Why Is Payola Illegal?


Sony BMG has settled a payola case with New York Attorney General Eliot Spitzer, agreeing to pay a $10 million fine and stop its representatives from offering cash or freebies to radio station employees in exchange for playing the company's songs. "This is not a pretty picture," Spitzer said. "What we see is that payola is pervasive. It is omnipresent. It is driving the industry, and it is wrong."

The deals to which Spitzer objected, which included bribing programmers with goodies such as a flat-screen TV, a laptop computer, and PlayStation 2 games, may seem like penny-ante stuff, but they are pretty clear violations of the Federal Communications Act, which prohibits radio and TV stations from accepting "any money, service or other valuable consideration" in exchange for broadcasting any "matter" unless the arrangement is disclosed to the public. This provision, which grew out of the payola scandals of the 1950s, seems at first blush to be aimed at a kind of fraud: Stations that violate the rule are ostensibly choosing material (in this case, songs) based on its expected value to the audience but are actually motivated by a desire for under-the-table cash or electronic goodies.

But is this the sort of deception that requires government intervention? Stations whose programming does not appeal to the public will be penalized in the marketplace, regardless of their reasons for choosing the songs they play. And if payola does not have a noticeable impact on the quality of programming (including the opportunity to hear interesting songs by newcomers whose record companies are not adept at bribing DJs), why should listeners care? Station owners might object if programmers and DJs are acting contrary to company policy (as may have been the case with recipients of Sony's freebies), but why should prosecutors get involved?

The question becomes harder to answer when you realize that the provision applies only to broadcasters, not to stations carried by cable, the Internet, or satellite (although the last arguably qualifies as "radio"). If the principle is fraud protection, why should the medium matter (blather about "the public airwaves" aside)? If anything, the argument for government action would seem to be stronger in the case of cable and satellite programming, where listeners and viewers pay directly for the content, as opposed to providing the audience that attracts the real customers, i.e., advertisers.

Maybe the real aim, as Spitzer's rhetoric implies, is to promote competitiveness by preventing collusion between stations and record companies that squeezes out labels with less clout. But in that case distinguishing between broadcast and nonbroadcast stations still doesn't make sense, while the existence of various alternatives to conventional radio undermines the antitrust argument.