Fighting pay-for-play

Says one major-market broadcaster: "I was approached many, many times" by indies looking to secure exclusive, six-figure deals. "I didn't do it," this source says, "because it's morally and ethically distasteful. You cannot serve the general public and have the decision-making influenced [by indies], yet not disclose that to listeners. Because that's what these people are trying to buy, influence. It's an ugly situation."

Yet the system today seems to adhere to the letter, if not the spirit, of the payola laws, no matter how badly out of date or irrelevant they are to today's marketplace. (They were passed 40 years ago after pioneer rock DJ Alan Freed was convicted of taking payments from record companies in exchange for airplay.)

"The labels, through their attorneys, have found a way to be one step removed from the money," explains one industry source. "You go through Capitol Records, and all those indie invoices are for services rendered. That's nothing but good, solid business practices. They're clean."

Some insiders suggest if investigators did some digging, they would find plenty of questionable practices imbedded in a promotion system drowning in money.

For instance, the six-figure "promotional" deals the indies make often don't go to the station's promotional department. In fact, industry watchers say, sometimes they don't even go to the station.

"I've heard stories where indie arrangements have been made with the GMs and the payment goes directly to GM in scrip," says one manager, referring to the age-old radio term for coupons or gift certificates handed out by hotel chains and cruise lines. In this case the scrip is purchased by indies in bulk and shipped out to client radio stations. "There's a Top 40 station in the Midwest that did a deal with McClusky and after he made the arrangement the GM went on three or four vacations every year. Theoretically those trips were for promotional purposes at the station, but the GM decides to take his family instead."

Or, recounts another source, "It's like the West Coast station where Neiman Marcus gift cards with money on them [provided by an indie] were used for promotions. The station was going to give them away, and the morning show gave away two, but where did the rest go? Seems that a lot of merchandise was purchased at Nieman Marcus by management. There is no tax implication there, no paper trail to deal with. Just $15,000 worth of value on those cards."

Sources say American Express gift certificates have become the currency of choice among stations looking for something in exchange for playlist adds. "That's the way [stations] want to be paid by us, because they can't be traced," explains one record company's head of radio promotion. "They can buy whatever they want; it doesn't have to be station-related. They can go out and buy themselves fishing poles."

The question becomes, are those indie payouts reflected in the station's (or the managers') bottom line? "If not, isn't that something the IRS may want to know about?" notes one indie promoter. "That's the Achilles heel of this whole system."

Next Page: The kickback

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