Sony BMG Settles Radio Payola Probe
Tuesday, July 26, 2005
NEW YORK, July 25 -- Sony BMG Music Entertainment admitted that its employees lavished cash, trips and other bribes on radio stations and their employees to get its music on the air in a settlement that is part of a wider investigation by New York Attorney General Eliot L. Spitzer into payola in the music industry.
At a news conference Monday, Spitzer said payola was "pervasive" in the industry and -- while it had assumed more sophisticated forms lately -- does not much differ from practices unearthed in scandals that have dogged the industry since the early days of radio.
As part of a settlement with Sony BMG, Spitzer unveiled yet another string of incriminating e-mails, this time from record-company executives, echoing similarly compromising e-mails from previous investigations he led of the brokerage, insurance and mutual fund industries.
In an e-mail last September, for instance, an unidentified Sony BMG executive complains that the company was paying too much in trips and gifts to the program director of Buffalo's WKSE-FM in return for airtime for the Sony BMG rock band Franz Ferdinand.
"Two weeks ago, it cost us over 4,000 to get Franz on WKSE," the e-mail said. "That is what the four trips to Miami and hotel cost."
In a statement, the station, which is owned by Entercom Communications Corp. of Bala Cynwyd, Pa., said it fired program manager David Universal in January for violating the company's conflict-of-interest policies. Efforts to reach Universal were unsuccessful.
Sony BMG, owned jointly by Germany's Bertelsmann AG and Japan's Sony Corp., said in a statement that "direct and indirect forms of what has been described generically as 'payola' for spins has continued to be an unfortunately prevalent aspect of radio promotion." It added that "various employees pursued some radio promotion practices on behalf of the company that were wrong and improper." The company apologized for "such conduct."
As part of the settlement, Sony BMG agreed to pay $10 million to be distributed by Rockefeller Philanthropy Advisors to nonprofit groups in the state of New York aimed at arts and education. Spitzer said the money will in part benefit independent musicians indirectly frozen out by the alleged payola schemes.
A spokesman for Sony BMG declined to comment beyond the company's statement.
Spitzer said the investigation continues into other major music companies, including Universal Music Group, Warner Music Group and EMI Group PLC. Representatives of Universal Music Group, a unit of France's Vivendi Universal, and Warner Music Group of New York could not be reached. A spokeswoman for EMI declined to comment; the London company has said it is cooperating with investigators.
Spitzer also called on the Federal Communications Commission to take a "very hard look" at the major radio-station owners and consider stripping the companies of broadcast licenses in cases where they are found to have "violated a public trust."
Clear Channel Communications Inc., based in San Antonio, and Infinity Broadcasting Corp. have disclosed receiving subpoenas as part of the Spitzer probe. A Clear Channel representative could not be reached. A spokesman for Infinity, a unit of New York's Viacom Inc., declined to comment.
With the recording-industry settlement, Spitzer has again uncovered widespread wrongdoing in an industry primarily regulated by a federal agency, in this case the FCC. Previous Spitzer investigations into misleading stock research in the brokerage industry and abuses in the mutual fund industry were widely seen as an embarrassment to the Securities and Exchange Commission, Wall Street's primary regulator.
"Whoever goes first, gets it," Spitzer said Monday, adding, "It would have been good if the FCC had looked at this."
In a statement, Democratic FCC Commissioner Jonathan S. Adelstein called for the agency to open its own investigation "based on" Spitzer's findings. "It took someone with Spitzer's tenacity and subpoena power to bring forward solid evidence," Adelstein said.