Wednesday, January 28, 2004

Truth Of The Music Industry: Pay for play

Posted by AmishThrasher at 12:49 pm
Here's an excerpt of an excellent article on the US Music Industry, originally published at Salon.Com. Be sure to read through, and check the link (and bookmark the link) at the bottom.

By Eric Boehlert

March 14, 2001 | Does radio seem bad these days? Do all the hits sound the same, all the stars seem like cookie cutouts of one another?

It's because they do, and they are.

Why? Listeners may not realize it, but radio today is largely bought by the record companies. Most rock and Top 40 stations get paid to play the songs they spin by the companies that manufacture the records.

But it's not payola -- exactly. Here's how it works.

Standing between the record companies and the radio stations is a legendary team of industry players called independent record promoters, or "indies."

The indies are the shadowy middlemen record companies will pay hundreds of millions of dollars to this year to get songs played on the radio. Indies align themselves with certain radio stations by promising the stations "promotional payments" in the six figures. Then, every time the radio station adds a Shaggy or Madonna or Janet Jackson song to its playlist, the indie gets paid by the record label.

Indies are not the guys U2 or Destiny's Child thanked on Grammys night, but everyone in the business, artists included, understands that the indies make or break careers.

"It's a big fucking mudball," complains one radio veteran.

At first glance, the indies are just the people who grease the gears in a typical mechanism connecting wholesaler with retailer. After all, Pepsi distributors, for example, pay for placement in grocery stores, right?

Except that radio isn't really retail -- that's what the record stores are. Radio is an entity unique to the music industry. It's an independent force that, much to the industry's chagrin, represents the one tried-and-true way record companies know to sell their product.

Small wonder that the industry for decades has used money in various ways to influence what radio stations play. The days are long gone when a DJ made an impulse decision about what song to spin. The music industry is a $12 billion-a-year business; today, nearly every commercial music station in the country has an indie guarding its playlist. And for that right, the indie shells out hundreds of thousands of dollars a year to individual stations -- and collects a lot more from the major record labels.

Indeed, say many industry observers, very little of what we hear on today's radio stations isn't bought, one way or another.

The indie promoter was once a tireless hustler, the lobbyist who worked the phones on behalf of record companies, cajoling station jocks and program directors, or P.D.s, to add a new song to their playlists. Sure, once in a while the indies showed their appreciation by sending some cocaine or hookers to station employees, but the colorful crew of fix-it men were basically providing a service: forging relationships with the gatekeepers in the complex world of radio, and turning that service into a deceptively simple and lucrative business. If record companies wanted access to radio, they had to pay.

In the 1990s, however, Washington moved steadily to deregulate the radio industry. Among other things, it removed most of America's decades-old restrictions on ownership. Today, the top three broadcasters control at least 60 percent of the stations in the top 100 markets in the U.S.

As that happened, indie promoters became big business.

Drugs and hookers are out; detailed invoices are in. Where indies were once scattered across the country, claiming a few dozen stations within a geographic territory, today's big firms stretch coast to coast, with hundreds of exclusive stations in every major format.

In effect, they've become an extraordinarily expensive phalanx of toll collectors who bill the record company every time a new song is added to a station's playlist.

And the indies do not come cheap.

There are 10,000 commercial radio stations in the United States; record companies rely on approximately 1,000 of the largest to create hits and sell records. Each of those 1,000 stations adds roughly three new songs to its playlist each week. The indies get paid for every one: $1,000 on average for an "add" at a Top 40 or rock station, but as high as $6,000 or $8,000 under certain circumstances.

That's a minimum $3 million worth of indie invoices sent out each week.


According to the FCC, there's nothing wrong with a radio station's accepting money in exchange for playing a song. The payment only becomes payola -- and illegal -- if the station fails to inform listeners about the cash changing hands.

But stations, of course, are reluctant to pepper their programming with announcements like "The previous Ricky Martin single was paid for by Sony Records." Besides that, stations want to maintain the illusion that they sift through stacks of records and pick out only the best ones for their listeners.

The secretive, and at times unseemly, indie system has been in place for decades. Rock radio pioneer Alan Freed was convicted in 1960 for accepting bribes in exchange for playing records. (What became known as the payola laws were passed as a response soon afterward.) More recently, legendary indie heavyweight Joe Isgro battled prosecutors for nearly a decade over payola-related charges before they were dismissed in 1996.

Isgro's tale of money, drugs and the mob was told in "Hit Men," Fredric Dannen's revealing 1991 book about the world of independent promoters and the extraordinary power they wielded over record companies.

Amazingly, says one radio veteran, "nothing's changed since 'Hit Men.' The cast of characters is different, but nothing's really changed."

One major-label V.P. agrees: "It's only changed color and form, but in essence it's the same. It's nothing but bullshit and operators and wasted money. But it's very intricate, and the system has been laid down for years."

Some in the increasingly sophisticated and global music business wonder if the time has finally come to break free from the costly chains of independent promotion. After all, no other entertainment industry vests so much power and pays so much money to outside sources who do so little work. Yet just-released figures indicate music sales were soft last year. Will record companies have the power, or the nerve, to walk away?

"Labels claim they're trying to cut back on indies, but everybody just laughs," says one radio veteran, who has both programmed stations and done indie promotion work. (He, like most of the people interviewed for this story, asked that his name not be used.) Adds another veteran: "Labels are pissed off and want to cut back, but they're powerless to do anything about it."

"The labels have created a monster," agrees longtime artist manager Ron Stone. Nevertheless, Stone views indies as an important insurance policy for his clients. "I never want to find out after the fact that we should've hired this indie or that indie. I want to cover all the bases.

"Because you only get 12 weeks for your record to get any traction at radio. After 12 weeks the next wave of record company singles come over the breach and if you don't have any traction you get washed away. But now it's become even more complicated and expensive because of consolidation. It's a high-stakes poker game."

Playing off record industry insecurities, indies have been winning this poker game for decades.


"The truth is, you could making a handsome living, and have a gigantic house in Greenville, S.C., for instance, if you have just six exclusive stations there," explains one industry veteran. (Arbitron ranks Greenville as the 61st largest radio market, with a metro population of 750,000.) "You could gross between half a million and 1 million dollars each year. That's with no staff -- just a couple of phones and a fax machine. Because somebody is going to pay you $1,000 every time one of those Greenville stations adds a song. And that $1,000 is just the average. Columbia records may be dying to get a single on, so they say, 'We'll pay you $2,500 for this add.'"

Do the math: six stations in a market like Greenville adding three songs a week, 50 weeks of the year. That represents about $900,000 worth of invoiced adds. If the indie is paying each station $75,000 a year in "promotional support," that leaves him with $450,000.

But that's just the beginning. There are additional sources of indie income, including retainers, "bill-backs" and "spin maintenance." Along with being paid on a per-add basis, some indies earn a retainer (roughly $800 a week) just to call stations on behalf of a song. Bill-backs are essentially second invoices -- to cover "promotional purposes" -- that indies send to record companies on top of the one for the add. If the add cost $2,000, the indie often sends a $1,000 bill-back invoice as well.

Meanwhile, the cost of the add covers just that: getting the song added to the playlist. If labels want to increase the spins (or number of times a song is played each week), that costs money, too. "There are spin programs you can buy," explains one record company source, such as "$4,000 to make the song top 15 at the station."

In the past, if indies wanted to increase their billings by getting stations to add more songs, they could employ "paper adds." Stations would notify labels that a song was on the playlist so the indie got paid, but in reality the single never got spun. Today, however, all key radio stations are monitored electronically by a company called Broadcast Data Service, which gives labels a detailed readout of actual airplay. Paper adds no longer pass the test.

The solution? A so-called lunar rotation.

"I've got one station that during crunch time in September and October, when every label is desperate for fourth-quarter adds, will do eight adds a week for four weeks in a row at $2,000 a pop," says one label source. That's 32 added songs -- and $64,000 in indie invoices -- for just one month. But the station's playlist could never support that many new songs. (With today's tightly controlled playlists, any new song is a risk that can cause listeners to switch to a channel with an older and more comforting hit.)

Most of these new "adds" are played only in the early-morning hours, or in the "lunar rotation." They are detected by BDS, but don't really affect the station's playlist or ratings.

For record companies, indie costs can be staggering. Just to launch a single at rock radio over several weeks can cost between $100,000 and $250,000 in indie fees. What exactly do labels get in return? "I'll be damned if I know," says artist manager Stone. "It's bizarre." (Labels can sometimes get artists to pay the indie promotion costs, but not always.)

Regardless, the No. 1 rule of radio promotion is that the indie always gets paid. Even if rock programmers discover a good song by a new band on their own, and add it to their playlists because they like it, the station's indie gets paid for it.

Even if someone at Universal Records persuades a pop station to play Nelly's new single "Ride Wit Me," the indie gets paid. Even if the song is a sure hit that needs almost no promotion, like Aerosmith's latest, "Jaded," the indie gets paid. "Either way the invoices arrive and you pay, in the interest of keeping everybody happy," says one former programmer.

The fear is that if a label tangles with an indie over billing, he could torpedo the label's next project by bad-mouthing a new single or keeping it off the air until his previous invoice is paid.

As messy as the relationship can be, the third-party arrangement between labels, indies and stations is crucial for appearance' sake. Today, indies pay stations for "access," not airplay. At least in theory.

"Everyone says indies don't force stations to add records. That's ridiculous," says one rock programmer who has worked in a Top 10 market. "Because [if there is friction] the indie will get on the phone with the station G.M. and say, 'Look, your P.D. has not been cooperative over the last few months on adds I need.' The G.M. either says to the indie, 'Our relationship is about access, not influence,' or he caves. Most G.M.s cave and have a word with the P.D.: 'Look, we have $100,000 a year riding on this relationship with our indie.' Then suddenly -- bam -- a song you know the P.D. hates shows up on the air."

"Record companies say, 'We're not doing anything illegal; we're just paying indies to promote the records," says another programmer. "And indies say we're not doing anything wrong; we're just helping market a radio station. Everybody toes the company line on this.

"But indies are like money launderers; they make sure record company money gets to radio stations, but in a different form."

Read the full story