Broadcasters and Music Industry Surprised by O'Rielly Payola Push

FCC enforcement on payola has been uncommon, and usually complaint driven, several broadcast attorneys said. “I haven’t heard of any incidents,” said New Jersey Association of Broadcasters President Paul Rotella. “If Mike O’Rielly brings it, up you have to pay attention,” he said. “I haven’t seen anything about it in years,” said radio attorney Richard Hayes. He noted it’s less likely to be an issue among his small- and medium-market clients.

O’Rielly’s interest in payola was jump-started by press reports, said O'Rielly aide Joel Miller in an email. "Payola has been out of the news for several years, but the statutory prohibition as it pertains to notification of such payments remains on the books. We intend to explore and understand if current law is being followed," he said. "On a larger scale, the changing media marketplace brings in new layers of contractual relationships, including digital considerations and streaming etc., raising more complex issues regarding the prohibition’s discriminatory impact since it only applies to certain technologies."

In September,O'Rielly tweeted that he wanted to see if reports about resurgence of the practice were true. Rolling Stone published a long article on payola in August. This week, RIAA provided an “underwhelming” response to O’Rielly’s September request for information on payola (see 1909040074), he tweeted. “We are constrained by law in our ability to probe and collect the individual business practices of our member companies,” RIAA said.

RIAA declined to comment for this article, as did NAB. Numerous record labels, including Atlantic Records and Sub Pop Records, and radio broadcasters such as iHeart and Cumulus didn’t comment.

O’Rielly next plans to seek information by sending letters to individual labels, his office told us. “Our goal has been to take a collaborative approach to gathering the information, and we’re hopeful that can continue,” an aide said. O'Rielly's interest in payola is surprising because he's generally seen as opposing FCC intervention in industry practices and as a commissioner sympathetic to broadcasters, said music and broadcast industry officials. It's not clear how his pursuit of payola fits in with his other stances, they said. Labels filed in opposition to the deregulation proposals supported by O'Rielly in the 2018 quadrennial review NPRM. So did broadcasters such as iHeartradio.

“I don’t know how much cooperation he’ll get from record labels,” said Tony Gray, CEO of radio consultancy and license owners Gray Communications. Music labels don’t like payola but those that don’t participate in it risk losing competitively to those that do, music industry insiders said. The practice has “evolved” from the days of direct payment to DJs, Gray said. The labels hired attorneys and formed relationships with the broadcasters that involve less direct compensation for airtime but have the same effect, Gray said. That compensation could be promotional or marketing deals, he said. If a radio station's playing music because it’s being compensated to do so and it doesn’t identify the content as sponsored, that could be a sponsorship identification violation, said music industry officials and broadcast attorneys. Sponsorship ID is the likely avenue through which the FCC would bring enforcement against the practice, they said.

Payola is difficult to prove, and the FCC hasn’t often pursued it, said attorneys and a music industry insider. The lines between illegal and legal behavior are “blurry,” one attorney said. The last time it was a major focus was in the mid-2000s, when a great deal of evidence on the practice was gathered through an investigation by the New York Attorney General’s Office. FCC enforcement actions on payola then, led by then-Commissioners Michael Copps and Jonathan Adelstein against companies such as Cumulus, were based on that already available evidence. Those circumstances are unlikely to be repeated, said Gray and numerous attorneys. Enforcement against payola “takes a lot of work,” Gray said.

"Commissioner O’Rielly is doing his job on following up on the serious allegations in the press that illegal activities are continuing," said Adelstein, now president of WIA. Payola enforcement "is a key responsibility of the agency which he is admirably upholding." Adelstein's FCC had the benefit of evidence from the New York attorney general that Adelstein called “an arsenal of smoking guns.”

The issue is concerning because record labels want broadcasters to pay for music performance rights but could themselves be paying broadcasters through payola, said Rotella. It’s also not clear to what extent the practice is happening on streaming platforms, said the music industry insider. Streaming platforms operate under less oversight and are generally less transparent than broadcasters, he said.

Payola is bad for listeners because it doesn’t promote songs on their own merits, Gray said. It leads to stations offering “a substandard product,” he said. It’s similar to the bad practices net neutrality rules were meant to guard against, said Copps -- now with Common Cause -- in an interview. “It’s the public airwaves being used to give priority to those that can pay for it.” Payola's “a form of corruption,” a music industry attorney said.