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Eliot Spitzer, the NY attorney general who has already been after the insurance industry and the brokerage houses for illegal shenanigans, is taking aim at the record labels for how they use money to buy radio time.
The inquiry encompasses all the major radio formats and is not aiming at any individual record promoter, these people said. Mr. Spitzer and representatives for the record companies declined to comment.
The major record labels have paid middlemen for decades, though the practice has long been derided as a way to skirt a federal statute - known as the payola law - outlawing bribes to radio broadcasters.
Broadcasters are prohibited from taking cash or anything of value in exchange for playing a specific song, unless they disclose the transaction to listeners. But in a practice that is common in the industry, independent promoters pay radio stations annual fees - often exceeding $100,000 - not, they say, to play specific songs, but to obtain advance copies of the stations' playlists. The promoters then bill record labels for each new song that is played; the total tab costs the record industry tens of millions of dollars each year.
The new scrutiny comes at an inconvenient time for the major record companies, which have been pressing federal and state law enforcement officials to shut pirate CD manufacturers and the unimpeded flow of copyrighted music online.
This could stand to be a pretty huge thing. Payola (I don't really care what the labels want to call it, a spade's a spade) has been a major force in the music business for almost as long as the industry's been around -- see Hit Men for a much more thorough discussion. I don't know if anything will come of this (or if the money will just be shifted around like what happened after the legislation from the 70's), but it will be interesting to see.
Posted by Casper at October 22, 2004 11:40 PM