A Los Angeles federal grand jury looking into suspected payola practices in the record industry has turned up evidence of systematic payments by several independent record promoters to a group of radio station program directors around the country, The Times has learned. But investigators say the system may not violate the federal anti-payola law.
The system funneled at least $1 million to the program directors around the country between 1981 and 1985, according to individuals who were involved in the operation. One independent promoter interviewed by The Times said that at one time, he was paying 15 to 20 program directors anywhere from $10,000 to $30,000 a year each.
Between 1981 and 1985, he estimated that he paid a total of $700,000 to the program directors in this fashion.
"I definitely put a lot of money out there," said the promoter, who has been subpoenaed to appear before the grand jury and who declined to be identified.
The revelation appears to be the first direct confirmation of widely publicized allegations by political figures over the last three years that payola is rampant among those who decide which records get played on the radio. Those allegations sparked two congressional investigations: by the House subcommittee on oversight and investigations headed by Rep. John Dingell (D-Mich.) in 1984, and by the Senate permanent subcommittee on investigations chaired by Sen. Albert Gore Jr. (D-Tenn.) in 1986. Both investigations, however, failed to find hard evidence of widespread illegalities.
Investigators acknowledge that their latest discovery of the "new payola," as it has been dubbed, may not lead to major payola indictments or a sweeping overhaul of the record promotion business. Instead of cash paid directly by record companies to the radio programmers in return for playing certain music on the air, as was the case with the "classic payola" of the late 1950s, the new payola is said to involve use by the record companies of middlemen who then hire the programmers as their "consultants." And that system, although it could lead to tax evasion charges against programmers and promoters, may not violate the federal payola law, sources close to the investigation said.
The Los Angeles grand jury has been investigating the seemingly cozy relationship between some promoters and radio program directors for nearly two years. Independent promoters are contracted by record companies to help convince the program directors to add their records to the stations' play lists.
In the course of the grand jury's investigation, a number of program directors have admitted that they received payments from promoters for their services as consultants, according to sources. But most of the programmers have insisted that such payments are legitimate. And authorities may have trouble proving otherwise, one investigator said, because the federal payola statute is "very fuzzily written--there's a lot of gray area there."
For one thing, the federal payola law doesn't prohibit taking money in exchange for playing a record. Instead, it makes it a misdemeanor--punishable by a maximum $10,000 fine and one year in prison--to take money for playing a record without disclosing the payment to the public.
The law was written 27 years ago in the wake of the disc jockey payola scandal of three decades ago. However, the business practices of the record industry have changed considerably since that time.
Nowadays, the big record companies annually spend millions promoting their records to radio stations. Some of the companies' promotion expenditures take the form of contests that award valuable gifts, such as free vacations, videocassette recorders or compact disc players directly to program directors.
Even though such giveaways are usually connected to the release of a new record and are rarely if ever disclosed to the public as a factor in the record being added to a station's play list, the practice is not considered payola.
The Federal Communications Commission further blurred the payola law in 1979 when it held in an administrative ruling, regarding gifts by record promoters to programmers, that "social exchanges between friends are not payola." An article last summer in the Harvard Journal of Law & Public Policy said the FCC's so-called friendship exception had "carved a gaping loophole" in the payola statute.
Because of the looseness of the law, the accepted definition of payola in the record industry has become limited to, in the words of one promoter, "offering a program director X amount of money to play a specific record. Anything else is legitimate promotion."
Skirting the Law