[IP] Payola 2: Why it matters
Begin forwarded message:
From: Barry Ritholtz <britholtz@xxxxxxxxxxxx>
Date: July 26, 2005 10:52:46 AM EDT
To: "Dave Farber (E-mail)" <dave@xxxxxxxxxx>
Subject: Payola 2: Why it matters
Hey Dave,
I'm surprised no one has brought up the Sony/BMG Spitzer settlement
Payola 2: Why it matters
http://bigpicture.typepad.com/comments/2005/07/payola_2.html
What is the significance of the Payola settlement? Why was this even
a legal matter? There are 3 keys to this event:
1) Federal law prohibits broadcasters from accepting secret
payments or anything of "substantial value" in exchange for airplay
of a specific song; (I'm not sure about airplay of a specific
artists). Its clear the broadcasters violated that law;
2) Broadcasters are granted a license to use the public airwaves
-- there are specific standards they must maintain, in order to
maintain that license and keep that privilege (and it is a privilege,
not a property right). Anything fraudulent, misrepresentative (even a
failuire to disclose) violates FCC governing practices and standards,
as well as legislation. Again, a clear violation;
3) The FCC is the primary agency charged with regulating this,
but like so many other Federal regulatory agencies, they have been
asleep at the switch. This is a political issue;
This is not like, as has been suggested, supermarkets selling shelf
space to food companies, or Barnes & Noble selling book racks to
publishers. That's because the supermarkets and B&N's owns their own
shelves; They are private property, free to be used as their owners
see fit.
The airwaves, on the other and, are the publics'; Broadcasters are
merely given a license to use them for the benfeit fo the public. If
they can make a buck doing so, that's all the better -- but do not
think that Clearchannel or Infinity or any othe broadcaster over the
public airwaves has a specific right to dispose of the public's
property at their own discretion.
Here's a few select quotes from the settlement announcement:
"This is not a pretty picture; what we see is that payola is
pervasive," Mr. Spitzer said, using a term from the radio scandals of
the 1950's in describing e-mail messages and corporate documents that
his office obtained during a yearlong investigation. "It is
omnipresent. It is driving the industry and it is wrong."
The Attorney General's findings alleges that the illegal payoffs for
airplay were designed to manipulate record charts, generate consumer
interest in records and increase sales:
"Instead of airing music based on the quality, artistic
competition, aesthetic judgments or other judgments, radio stations
are airing music because they are paid to do so in a way that hasn't
been disclosed to the public," Spitzer said at a press briefing.
The Washington Post noted:
"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."
The FCC should be similarly embarrassed . . .
Sources:
SONY SETTLES PAYOLA INVESTIGATION <http://www.oag.state.ny.us/press/
2005/jul/jul25a_05.html>
Office of NYS Attorney General Eliot Spitzer
July 25, 2005
http://www.oag.state.ny.us/press/2005/jul/jul25a_05.html
Evidence: Internal Industry Pay-for-Play Memos <http://
www.oag.state.ny.us/press/2005/jul/payola2.pdf>
http://www.oag.state.ny.us/press/2005/jul/payola2.pdf
Discontinuance Order <http://www.oag.state.ny.us/press/2005/jul/
payola.pdf>http://www.oag.state.ny.us/press/2005/jul/payola.pdf
Radio Payoffs Are Described as Sony Settles <http://www.nytimes.com/
2005/07/26/business/26music.html?
ex=1280030400&en=52f380d0a9f279e8&ei=5090&partner=rssuserland&emc=rss>
JEFF LEEDS and LOUISE STORY
NYT, July 26, 2005
http://www.nytimes.com/2005/07/26/business/26music.html
Sony BMG Settles Radio Payola Probe <http://www.washingtonpost.com/wp-
dyn/content/article/2005/07/25/AR2005072501624.html>
Firm to Pay $10 Million to End Role in Spitzer's Ongoing Inquiry
Dean Starkman
Washington Post, Tuesday, July 26, 2005; Page D03
http://www.washingtonpost.com/wp-dyn/content/article/2005/07/25/
AR2005072501624.html
Barry L. Ritholtz
Chief Market Strategist
Maxim Group
405 Lexington Avenue,
New York, NY 10174
(212) 895-3614
(800) 724-0761
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