JW- With "Access Hollywood" and
your syndicated "Billy Bush Show,"
you shift from one medium to the other
every day. Is that difficult? Also, what
are the major differences as a per-
former between the two mediums?
88 - In radio, the greatest prepa-
ration is just knowledge. It's just
knowing what you're talking about.
It's about drawing on life experi-
ences. In TV, you have a lot of people
helping you. You've got a lot of
people preparing and editing and all
that. In radio, you need to be your
own research department. So radio's
a lot more difficult.
JW - Tell us about radio. What
makes radio unique in your view?
8B - The car, because the car is a
unique environment, and radio will
always be the easiest and best choice
for people. People who are texting and
using the Internet in their car are very
few and far between. The automobile
is ideal for radio and that single inven-
tion years ago is what makes radio
unique, and it's what will insure that
radio will be there forever.
JW - As we are talking, radio is
going through technological changes,
~
!
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Syndicator Services
facing new competition and economic
distress. Yet, your well-received syn·
dicated show is rapidly expanding
across the country. How do you see
radio's future?
88 - Radio's future is secure because
of the car. I said that. But my syn-
dicated show is a great answer for
people who are facing economic prob-
lems because it's cost effective. I don't
cost them anything. They just have to
give me some inventory. They give me
4 minutes an hour, and that's it. So it's
an opportunity cost and not an actual
outlay of cash.
JW - Syndication seems to be
growing, too. From the old network
programs such as Paul Harvey news to
later off-network radio syndication, such
as Howard Stern, Bob and Tom, Rush
Limbaugh, more stations seem to be
embracing syndication. Do you see that
as a growing trend and why?
BB - Yes, because syndication makes
sense. If you have great talent and
content, then you're just giving up time.
If the ratings are big, then you'll be
able to charge more for the commer-
cials that you do get revenue for. So
it's all about choosing the right talent,
the biggest will survive and I believe
we are in that direction.
JW - Your show is marketed by West-
wood One, one of the largest syndica-
tion companies. Tell us about your role
verses theirs, how much are you person-
ally involved, and how much control do
you have over your own show?
BB - I have entire control over edi-
torial, what I put out there is what
goes on the air. In that regard it's
great. I'm very personally involved
and I control all the content. As for
the sales and marketing of the show,
I weigh in whenever I want to, but we
agree between Westwood and me.
If I feel strongly about anything, I'm
confident my voice is heard and I'll
usually prevail because at the end of
the day the talent has to be happy to
provide. However, having done every
job in radio, I have total respect for the
people who do things outside of what
I do, and I'm totally open to whatever
they have to say.
JW - It must be demanding prepar-
ing and voicing a new show every
day. Who and what does it take to
produce your show?
BB - I have a broadcast producer,
Michelle Salvatore, who takes in all my
content and who arranges and orga-
nizes our schedule and lays out what
the show is going to be each day. I
have five bookers who book guests
for me on the radio show. I book a
lot myself because my BlackBerry has
gotten pretty deep over the years. We
have three editors on the other side of
things who package the show at the end
of the day. We are spread out perfectly.
JW- You are heavily involved with
getting new station clients. Tell us a bit
about how that process works.
88 - Everything is sales in life, and
each client, each station I'm on needs
to feel that if they need to get in touch
with me they can. The truth is, they
can. Anyone can call and set up a time
to talk on the phone through Michelle
or anybody else or my assistant, Marla,
and I will talk to any station clients.
There are walls because it makes it
easier for everyone, but if someone
needs to weigh in with me, they can.
JW - "The Billy Bush Show" com-
petes with locally produced shows in
many markets. How do you react to
objections from potential clients that
your show "won't work in this market
because it isn't local"?
88 - Entertainment is everywhere.
There is an insatiability for celebrity
content. What I do is provide an every-
man's perspective to it. I tell people
about what it's like behind the scenes.
I make it personably relatable for them
because they hear someone they trust
and listen to and connect with deal
with celebrities in these situations and
they love it. Also I'm honest; I tell it like
it is. If someone is difficult, I share that.
JW - How do you position your
show against other syndicated shows?
What makes "The Billy Bush Show"
unique or better?
88 - My main competition, I think, is
probably Ryan Seacrest, although there
are others. I'm not positive how Ryan
does his show, but I do believe there's
a lot of people taking his existing
content and putting it out there. What
I do is a totally new and original show
for my stations every single day. A lot
317
of syndicated shows are packaged.
They do three, four, or five shows at a
time. I do a new show every day with
new analysis, new insights, and new
guests.
JW - Do you think more radio sta-
tions will embrace syndicated shows
because it gives them access to better
on-air talent than they can find locally
or because, in some cases, syndicated
shows may save them money?
88 - The answer is a little bit of
both, absolutely. The best on-air talent
will survive and grow, and those par-
ticular people will continue to survive.
The better known you are, the better
chance you have out of the gate.
Although that doesn't mean local
people can't rise to that level. And yes,
my show saves a lot of money for sta-
tions because they're not paying me.
They're giving me commercial time and
if my ratings are good, they're going
to get more money for the commercial
time that they do have left.
JW - Does syndication help or hurt
radio?
88 - I think syndication helps radio
because you want to have big names
in your field. You want to be as rel-
evant and taken as seriously as every-
one else. The bigger stars you have on
radio, I think, the higher the profile of
radio but the trap is - and I hope radio
stations don't fall into it- to go for the
biggest name you can get just because
of the name. At the end of the day,
they have to deliver, they have to work,
they have to have that strong ethic.
And the biggest radio names are really
hardworking people.
JW- You're a big TV star, you travel
the world to do pageants, events, even
the Olympics, and you certainly don't
need extra work. So why did you
launch "The Billy Bush Show" and get
back into radio?
88 - Because I love radio, and
because radio gives me the opportu-
nity to expand upon my thoughts. It
gives me a chance to walk a tightrope
without a net. I love being able to
express my opinions. I know Holly-
wood and understand it very well and
I have an insider's perspective, and
I love being able to share that with
people.
l
EXHIBIT J
Ex’s” Striking It Rich on W. Coast,
BILLBOARD, Dec. 11, 1965
Calif. Setting The Tempo in Sounds, Song, Style,
BILLBOARD, Apr. 9, 1966
Billboard, December 11, 1965, available at
https://books.google.com/books?id=7iIEAAAAMBAJ&printsec=frontcover#v=onepage&q&f=f
alse.
“The Turtles’ first single [“It Ain’t Me Babe”] sold 550,000 copies and the album has the
90,000 mark, according to Feigen” and “The group’s follow-up disk of “Let Me Be” has also
climbed the charts”
“Two reasons are cited by Feigen for the singles’ quick acceptance: the music was in the folk-
rock groove and the two men [White Whale’s Feigen and Lasseff] were able to call on their
collective experiences with distributors and disk jockeys”
Billboard, April 9, 1966, available at
https://books.google.com/books?id=IkUEAAAAMBAJ&printsec=frontcover&source=gbs_ge_s
ummary r&cad=0#v=onepage&q&f=false.
“[…] we still need disk jockey play on the East to get us on the Top 10 nationally” – Bill Utley,
manager of the Turtles
EXHIBIT K
E.J. MacGillivray,
A TREATISE UPON THE LAW OF COPYRIGHT IN THE
UNITED KINGDOM AND THE DOMINIONS OF THE
CROWN, AND IN THE UNITED STATES OF AMERICA
(1902)
A TREATISE UPON
THE LAW OF COPYRIGHT
IN THE UNITED KINGDOM AND THE DOMINIONS
OF THE CROWN, AND IN THE UNITED
STATES OF AMERICA
CONTAINING A FULL APPENDIX OF ALL ACTS OF PARLIAMENT
INTERNATIONAL CONVENTIONS, ORDERS IN COUNCIL
TREASURY MINUTE AND ACTS OF CONGRESS
NOW IN FORCE
BY E. J. ~CGILLIV~ Y, LL.B. (CANTAB.)
;;...-- ' ot THE INNER TEMPLE, BARRISTER-AT-LAW
MEMBER (Jp T.JI& ~TY OF ADVOCATES IN SCOTLAND
LONDON
JOHN MURRAY, ALBEMARLE STREET
1902
CHAPTER V
PERFORMING RIGHTS
SECTION I.-NATURE OF PERFORMING RIGHT.
As copyright is the exclusive right of making copies of a book,
so performing right is the exclusive right of representing or per-
forming in public dramatic or musical works. In a dramatic or
musical work, the two rights-the copyright and the performing
right-exist side by side ; but they are quite distinct from one
another, and may pass into different hands. The copyright can
only be infringed by copying, the performing right by represen-
tation or performance. It is no infringement to dramatize and
represent on the stage a copyright novel, since the only exclusive
right as to non-dramatic work is the multiplication of copies ; 1 .
but a drama on which a novel has been founded may be infringed
by another drama taken from the novel.1 A writes and publishes
a novel. He then dramatizes it, but does not publish the drama.
B represents a drama founded on the novel. Such a representa-
tion is no infringement either of A's drama 8 or of his novel. It
makes no difference even if A has published his drama.' In
dramatizing a copyright novel, however, the making of a single
copy of the drama may be an infringement of the copyright in
the novel." It is no infringement of performing right to print
and publish as a book a play which has been publicly performed,6
but it may be an infringement of the common law right in the
MS.,7 or the statutory copyright in the book if already printed
and published, or it may be a breach of implied contract.8 If a
1 RetJde v. CtnUJ>Iest (1861), 9 C. B. (N.S.), 755; Tinsley v, l.a&y (1863), I H. and M.,
747·
1 RetJde v. CDtUfUUI (1863), n C. B. (N.S.), 479· Sclllesinpr v. T11rur (189o), 6J
L. T., 764,
I Tt~t~le v, Yo11~ (1874), L. R., 9 Q. B., 523-
4 Sclduinpr v. Bedford (xSip), 63 L. T., ~
I Waru v. Su!Jollm (1888), 39 Ch. D., 73·
• See Clarll v, Bislw! (1872), ,;a5 L. T .. 908.
' Macllli,. "· Ricllardso7J ( 1770), Amb., 694- a See p. ::ns . ....
122 PERFORMING RIGHTS
published for sale. The defendants abridged it and represented
it on the stage in the abridged form. It was argued for the
defendant that the tragedy having been printed and published
as a book, must depend for protection entirely on the statute of
Anne in accordance with the decision in Donaldson v. Beckett.1
The statute of Anne gave no performing right, and therefore
there was no protection. The Court gave judgment for the
defendant, but the ground of their judgment is not quite clear.
Some stress seems to be laid on the fact that the tragedy was
abridged, and it is therefore left doubtful whether the judges
would have considered the representation of an unabridged
version to be an infringement of the plaintiff's rights. In either
view it is not a decision that there was no performing right at
common law. Another case which may be relied on for the
contention against performing right at common law is Coleman
v. Watkm," but on examination it will be seen that all that case
decides is that the statute of Anne gave no performing right, and
that representation on the stage was not an infringement of
copyright
It is submitted that the history of the law of performing right
is this : At common law there was no performing right in the
proper sense of the term, but an unpublished manuscript was
protected from performance as from any other invasion of the
author's exclusive right to it. If it was performed on the stage
without being published as a book, there would be a remedy on
breach of implied contract, the public only being admitted for
the purpose of hearing the performance. Once, however, it was
published as a book, all exclusive right of performance was gone.
The statute of Anne gave no performing right, and performing
right proper was first created by 3 & 4 Will. IV. c. 15. This
statute and 5 & 6 Viet. c. 45 govern the performing right in
dramatic pieces. The performing right in musical compositions
is governed by these two Acts, as modified by the Copyright
(Musical Compositions) Acts of 1882 and 1888.
t (1774), 4 Burr., 24o8.
t (1793), 5 T. R., 245; aod see tlictwtr~ of Cockburn, C.J., in T(l()/e v. Ytn"'K (1874), L. R.,
9 Q. B., at p. 527·
INFRINGEMENT
It will be an infringement of performing right to take a
single scene from another's drama.1 It is more important to
consider what is a dramatic representation than what is a
dramatic composition. If a composition not primarily in-
tended for representation is publicly represented without per-
mission, even if it was not a "dramatic composition," the
person representing will be liable for having dramatized it if
the representation is dramatic. There can be a dramatic
representation by one actor only, and many music hall songs
are undoubtedly dramatically represented.
Kusical Bights.-Before I 897 there was no exclusive
performing right in musical compositions as such. It might
have been protected from performance if it could be shown to
be part of a dramatic piece.1 By the Act of January 6, I 897,
performing right in musical compositions was first created.
The protection is now substantially the same as in the case of
dramatic pieces.
SECTION 11.-PROHIBITED ACTS, AND REMEDIES.
It is an infringement, subject to the remedies stated below,
to do any of the following acts in respect of a copyright
work.
In the case of :-
1. Books : 1 without the consent of the proprietor m
writing signed in the presence of two witnesses.
I. To print or publish.
2. To dramatize or translate.
3· To import.
4· Knowingly to sell or expose for sale copies
unlawfully made or imported.
The owner's remedies are :-
I. Forfeiture of copies.
2. Damages.
3· Injunction.
4· Account of profits.
I Brady v. Daly (t899), 175 U.S. Rep., 148; Dat, v. W.rlster (Ifl92), I U.S. App., 573-
t See Carle v. D~tJ'{t885), 25 Fed. Rep., 183 .
.a Act of tllcJI, sec. 7, amending Revised Statutes, sec. 496+
EXHIBIT L
Eaton S. Drone,
A TREATISE ON THE LAW PROPERTY IN
INTELLECTUAL PRODUCTIONS IN GREAT BRITAIN
AND THE UNITED STATES
(1879)
T lt\'l~ A;!tltiiS l~
ON
OF
IN
"' -~,f.\"
I)J) () IY]•' ··1) .rl, :\- . . .... .J .. \ •
INTELLECTUAL l)RODUCTlO~S
IN GREAT BRITAIN AND THE UNITED SL\TES.
COPYRIGHT lN WORKS OF LlTERATli!U~ AXD ART, A.:\D
PLAYRIGHT IN DRA~L\.T!C AND MUSICAL
com·osrrwxs.
DY
', \f
lqnire from our
legislation a protection not less than
whne is proposed in the bll1 reported.
Upon the :first prindples of propriNor-
shlp in lH'<>perty, an author has an
exdusive awl perpetual right, In pref-
erence to any otlwrs, to the fruhs of
hi.s lal.H)r. Though the nature of liter-
ary l)t'Opl.':rty is P'-'Ctll.iar, it is not the
11:6$ real and ntluahle. If ls.bor and
hed plays. Iu this clutpter,
the common-law rights of dramatists will be considered.
ARE THE Ow:lum's CoMMON-LAw RIGHTS LosT BY THE Punuc
Prnron:.LANOE OF A MANUSCRIPT Dnnu .. ?
It has been shown that the author of any intellectual produc-
tion, whether it be a literary, dramatic, or musical compositiont
or a work of art, has in it by the common lawn. property which
is absolute and complete until lost by some act of the owner
or Ly the operation of some statute.1 This property ·
the owner in the exclusive enjoyment of any and every
his production which does not in law amount to a forfeitme
his exc1usive rights. The law has been settled to the effect
that, by publication in print, the owner's common-law property
is lost, and that in a work so published he has no other right.s
than those secured by statute. lienee, a dramatist may
a statutory but no common-law right to the exclusive reprcsen-.
tation of a drama which he has published in print.. But
exclusi>e right of the owner publicly to represent a
play exists by the common law, unless such public
tion, by operation of the common law or by force
statute, works an abandonment of the right.
The question, then, is raised whether the common-law
erty iu a manuscript play is lost or prejudiced by the pu4Hti
performance of the play.
Public Performance not a Publication which Defeats
-It may be regarded as settled that the authorized
performance of n manuscript drama is not such a puuu""''n
as will defeat a copyright afterward obtained.2 Where
1 See Chap. 1. Roberts t•. Myers, 13 Monthly
2 Boudcault v. :Fox, ll Blatchf. 87; Reporter, SCJ6.; Keene v. Iiimbal!,