Sony Settles Payola Investigation
Attorney General Eliot Spitzer announced an agreement to halt pervasive "pay-for-play" in the music industry.
Under the agreement, SONY BMG MUSIC ENTERTAINMENT, one of the world’s leading record companies and owner of a number of major record labels, has agreed to stop making payments and providing expensive gifts to radio stations and their employees in return for "airplay" for the company’s songs.
Such payoffs violate state and federal law.
"Our investigation shows that, contrary to listener expectations that songs are selected for airplay based on artistic merit and popularity, air time is often determined by undisclosed payoffs to radio stations and their employees," Spitzer said. "This agreement is a model for breaking the pervasive influence of bribes in the industry."
After receiving tips from industry insiders, Spitzer’s office conducted a year-long investigation and determined that SONY BMG and its record labels had offered a series of inducements to radio stations and their employees to obtain airplay for the recordings by the company’s artists.
The inducements for airplay, also known as "payola," took several forms:
* Outright bribes to radio programmers, including expensive vacation packages, electronics and other valuable items;
* Contest giveaways for stations’ listening audiences;
* Payments to radio stations to cover operational expenses;
* Retention of middlemen, known as independent promoters, as conduits for illegal payments to radio stations;
* Payments for "spin programs," airplay under the guise of advertising.
E-mail correspondence obtained during the investigation shows that company executives were well aware of the payoffs and made sure that the company got sufficient airplay to justify these expenditures.
In discussing a bribe given to a radio programmer in Buffalo, one promotion executive at SONY BMG’s Epic Records wrote to a colleague at Epic:
"Two weeks ago, it cost us over 4000.00 to get Franz [Ferdinand] on WKSE. That is what the four trips to Miami and hotel cost . . . At the end of the day, [David] Universal added GC [Good Charlotte] and Gretchen Wilson and hit Alex up for another grand and they settled for $750.00. So almost $5000.00 in two weeks for overnight airplay. He told me that Tommy really wanted him to do it so he cut the deal."
Another Epic employee who was trying to promote the group Audioslave to a Clear Channel programmer asked in an email:
"WHAT DO I HAVE TO DO TO GET AUDIOSLAVE ON WKSS THIS WEEK?!!? Whatever you can dream up, I can make it happen."
A promotion employee unhappy with the times assigned for spins of the song "I Drove All Night" by Celine Dion wrote this internal email:
"OK, HERE IT IS IN BLACK AND WHITE AND IT’S SERIOUS: IF A RADIO STATION GOT A FLYAWAY TO A CELINE [DION] SHOW IN LAS VEGAS FOR THE ADD, AND THEY’RE PLAYING THE SONG ALL IN OVERNIGHTS, THEY ARE NOT GETTING THE FLYAWAY. PLEASE FIX THE OVERNIGHT ROTATIONS IMMEDIATELY."
The investigation revealed that SONY BMG employees took steps to conceal many of the payments to individuals and radio stations, by using fictitious "contest winners" to document the transactions and make it appear as though the payments and gifts were going to radio listeners instead of station employees.
The Assurance of Discontinuance summarizing the Attorney General’s findings alleges that the illegal payoffs for airplay were designed to manipulate record charts, generate consumer interest in records and increase sales.
Spitzer said: "Aggressive promotion of products is one of the hallmarks of our economy. We expect it and respect it when done creatively and legally. But the efforts outlined in the Assurance clearly crossed the line and must be curtailed."
Ann Chaitovitz, Director of Sound Recordings for AFTRA (American Federation of Television and Radio Artists) said: "We would like to thank Attorney General Spitzer for examining this pernicious issue. Pay-for-play hurts both recording artists and the public. We look forward to his continuing investigation of the other record labels and the vertically integrated radio station owners."
Under the Assurance, SONY BMG, building on guidelines SONY BMG issued earlier this year in response to the AG’s investigation, has agreed to stop making payoffs in return for airplay and will fully disclose all items of value provided to radio stations in the future. SONY BMG also has agreed to corporate-wide reforms, including hiring a compliance officer responsible for monitoring promotion practices and developing and implementing an internal accounting system designed to detect future abuses. This is the first time an entertainment company has agreed to such sweeping reforms.
The company has also issued a statement acknowledging the improper conduct and pledging to abide by a higher standard.
In addition, the company has agreed to make a $10 million payment for distribution by the Rockefeller Philanthropy Advisors to New York State not-for-profit entities in a manner that will inure to the benefit of the residents of the State of New York by funding programs aimed at music education and appreciation.
Spitzer said SONY BMG officials cooperated fully with his investigators and promptly agreed to reforms when the problems were identified. He commended the company for taking steps that should serve as a model for the rest of the industry.
Spitzer also noted that his office continues its broad investigation of pay-for-play practices in the recorded music industry.
The investigation and settlement were handled by Assistant Attorney General Kathleen O’Neill of the Telecommunications & Energy Bureau, and Ricardo Velez of the Criminal Prosecutions Bureau, under the direction of Terryl Brown Clemons, Assistant Deputy Attorney General for the Division of Public Advocacy.