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$1 Million in Suspected ‘New Payola’ Is Probed : L.A. Grand Jury Looking Into Payments by Record Promoters to Radio Programmers, but Activities May Be Within Law

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Times Staff Writer

A Los Angeles federal grand jury looking into suspected payola practices in the record industry has turned up evidence of systematic payments by several independent record promoters to a group of radio station program directors around the country, The Times has learned. But investigators say the system may not violate the federal anti-payola law.

The system funneled at least $1 million to the program directors around the country between 1981 and 1985, according to individuals who were involved in the operation. One independent promoter interviewed by The Times said that at one time, he was paying 15 to 20 program directors anywhere from $10,000 to $30,000 a year each.

Between 1981 and 1985, he estimated that he paid a total of $700,000 to the program directors in this fashion.

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“I definitely put a lot of money out there,” said the promoter, who has been subpoenaed to appear before the grand jury and who declined to be identified.

The revelation appears to be the first direct confirmation of widely publicized allegations by political figures over the last three years that payola is rampant among those who decide which records get played on the radio. Those allegations sparked two congressional investigations: by the House subcommittee on oversight and investigations headed by Rep. John Dingell (D-Mich.) in 1984, and by the Senate permanent subcommittee on investigations chaired by Sen. Albert Gore Jr. (D-Tenn.) in 1986. Both investigations, however, failed to find hard evidence of widespread illegalities.

Investigators acknowledge that their latest discovery of the “new payola,” as it has been dubbed, may not lead to major payola indictments or a sweeping overhaul of the record promotion business. Instead of cash paid directly by record companies to the radio programmers in return for playing certain music on the air, as was the case with the “classic payola” of the late 1950s, the new payola is said to involve use by the record companies of middlemen who then hire the programmers as their “consultants.” And that system, although it could lead to tax evasion charges against programmers and promoters, may not violate the federal payola law, sources close to the investigation said.

The Los Angeles grand jury has been investigating the seemingly cozy relationship between some promoters and radio program directors for nearly two years. Independent promoters are contracted by record companies to help convince the program directors to add their records to the stations’ play lists.

In the course of the grand jury’s investigation, a number of program directors have admitted that they received payments from promoters for their services as consultants, according to sources. But most of the programmers have insisted that such payments are legitimate. And authorities may have trouble proving otherwise, one investigator said, because the federal payola statute is “very fuzzily written--there’s a lot of gray area there.”

For one thing, the federal payola law doesn’t prohibit taking money in exchange for playing a record. Instead, it makes it a misdemeanor--punishable by a maximum $10,000 fine and one year in prison--to take money for playing a record without disclosing the payment to the public.

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The law was written 27 years ago in the wake of the disc jockey payola scandal of three decades ago. However, the business practices of the record industry have changed considerably since that time.

Spend Millions

Nowadays, the big record companies annually spend millions promoting their records to radio stations. Some of the companies’ promotion expenditures take the form of contests that award valuable gifts, such as free vacations, videocassette recorders or compact disc players directly to program directors.

Even though such giveaways are usually connected to the release of a new record and are rarely if ever disclosed to the public as a factor in the record being added to a station’s play list, the practice is not considered payola.

The Federal Communications Commission further blurred the payola law in 1979 when it held in an administrative ruling, regarding gifts by record promoters to programmers, that “social exchanges between friends are not payola.” An article last summer in the Harvard Journal of Law & Public Policy said the FCC’s so-called friendship exception had “carved a gaping loophole” in the payola statute.

Because of the looseness of the law, the accepted definition of payola in the record industry has become limited to, in the words of one promoter, “offering a program director X amount of money to play a specific record. Anything else is legitimate promotion.”

Skirting the Law

The system uncovered by investigators would seem to skirt that definition. Sources say it involved program directors receiving regular payments--ranging from 30% to 75% of their radio station salaries--under the guise that they were acting as independently contracted “consultants” to promoters. Since the payments supposedly were not tied to the adding of specific records to a play list, they appeared--on the surface at least--to be legal.

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Still, the programmers did not disclose the payments or their relationship with the promoters to their station management.

“When I testified before the grand jury, one of the jurors asked me, didn’t I think these payments appeared to be payola,” said one former program director who admits receiving about $25,000 from an independent promoter between 1983 and 1985.

“I said that, to an outsider, it probably does. But not to someone who knows how the record business works,” said the programmer, who now is employed as a promotion executive for a major record company and spoke to The Times on condition that he not be identified.

The investigators “are trying to get me to say I took payola, which is totally untrue,” he said. “I worked as a consultant to an independent promoter.”

‘Send Records’

“He would send records to me, and I would take them around to the (dance clubs) to give to the DJs, trying to get the records popular and happening in the area so we could add them to our play list. But there were a lot of records he gave me that we didn’t play.”

Record companies hire programmers as consultants “all the time.” he said. “One year, I was paid $5,000 by a major record company for doing voice-over commercials for albums. They paid me a talent fee.”

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He said he did not know if the commercials were ever aired. “I just sent them a tape, along with my bill.”

On another occasion, “a record company paid me $1,500 to introduce their staff promotion man to the seven key disc jockeys in this area,” he said. “They paid me for my connections. This is a business of relationships.”

However, the former program director, who earned a salary of $30,000 a year from his radio station, acknowledged that receiving a significant portion of his income from a promoter or a record company made him predisposed to add their records to his station’s play list.

Grant of Immunity

Sources say authorities have granted immunity to at least one program director who testified before the grand jury that the payments he received from a promoter were made in exchange for playing records.

The grand jury payola investigation is being conducted by agents of the Internal Revenue Service, under the direction of the Los Angeles office of the Justice Department’s Organized Crime Strike Force. It began in February, 1986, as an adjunct to an investigation into the activities of reputed organized-crime figure Salvatore Pisello, who is set to go on trial next month for allegedly evading taxes on several hundred thousand dollars in income derived from various deals with MCA Records between 1983 and 1985.

The Pisello investigation was launched in March, 1985, the first of three grand jury probes into suspected organized-crime involvement in the record business. The others are in New York and Newark, N.J.

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The payola side of the grand jury investigation has focused largely on the activities of one prominent Los Angeles independent promoter, Joseph Isgro, and several of his former business associates. Investigators are trying to determine if Isgro was part of a sophisticated operation that sought to evade taxes by disguising the source and purpose of payments to program directors through the use of middlemen.

Very Successful

Isgro, 39, was once one of the most successful, and some say powerful, independent promoters in the country. Through his companies, Joseph Isgro Enterprises Inc. and Quickcross Promotions Inc., he was hired to promote most of the pop music records released by the major record companies, often receiving fees of as much as $7,500 from record companies for getting a single record added to a single radio station’s play list.

With hundreds of records released by the major companies each year, Isgro became conspicuously prosperous. He drove a Rolls-Royce, lived in a $1.6-million home in the Encino hills and employed a beefy bodyguard.

As reported by The Times in 1983, Isgro operated in loose affiliation with a group of other prominent independent promoters that became known in the record industry as “the network.” Operating from different territories around the country, the network developed a virtual stranglehold on record promotion in the United States, according to record company executives, who came to believe that if they did not hire Isgro and the others to promote their records, the records would not get on the radio.

Urban Contemporary

From his Los Angeles base, Isgro contracted out much of his promotion work to two other local independent promoters: Ralph Tashjian, who promoted to Top 40 radio stations all along the West Coast, and Bill Craig, who promoted to about 100 so-called urban contemporary, or black music, stations nationwide. Both Tashjian and Craig operated out of Isgro’s office but worked for their own companies, Ralph Tashjian Enterprises Inc. and Bill Craig Enterprises Inc.

It was Tashjian and Craig who made the payments to program directors, investigators say, with money paid to Isgro by the record companies. Isgro says that if such payments were made, he knew nothing about them. One independent promoter who admitted to receiving payments told The Times: “I’ve never met Joe Isgro, never even talked to him.”

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Investigators allege that the payments to program directors resulted in virtual control over some radio stations’ play lists.

Lawyers for Tashjian and Craig acknowledge that their clients have been interviewed by investigators, but both attorneys deny that their clients have engaged in payola.

‘Proper Forms’

“Mr. Craig has done nothing legally or morally wrong,” Phoenix attorney David G. Derickson said. “He made no attempt to hide his activities, he filed all the proper forms and he even gave the program directors 1099 Forms at the end of the year so that they could declare the payments on their taxes. I think this whole thing smells from a prosecution standpoint.”

Isgro likewise denies any wrongdoing.

“I have never offered a program director payola in my life,” he said in a recent interview. He defined payola as “giving money for playing a particular record.”

Isgro’s fortunes took a turn in February, 1986, after an NBC News television broadcast that claimed he was linked to several East Coast organized-crime figures. Isgro has admitted that he knows a number of individuals whom law enforcement officials characterize as mobsters, but he denies that he has any business association with them.

Within days of the NBC newscast, all of the big record companies announced that they were suspending the services of all independent promoters. At the time, the major companies were paying up to $200,000 to promote a single record, and the cost of independent promotion industrywide had climbed to an estimated $50 million to $60 million a year.

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In April, 1986, Gore announced that the Senate permanent subcommittee on investigations was looking into independent promotion and payola.

“The cumulative evidence is overwhelming that this practice has gotten out of hand,” Gore said at a press conference.

However, subcommittee investigators admitted privately that they had no evidence of wrongdoing, other than the allegations in the NBC News broadcast, and the investigation eventually fizzled.

Isgro responded to the record companies’ suspension of independent promotion by filing a $25-million civil antitrust suit against 12 major record labels and their principal trade group, the Recording Industry Assn. of America. The only big company not named in Isgro’s suit was CBS Records, which had been by far the heaviest user of independent promotion and had long resisted industry efforts to voluntarily cut back.

Three Companies

The Isgro suit is set for trial in U.S. District Court in Los Angeles in February, with only three companies remaining in the case--MCA, Warner Communications and A&M; Records. The other firms have settled with Isgro out of court.

Isgro’s suit contends that the big companies’ suspension of independent promotion was purely economic, according to his attorney, Steven Cannata.

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“We are saying that they used the NBC telecast as a pretext for putting Joe and a number of other independents out of business because of (the record companies’) continued frustration at the high cost of independent promotion, which they themselves created by their own competition with each other for the services of these promoters,” Cannata said.

In a recent interview in his Studio City office, Isgro said: “I find it very curious that prior to the NBC story, all the investigations were focused on the record companies and what they were doing; then, all of a sudden, the spotlight gets turned away from them and put on the independent promoters. . . .

“The record companies terminated independents based on an allegation in TV news reports that prostitutes and drugs were being given out in exchange for radio air play,” he said. “One of those news reports showed film of a party with young women prancing around and some guy licking champagne out of a girl’s navel.

‘But that was a party thrown by a record company,” he said, his voice rising in anger. “It wasn’t my party; I wasn’t even there. So where do they get off terminating my services?

“The record companies accuse me of payola when it’s an everyday fact of life with them, giving out trips and TVs and stereos. The hypocrisy is just unbelievable.”

Receiving Awards

Surrounded by such testimonials to his respectability as a framed apostolic blessing from Pope John Paul II and photos of himself receiving awards from Los Angeles Mayor Tom Bradley and U.S. Army Gen. William Westmoreland, Isgro said that, despite having “done nothing wrong,” he may be indicted by the grand jury before his antitrust suit goes to trial in February. “They have to indict me before then, because the record companies don’t want this (civil antitrust) case to go to trial,” he said.

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He claimed that information from the grand jury investigation recently has been leaked to record company lawyers defending against his lawsuit. “How do I know that? Because right now they are asking me the same questions, word for word, in depositions that I was asked when I spoke to the prosecutor. They are asking me about things that could only come from the grand jury, names that don’t appear in any of my books and records.

“You know what they are asking about? This is an antitrust case, right? And the lawyers are asking me if I ever had $13,000 in a suitcase in San Francisco, and have I ever been to a record industry party where drugs and prostitutes were present. I said the real headline news would be if I attended a record industry party where drugs and prostitutes weren’t present.

“I have never offered anyone drugs or prostitutes in my life,” he said.

Use Independents

Ironically, most of the major companies have since resumed using independents, albeit with reduced frequency and at severely reduced cost. Several promoters interviewed for this article said they are now being paid 50% less than before to work major-label records, with the money paid through the managers of the recording artists and, in some cases, deducted by the record company from the artist’s share of royalties.

“So all they really did was cut their costs. They didn’t give a damn about payola,” Isgro said.

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