Universal Music Settles Payola Probe
$12 Million Agreement Reforms Business Practices and Funds Music Education Programs
State Attorney General Eliot Spitzer today announced a settlement with UMG Recording Inc., ("Universal") the world's largest record label company, to end its pervasive "pay-for-play" practices. Under terms of the settlement, Universal, a subsidiary of Vivendi Universal which owns Island Def Jam, Interscope, Universal Motown Recordings Group, Uni-South, Universal Nashville and Verve, has agreed to stop making payments and providing expensive gifts to radio stations and their employees in return for "airplay" of particular artists' songs.
Radio airplay is the single most effective driver of music sales. The more airplay a song receives, the higher it climbs on published charts that purport to reflect the song's popularity, and the more likely consumers are to buy it. Payola undermines the integrity of the music recording and broadcasting industries.
"Consumers have a right not to be misled about the way in which the music they hear on the radio is selected," Spitzer said. "Pay-for-play makes a mockery of claims that only the 'best' or 'most popular' music is broadcast."
Spitzer's investigation determined that Universal and its record labels offered a series of inducements to radio stations and their employees to obtain airplay, or "spins" of recordings by the company's artists, including songs by Nick Lachey, Ashlee Simpson, Brian McKnight, Big Tymers, and Lindsay Lohan.
During the investigation, a promotion executive at Interscope acknowledged that he was trained to "never say no to radio" and to "keep the lines of communication open, to have access." The executive said that providing promotional support to the radio stations increased the airplay of Interscope's artists.
Universal's pay-for-play strategy included:
* Outright bribes to radio station programmers, including electronics, vacations, airfare, hotel accommodations and tickets to sporting events and concerts;
* Payments to radio stations to cover operational expenses and contest giveaways;
* Retention of middlemen, known as independent promoters (or "indies"), as conduits for illegal payments to radio stations;
* Payments for "spin programs" and "time buys," airplay under the guise of advertising.
The Attorney General's office obtained emails showing that Universal executives were not only aware of the payoffs but regularly trained and pressured subordinates to buy airplay.
Top management stressed the importance of requiring radio stations to deliver the bargained-for airplay, as evidenced by the following July 2003 email from a senior Motown Records Group executive to a promotion employee regarding airplay of a song by the artists Dream:
This is embarrassing and a total lack of accountability. We have gotten ripped off beyond belief... That's almost $300,000 dollars and they are looking for some heads,,,bad bad bad. I don't want one invoice processed for indys, stations etc until their end of the deal is held up. If I find out that the deals were cut with lack of airplay and overnight spins starting with the nationals, as they say heads are gonna roll, including mine.
Radio stations, aware of Universal's willingness to engage in pay-for-play practices, were not shy about asking for promotional support. These requests were often part of an explicit or implicit agreement to provide airplay for Universal songs.
For example, the program director at WBEE (Rochester, NY) asked Uni-South to pay for a $2,500 laptop computer for the station in exchange for the station adding two songs, one by Joe Nichols and the other by McHayes. At Uni-South's request, the station provided a false letter stating that the computer had been sent as part of a promotion, even though the station simply retained the computer for its own use.
Universal supplemented the work of its promotion employees through independent promoters – third-parties who are paid specifically to deal directly with the radio stations to obtain specified levels of airplay. Although hired by the record labels, some independent promoters employed by Universal – including Jeff McClusky, Bishop, Bait & Tackle and Michele Clark – had exclusive arrangements with particular radio stations.
Universal also made "time buys," radio advertisements for particular artists or recordings which each broadcast only a segment of a particular song. Until the fall of 2004, BDS – a monitoring service that tracks the amount or airplay individual songs receive – registered time buys as if the entire song had been played in every instance, thereby boosting each song's apparent popularity and chart position.
The importance of time buys as a means to achieve chart position was spelled out explicitly in Universal documents. In an October 2002 email, a Motown Records Group senior promotion executive wrote to her staff:
This is standard business practice that we should know off the top of our heads, especially as nationals. I need the entire staff to submit any and all stations that participate on the alternative AND rock side on the below mentioned time buys and extra spin promotions in order to achieve our chart positions...Make it a part of each call you make with radio starting today.
The settlement with Spitzer's office obligates Universal to undertake corporate-wide reforms, including: immediate cessation of payments and other inducements to radio stations for airplay; discontinuance of independent promoters as a pass-through for securing airplay; hiring of a compliance officer to monitor promotion practices; and implementation of an internal system to detect future abuses.
Universal will also make a $12 million payment, which will be distributed through the Rockefeller Philanthropy Advisors, to New York State not-for-profit entities to fund music education and appreciation programs.
Spitzer's probe of payola in the music industry previously resulted in two settlements with leading music labels: Sony BMG and Warner, and a lawsuit against Entercom Communications Corp. The investigation is continuing.
The investigation and settlement were handled by Assistant Attorneys General David Weinstein and Shahla Ali, with assistance from Investigator Karon Richardson, under the direction of Terryl Brown Clemons, Assistant Deputy Attorney General for the Division of Public Advocacy.
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