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Boyle on patents and ‘payola’

Eliot Spitzer, New York State’s crusading attorney-general, has hung another pelt on his office wall. Sony BMG, distributor of tunes from the likes of Aerosmith and Britney Spears, will is paying ten million dollars $10m in fines as part of an agreement to settle his charges of ment for bribing radio stations to pump up the airtime allocated to for the songs they it sells.

Other music companies are expected to follow face similar action and the Federal Communications Commission, the US broadcasting regulator, said it would launch an investigation into improper payments in the music business.

A range of The “pay-for-play” practices is being exposed. range from mundane to hilarious. Record labels commonly employ independent promoters who then pay (perhaps in excess of (as much as $100,000 annually) for a radio station’s advance play­lists, in thinly disguised baksheesh. Other inducements go straight directly to station executives, often in the form of flights and hotels. The Financial Times reports a record company email tallying costs to get Scottish pop sensation Franz Ferdinand playtime on KISS 98.5 in Buffalo, New York: “over $4000…. That is what that the four trips to Miami and hotel cost.” A further nother ploy was is to rig listener song requests. As this an internal record company complaint about one botched effort revealed, “my guys on the inside say it’s the same couple of girls calling in every week”. They’ve got to be excited. They need to be going out, or getting drunk, or going in the hot tube [sic]…”

Payola was made famous by scandals in the 1950s, when “cash, drugs and women” were traded to rock and roll disc jockeys in exchange for play airtime, but the practice has a much richer history. In both the U.K. Britain and the US, 19th- and early 20th-century performers ­collected side-payments from music publishing houses for singing their songs.

Ronald Coase, the Nobel Prize­winning economist, explained the practice in 1979. Radio stations own something valuable: songs played more tend to sell more. Competition for airtime develops, but how one conducts the best auction – given that when the station ’s revenues rely come primarily on from selling audiences to advertisers – is complicated.

One view is that radio stations should be faithful to listeners and make choices based only on their DJs’ honest musical appreciation. But how do companies they know what gangsta rap or Yanni tune track is top quality? Payola helps them learn, because record owners companies will tend to value play airtime the most for releases for which they have the with highest expectations of future sales. payola reveals consumers’ choices.

Rock and rock, roll struggling to gain acceptance in the 1950s was notorious for associated with “reprehensible” payments. US congressmen denounced the “raucous discord,” attacked “this so-called junk music …which appeals to the teenagers [but] would not be played” in the absence of payola.

U.S. music publishers long attempted to limit Although federal legislation made payments to radio stations or disc jockeysprior to which madethem ­illegal the passage of in from 1960, enforcement was then, and apparently is still today, remains imperfect. Play Airtime continues to be precious to music owners who see it as the perfect a marketing tool. for new tunes. As Mr Spitzer and the FCC crack down in the US, The next round of competition will perhaps come to entail ever more innovative compensation schemes. and even juicier emails. Look out for record labels to that have plenty of job openings available for friends and relatives of radio station insiders.

In music, bribery stratagems are can be amusing but Ludacris CD compact disc buyers are not much scandalised by corporate marketing indiscretions. Nor are
movie-cinema-goers who applaud films whose producers collect millions of dollars
in product-placement fees. Some forms of “plugola” are seem downright respectable.

But when news content is compromised by financial conflicts, jaws drop. Because journalism is valued to the degree that it delivers the straight scoop, reputable news organisations maintain rules to ensure independence and, hence, credibility. What, though, of the world of internet-based information? How do online readers avoid trash-for-cash? Already, the blogosphere has been rocked by revelations that political candidates and corporate interests launder promote their views by paying some – supposedly independent – authors of web diaries bloggers to adopt them. How is the reader to know?

The network economy has brought opens up marvellous opportunities for specialised content and a greater variety of opinions, enriching the marketplace of ideas. But the advantages afforded by large, established and respected news organisations are equally real. The demand for authentic information answers the query posed by many as to what Old traditional media are to do in the internet age. By maintaining their brand names and values, traditional print publications and broadcasting organisations compete to supply ­journalistic integrity in cyberspace.

In investigating sensational pay-offs, that scandalised the country, occurred in televised US game shows, a 1959 congressional panel took testimony from Frank Stanton, then president of the CBS network, who did not object to “the idea that personalities retain agents, public relations people, to try to get as much publicity as possible”. But, he continued, Stanton, “the place where I draw the line is the passing of money from the act or the personality to the person who writes the column or does the show”.

American regulators are once again flailing at payola in music, where it poses no great threat to society, while ignoring influence-peddling in news and information, where the corruption of public discussion may achieve have is of potentially grave consequence. This ironic outcome is not improved bysymmetrically similarly flailing at website payola, which would impede free speech. As Mr Stanton was keenly aware, market competition – not government prosecutors – will draw the lines that actually matter.

The writer is professor of law economics at George Mason University, where he is director of the Information Economy Project of the National Center for Technology and Law

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