Sony BMG Is Expected to Settle Probe

Sony BMG Music Entertainment, the nation’s second-largest music company, is expected as early as Monday to agree to a settlement with New York Atty. Gen. Eliot Spitzer in a payola investigation, said sources familiar with the talks.

Sony BMG is one of four record companies that Spitzer subpoenaed last fall as part of his inquiry into whether music corporations were skirting payola laws by hiring intermediaries to influence which songs were heard on public airwaves. Should Sony BMG reach an accord with Spitzer, it would be the first settlement in the investigation.

Representatives of Sony BMG and Spitzer declined to discuss ongoing talks. But sources said that as part of the settlement, the company was expected to admit some inappropriate conduct in its radio promotion practices and to agree to discontinue use of certain independent promoters. The sources requested anonymity because of the confidentiality of the discussions.

One source close to the talks also said Sony BMG, which distributes music by such acts as Aerosmith and Britney Spears, was expected to agree to change policies regarding “spin programs,” under which labels pay stations to air songs during the late-night hours to buoy those tunes’ position on industry airplay charts.

In addition, Sony BMG is expected to agree to pay fines that could exceed $10 million, two sources said.

Insiders at other record companies said they expected that a Sony BMG settlement would spur other music corporations to agree to similar deals with Spitzer’s office. Those executives said whatever fine Sony BMG might accept probably would also set the standard for other companies, which would be fined in proportion to each company’s share of the U.S. market.

In September, investigators in Spitzer’s office subpoenaed executives at the four major record corporations -- Sony BMG, Universal Music Group, Warner Music Group and EMI Group -- to request copies of billing records, contracts, e-mails and other correspondence regarding the companies’ relationships with independent music promoters who suggest new songs to radio programmers.

Those intermediaries have long been suspected of passing payments to deejays in exchange for airplay of specific songs. Such payments would violate a federal statute known as the payola law, which prohibits broadcasters from taking cash or anything of value in exchange for playing specific songs unless they disclose the transaction to listeners.

Radio airplay is considered the most powerful promotional tool for record companies. In the past, labels blatantly traded cash, drugs and prostitutes for airplay.

Today, record companies pay independent promoters to persuade radio programmers to spin particular songs. The independent promoters pay radio stations annual fees, sometimes in excess of $100,000, in exchange for advance copies of the stations’ playlists. Promoters say the fees do not influence a radio station’s choice of songs. However, critics suggest that the payments are a way to skirt the law.

In May, Sony BMG divulged that at least a dozen executives had received subpoenas from Spitzer’s office.

Since Spitzer’s probe began, all four of the record companies he subpoenaed have circulated internal memos outlining unacceptable promotion practices, company insiders said.

When Spitzer’s investigation was revealed in October, sources said radio stations and promoters themselves had not been subpoenaed.

But in November, Infinity Broadcasting Corp., the nation’s second-largest radio broadcaster, fired a programmer suspected of accepting gift certificates from an independent promoter.

Then in January, Entercom Communications Corp., another radio broadcaster, fired a programming executive amid an internal investigation into whether he accepted travel packages and other gifts directly from record label executives.

Since then, Infinity announced that it would sever its ties with independent promoters. Radio heavyweight Clear Channel Communications Inc. announced in 2003 that it would not renew contracts with independent promoters.

Practitioners of the promotion trade, once estimated to be a $60-million-a-year business, have fallen on hard times. Increased governmental scrutiny and declining sales of musical recordings have caused labels to slash their payments to independent promoters by as much as 75% in the last four years. One of the industry’s top promoters, for instance, has shut two of his firm’s four offices and fired three-quarters of his 50-person staff.

In past investigations, Spitzer has been criticized for allegedly overstepping his jurisdiction, pushing into areas that are overseen by the federal government. The Federal Communications Commission is responsible for enforcing payola laws.

But the FCC, which is wrestling with other issues, including telecommunications policy, media consolidation and indecency on public airwaves, has imposed only one fine in a payola case in the last decade. It was relatively small, however: $8,000.