Thursday, August 2, 2007

Dark Payola

Here’s another one that flew under the radar.

Billboard announced yesterday that the playlists of both Yahoo and AOL Internet radio stations will now bear influence on the trade magazine’s national single chart – the Hot 100.

In the record business there is nothing – absolutely nothing - more important than chart position. It’s what label sales weasels use to sell clients on what music to stock at retail.

Yahoo and AOL carry well over 100 formats each, which range from mainstream to vaguely eclectic.

AOL also simulcasts eleven XM Satellite music channels on line but it wasn’t clear if those stations would be included in the Billboard chart tally.

What this means is that AOL and Yahoo Internet radio stations are heading in a direction where they will eventually be considered by labels as being relatively on par with terrestrial radio stations in their influence on the national charts.

Don’t go listening for innovation here. Their mainstream formats mimic what terrestrial radio stations play. They also employ a couple of the same notorious radio consultants that have pacts with terrestrial stations - the ones that suffered new lows in their time spent listening. Garbage in, garbage out.

Billboard has been using data from Nielsen Broadcast Data System (BDS), a nearly fool-proof system that tracks actual airplay on terrestrial radio stations and Nielsen SoundScan, which determines actual radio sales based on bar code tabulation for their Hot 100 chart.

In February, 2005, Billboard added digitally downloaded songs to its Hot 100 modus operandi – and rightfully so since their sales account for a small - but rapidly rising - percentage of total music sold.

SoundScan, which also tabulates tracks legitimate downloads, reported that, in the first 29 weeks of 2007, 462.1 million digital tracks were sold. A total of 582 million digital tracks were sold in 2006, which was up 65% from 2005’s 352.6 million.

Billboard deserves kudos for recognizing the increasing influence of Internet radio to the mass audience.

But keep this in mind. Unlike terrestrial radio, which has to answer to a higher authority - the Federal Communications Commission (FCC) - Internet radio is not governed by their rules and regulations.

It’s not an insinuation. It’s just a fact.

Welcome to the uneasy mix of the sinister and the innocent. You’ve heard the old saying: the innocent never remain that way for long.

There’s growing trepidation that what’s being called “dark payola” could influence Internet radio stations that cut private royalty deals directly with the labels.

The labels, of course, hate that name. They prefer “direct licensing.”

Here’s how it works.

Say you have an Internet radio station or stations and want to take a chance at negotiating a private deal with the labels to get a lower royalty rate than the one that will eventually be set by the Copyright Royalty Board.

Private. Remember that word.

The stations that do the direct deal with the labels during this interim period will end up with a better royalty rate. At least that's what they're told.

But there’s always, always, always a catch when you deal with anything that has the stink of the RIAA on it.

This direct licensing agreement opens the door for major labels to apply a percentage of playlist control on participating Internet stations.

Consider “dark payola” the reverse of what payola was between the labels and terrestrial radio stations.

The labels don’t have to hire a third-party to pay the Internet radio stations for airplay. The station cuts a direct deal with the labels to pay a lesser amount of royalty payments in exchange for ownership of x-amount of slots on their playlist.

Since the deals between the RIAA’s SX and participating Internet stations are private – their listeners have no awareness that some, if not all, of the new music they hear is under the labels' dictate.

Full disclosure is unnecessary.

The RIAA’s SX is careful not to deny the practice since today’s technology can easily out premeditated playlists.

In fact, in what might’ve been a little bit of speaking out of school, John Simpson, the executive director of SX, told the San Francisco Weekly in June that he didn’t consider “dark payola” a problem since Internet radio stations could also cut deals with indie labels, too.

And never forget that payola is as much about keeping someone else’s song off the playlist as it is to get one on.

It’s a money maker for the labels. They get their kiss in the mail plus, unlike their payola deals with radio, where they had to employ third party independent record promoters to do the dirty work – labels can now deal directly with Internet radio stations, should they so choose, and eliminate the cost of paying third-party retainer fees and spiffs.

I’ll be probing to see how many artists actually receive checks in the mail from the RIAA’s new extortion – I meant to say royalty deals, considering that the most of the labels represented by that organization have been cited for failing to pay royalties to their artists for music they sold.

This is nothing new. Peter Noone, leader of Herman’s Hermits, which sold millions of hit singles and albums in the mid sixties told Bob Lefsetz’s Lefsetz letter ( that he never received a single royalty check from his label, MGM Records. Eric Burdon? How about you? Lou Christie? Gloria Gaynor? Sam the Sham? Did Roy Orbison ever see even a penny of royalties after he signed with the label? And how about those on MGM’s sister label, Verve? Did Al Kooper and the Blues Project ever get a check in the mail? How about Frank Zappa and the Mothers? Janis Ian?

Ask Steve Popovich about Sony Music (

The labels, like all nearly extinct species, can’t acclimatize to a shifting milieu. It’s not that the conventional way of a label buying their way on to a playlist is totally over, but it’ll never be what it used to be even if the RIAA manages to corrupt a few Internet radio stations along the way.

If you don’t provide a popular culture soundtrack, listeners will go elsewhere. Just look at the end results of the decade of decay at terrestrial radio.

You already know the end of the story. Somewhere along the line someone’s going to take a hit for not playing the game and the fall guys will rat out those stations on the labels’ payrolls.

Before we wrap, let’s pay a quick visit to Soma-FM, an Internet radio company in San Francisco, which broadcasts eleven separate diverse formats on line, including Underground Electronica, Chillout, Ambient Groove, Downtempo, Lounge, Space Music, Indie Rock and Alt-country/Americana.

The webmaster running the joint is Rusty Hodge.

Coincidentally, his business partner in Soma, Elise Nording also works for the Independent Online Distribution Agency (IODA), which promotes indie music to Internet, terrestrial, and satellite radio. IODA distributes MP3s from indie bands that signed up – and can afford – the service.

You’re thinking the music matters?

And what does that mean to independent artists that can’t pay the freight?

The silent treatment?

Just asking.


Paco said...

I am not the least bit surprised. That is why I admire some of the independent artists and labels that find their audience without the benefit of airplay. The Arcade Fire is the best example of that. They do not work their music on terrestrial radio and have built their fan base on word of mouth and internet radio airplay.

Anonymous said...

John, another fine column. Our local PBS station ran the Stax Records story last night. That was a label that took care of its artists but was ripped off by Atlantic Records who distributed the label. All of the original Stax masters became property of Atlantic due to some fine print in the contract. My guess is that none of the artists you mention got royalty checks from MGM.

CRM said...

thank you for your column. i put out a cd last year. i could not afford a promotional company so i made all the calls & mailings myself. i got airplay on two aaa stations and radio paradise on my own. i called this one well known non comm npr/aaa to ask how to be considered for airplay on that station. i was told that to be considered i would have to sign a promo deal with the station manager's daughter's company & there still was no guarantee the station would play it. what you describe is already happening.

deletedeletedelete said...

I think the internet will be too overwhelming for the record labels to work. They will promote Yahoo, AOL and maybe a few other brand name internet radio sites and only if they become Billboard reporters. They will ignore the independent stations.

The RIAA prefers smaller independent internet stations go under by making it impossible to pay the royalty rate.

I expect congress will do nothing.

Anonymous said...

I have to agree that there has never been a time when what is heard on media is controlled by so few. I think it is disgusting and should be illegal that the RIAA is given the freedom to dictate what gets played on internet radio. Just like terrestrial radio the real enemies are the labels. It starts with them.

Brian said...


I wrote an article similar to this And it touches on Music Industry "hidden payola" There is an excerpt from one of the attorneys who wrote an opinion based upon this very subject, as well as a few of my very own thoughts coming from a broadcast vet of 12 years.

It's located at: John being here (blogger) you'll know how to find it.

Rusty Hodge said...

SomaFM plays a lot of independent artists. We also get a lot of digital servicing, most of which comes through IODA. Independent artists also simply email us MP3s. If you are making good music, it will likely get played on SomaFM. But it's got to be good music. We're not going to play bad music just because it's "independent".

Indie artists aren't forced to use services like IODA. They can still make CDs, stuff them into envelopes and send them to us - we get tons of stuff that way now. But considering that the postage to send a CD is over a buck each, you can see why everyone is turning to electronic distribution instead.

We prefer CDs, because we get the best sound quality that way, but more electronic submissions are coming at high bit rates now, so it's not that big of quality issue.

If you want to know more about SomaFM, you know where to contact me.

We haven't cut any deal with SoundExchange or the RIAA. The large webcasters that have cut deals have cut them directly with the big labels, not with the RIAA.

SomaFM is an associate member of the American Association of Independent Music (A2IM), but we haven't cut a "deal" with them either.

All of this accusation is missing the important issue: the CRB internet radio royalty rates are unfair, and need to be changed. If they are, there is no longer any reason for small (or large) webcasters to make private deals with labels.

PS- Your blog entry is based on an article in the SF Weekly yet you don't give credit to the original article. It would be insightful for your readers to see the original article.