Deconstructing Pop Culture

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The New Payola and the American Record Industry

March 23rd, 2008 by David Kronemyer · 2 Comments

In 1987 Greg Sidak and I wrote a paper about what we called the “new payola” – that is, record companies using “independent promoters” to liaise with radio stations and obtain airplay. Its full title is, The “New Payola” and the American Record Industry: Transactions Costs and Precautionary Ignorance in Contracts for Illicit Services. It appeared in the Harvard Journal of Law and Public Policy. It still is widely cited.

In the mid-1980s, record companies were spending tens of millions of dollars in an effort to secure a competitive advantage that had nothing to do with the commercial popularity of the record, much less its intrinsic aesthetic worth. At the time, I was Vice President of Capitol Records, based in Hollywood, California. I was responsible for coordinating Capitol’s response to the Federal payola probe that began in 1986, implicating, among others, Ralph Tashjian and Joe Isgro. While they were indicted, all charges against them subsequently were dismissed due to prosecutorial misconduct.

While the economic implications of payola remains highly interesting, today it is a dead issue. Elliot Spitzer desultorily tried to revive interest in 2004, but (a) by then, the economic structure of the U.S. record industry was undergoing extreme evolution, and (b) as we all now know, at the time, Mr. Spitzer was preoccupied with other distractions. For all but a handful of artists, the Internet and P2P file sharing now have made radio itself obsolete. As the record business as we knew it implodes, consumers have moved on to other forms of aesthetic gratification.

I never will forget Ronald Coase’s remark that, with respect to the record business, “It soon became apparent that much of what I was told consisted of lies,” see footnote 15. An interesting comment, particularly in light of the dissimulation that has accompanied the disintermediation of cultural experiences and the disintegration of the music industry.

The New Payola and the American Record Industry