Recording and Broadcast Radio Industries Put on Notice: FCC Shows Renewed Interest in Payola

Federal Communications Commission (FCC) Michael O'Rielly has renewed interest in investigating illegal "payola" practices on broadcast TV and radio. Following press reports of a continuing payola problem, Commissioner O'Rielly recently sought information from the recording industry about possible violations of anti-payola laws and asked for industry cooperation to stamp out these arrangements. Further inquiries seem likely to follow

Laws Prohibiting Payola

Payola, also known as pay-for-play, is the illegal practice of paying commercial radio stations to broadcast particular recordings without disclosure to listeners of the pay-for-play, at the time of the broadcast. The Communications Act of 1934, as amended, prohibits payola. Section 317 of the Act requires that "[a]ll matter broadcast by any radio station for which any money, service or other valuable consideration is directly or indirectly paid, or promised to or charged or accepted by, the station so broadcasting, from any person, shall, at the time the same is so broadcast, be announced as paid for or furnished, as the case may be, by such person."¹ Section 508 extends this prohibition and the disclosure mandate to employees of a radio station, persons connected with the production or preparation of radio programs, third-party suppliers of radio programs, and persons who pay or agree to pay for the inclusion of material to a radio broadcast.²

The FCC has also promulgated rules implementing the anti-payola statutes. Broadcast stations transmitting "any matter for which money, service, or other valuable consideration is either directly or indirectly paid or promised to, or charged or accepted by such station" must announce, "at the time of the broadcast," "[t]hat such matter is sponsored, paid for, or furnished, either in whole or in part, and . . . [b]y whom or on whose behalf such consideration was supplied."³

The FCC has brought about 30 enforcement actions of the anti-payola statutes and rules.⁴

Payola Background

The problem with pay-for-play dates back to the early days of radio broadcasting in the 1930s and has been the subject of intense public scrutiny over the years, including attention-grabbing congressional hearings in the late 1950s. In 2004, the New York Attorney General accused record company leaders of paying radio programmers to play songs. This investigation concluded with settlements under which record companies and broadcasters agreed to tens of millions of dollars in penalties and, in some cases, behavioral commitments.

Relying on evidence from the New York Attorney General's investigation, the FCC launched its own in 2006, "the biggest federal inquiry into radio bribery since the congressional payola hearings of 1960."⁵ When the dust settled, four of the largest radio station groups had agreed to consent decrees requiring them to pay a combined $12.5 million in fines and to prevent their 1,653 stations from engaging in payola in the future.⁶ In a separate agreement negotiated by the American Association of Independent Music and radio groups, "the broadcasters agreed to provide 8,400 half-hour segments of free airtime for independent record labels and local artists over the next three years."⁷

Since that time, the FCC's attention to the issue has become decidedly lower profile. In this period, the agency has issued more than 20 other notices of apparent liability, consent decrees, and forfeiture orders against radio and TV broadcasters, imposing civil penalties and companywide operational changes. 

Payola's Return to Prominence

An August 2019 Rolling Stone article pushed payola back into the spotlight. The piece details the stubborn persistence of payola, including artists' managers paying DJs tens of thousands of dollars for increased airtime, and an independent promoter who allegedly has an exclusive relationship with a radio network and charges $3,500 to add a song to the network's playlist.⁸

Shortly after the Rolling Stone article was published, FCC Commissioner O'Rielly wrote recording industry players about "[r]ecent reports from the radio industry press rais[ing] concerns regarding possible violations of federal laws and regulations that expressly prohibit payola."⁹ Commissioner O'Rielly particularly sought information "to help determine whether allegations of non-disclosure are actually occurring."¹⁰ He also inquired about "allegations of soliciting artist appearances and performances with implied or express threats against non-participation."¹¹

Unsatisfied with the initial response to his questions, Commissioner O'Rielly announced that he will "seek out answers directly from record labels."¹²

Takeaways

Payola inquiries can result in substantial penalties.  Commissioner O'Rielly's recent statements suggest that his inquiry is likely to be wide-ranging.  It would be prudent for broadcasters and the recording industry to get out in front of the issue and take a critical look at their own practices and policies. Arnold & Porter lawyers with experience in past payola investigations would be pleased to assist in that process. 

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.