Payola Advertising, Consideration Payment, Entry Strategy, Entry Deterrent, or Prisoners’ Dilemma
Definition • Payments from record labels to radio stations or disc jockeys for more airplay or “spins” for their records. • Similar to “consideration payments” • Slotting allowances for favorable shelf placement • Merchandising allowances, such as those involved in the resale price maintenance allegations in the late 1990’s
History • Reports of payola go back into the 1930’s • Payola was not widely used until the 1950’s when radio switched from live broadcasts to playing recordings • FCC and FTC began investigations in 1959 • May have been prompted by cheating scandals involving TV quiz shows • Amendments to the Communications Act outlawed payola effective Sept. 13, 1960.
Effects of Outlawing Payola • Stylistic variety fell • Weeks with a new #1 increased • Chart turnover increased (BB Top 100 Songs) • Shares of hits by major labels fell • Shares of hits by minor labels rose
Motivations for Payola • Advertising • Pay for access to consumers as in 2-sided markets • Signaling • Indicate higher quality products (slotting) • Entry Strategy (1950’s, Coase) • New firms lacking established stars can “buy” airplay • Entry Deterrence Strategy (1970’s, Dannen) • Raise barriers to entry by new/niche labels • Prisoners’ Dilemma • Adopt payola to avoid losses when others use it
Concentration Payola Outlawed
Is Payola Really Dead? (Alexander) • In late 1970’s • Passage of the Racketeer Influenced and Corrupt Organizations act increased penalties for payola. • A group of independent promoters – “the Network” – were paid to represent major label’s interests to radio station operators. • By mid 1980’s • Record companies retained independent promoters, but did not inquire into the use of payola. • Given the increased penalties, contracting out promotion became the more efficient option. • In the Digital Age, is payola relevant?