Promoters Key Issue in Record Industry Fracas

On the evening of Jan. 23, 1986, agents of the FBI and the New York state Organized Crime Task Force, in the midst of separate undercover assignments, bumped into an NBC News camera crew outside New York’s posh Helmsley Palace Hotel.

The agents were surveiling reputed Mafia boss John Gotti and three of his top lieutenants in the Gambino family. The camera crew was following Joseph Isgro, a Los Angeles record promoter who supposedly was meeting the mobsters at the hotel.

The unexpected encounter with the newsmen caused some tense moments for the investigators, who scurried for cover to avoid ending up on the evening news.

Isgro was not so lucky. An NBC News telecast a month later alleged that he was linked to the Mafia and suspected payola practices in the record industry. As a result, he has been cast as the central figure in a nationwide payola scandal and a bitter two-year legal battle with the major U.S. record companies.

For the record industry, the incident at the Helmsley Palace set off a chain of events that virtually buried the major companies in subpoenas and left them struggling to extricate themselves from the most publicized and complicated scandal of the last 20 years.

At the core of the controversy is the companies’ use of independent contractors such as Isgro, rather than staff employees, to carry on the bulk of their record-promotion activities. Critics of the practice contend that the big companies have used independents in recent years as a way of insulating themselves from the often grimy business of obtaining radio air play for their records.

“I think they saw it as a way of keeping their hands clean,” says Thomas R. Greelish, the former U.S. attorney in Newark, N.J., who directed a federal grand jury investigation into payola in the mid 1970s.

By the mid-1980s, the major record companies were spending between $60 million and $80 million a year on independent promotion, according to industry estimates.

But the situation changed dramatically in February, 1986, when the NBC report alleged that a group of powerful independent promoters was buying air play by providing radio programmers with cash, cocaine and prostitutes. Within days of the telecast--titled “The New Payola”--every major record company announced that it was suspending the use of independent promotion. In effect, this put an estimated 200 promoters around the country out of business.

Isgro responded by filing a $25-million antitrust suit against the industry’s trade group and every major company except CBS Records, charging that the defendants had conspired to boycott the independents in order to drive down the cost of promotion.

Grand Jury Investigation

In the two years since Isgro filed suit, most of the record companies have settled with him out of court, leaving only MCA Records and the Warner Communications companies--Warner Bros., Atlantic, Elektra/Asylum and Geffen--defending against the suit. Both MCA and Warner have countersued Isgro for racketeering and fraud, claiming that he engaged in payola in violation of an agreement he had signed with them. (Lawyers for both companies declined to comment for this story.)

Meanwhile, Isgro is the primary focus of a Los Angeles grand jury investigation into payola. In January of this year, two of his former business associates--independent promoters Ralph Tashjian and William Craig--were indicted by the grand jury on a variety of payola and tax-evasion charges. According to their attorneys, Tashjian and Craig were told by investigators that they wouldn’t be indicted if they cooperated in the investigation of Isgro. The Tashjian and Craig trials are set for next month.

Another former Isgro employee, David Michael Smith, has been placed in the government’s witness protection program and is cooperating with investigators. Before contacting the authorities, sources say, Smith first tried to sell his information to the record companies, who turned him down.

The convergence of the civil and criminal cases is causing some headaches for the lawyers involved, who have subpoenaed many of the same witnesses to testify at the upcoming trials.

“The problem for us is, there are witnesses still to testify before the grand jury, and for them to surface now in a civil case and have their testimony be made public could have a chilling effect on future grand jury testimony,” said Richard Stavin, a special attorney for the Los Angeles office of the Justice Department’s Organized Crime Strike Force, which is directing the grand jury investigation. “If prospective grand jury witnesses see that people going before the grand jury are also being called in a civil proceeding, it will make people less likely to cooperate with us,” Stavin said.

Isgro’s antitrust suit was set to go to trial on Tuesday in U.S. District Court in Los Angeles, following two years of intense legal maneuvering by both sides. But in an unusual move last week, Stavin petitioned U.S. District Judge Consuelo B. Marshall for a three-month delay, arguing that the trial would interfere with the ongoing payola investigation.

Could Set Precedent

Last Thursday, Judge Marshall agreed to the government’s request. The delay in the antitrust trial apparently didn’t displease lawyers for MCA and Warner; sources say the lawyers had been hoping that Isgro would be charged in the criminal case before the civil case went to trial.

“His only chance is if he gets the antitrust trial out of the way before he’s indicted,” said one company attorney. “After he’s charged, there’s not a jury in the country that would award him damages.” Which is why, he said, “We wish the government would get off its butt and indict him.”

If Isgro’s wins his civil case, the record companies expect to be hit with additional antitrust suits from other promoters whose services were suspended in 1986.

For their part, Isgro and his attorneys claim the government and the record companies have been working together to interfere with his civil case. They offer as evidence an incident earlier this month, when a record executive who was expected to give testimony bolstering Isgro’s position appeared for a pretrial deposition at the offices of Warner’s outside counsel.

Alignment of Interest

“Before the deposition could begin, two federal agents showed up and handed him a subpoena to appear before the grand jury,” said attorney Steven Cannata. “I think that has a chilling effect on anyone who gets involved in the civil case.”

“We have felt all along that there has been some degree of cooperation, either the defendants giving information to the grand jury or the Justice Department providing information to the defendants,” Cannata said. “I think the interests of the government and the record companies are pretty well aligned right now.”

In an interview last week, a defiant Isgro said: “I’ve been waiting more than two years for my day in court. Why don’t they want to go to trial on this? I’m not afraid of anything that’s going to come out. What are they afraid of?”

For one thing, record companies historically have been loathe to discuss their business practices in public. The antitrust trial could mark the first time that any major record company executive has publicly answered questions about independent promotion. And despite the companies’ 1986 announcements that they would quit using independent promoters, most if not all of the companies resumed using independents within a matter of weeks--at a severely reduced price--according to sworn testimony in the nearly 100 pretrial depositions that have been taken in the case.

Isgro testified in a deposition that currently he is promoting between 15 and 20 records a week for the major companies, at one-tenth his former fee.

The depositions and court documents in the case also show the dramatic increase in the cost of independent promotion prior to the 1986 suspension. For example, MCA spent nearly $9 million on independents in 1985, up from less than $2 million in 1983, according to court documents. During that same time, Warner’s independent promotion expenditures increased to nearly $6 million a year from less than $1 million.

“The record companies are contending that, due to the adverse publicity of the NBC report, the only corporately responsible thing for them to do was terminate the independents,” attorney Cannata said. “We intend to show that their concern over high cost predated the telecast and that the cost was primarily the result of competition among the record companies for the services of these promoters.”

‘Gatekeepers’ to Air Play

Some depositions seem to bear out that view. For example, Jay Lasker, former president of Motown Records, testified that the increased cost of promotion was due in part to “supply and demand.”

“These big companies were out there spending money . . . and doubling and tripling (the independents’ fees) to the point where they were all bidding against each other for the independents’ time,” Lasker said.

Warner lawyers stated in one pretrial motion that their clients felt compelled to hire independents because of their “fear that some of the independents had achieved a position as gatekeeper to radio air play, and not only could they virtually assure that a record would be played, they could also assure that it would not be played” if they weren’t paid by the record companies.

Surprisingly, several vice presidents of promotion for the major companies testified that they believed their companies could not function competitively without the aid of independent promoters.

Richard Palmese, a vice president of promotion for MCA Records, testified that when MCA Music Entertainment Group Chairman Irving Azoff informed him the company was suspending the use of independent promotion, “I pleaded with him not to do it. I said, ‘I don’t understand it. You’re putting our company at a great disadvantage.’ ”

Isgro’s lawyers claim it was this fear of being placed at a competitive disadvantage if they unilaterally suspended the independents that led the record companies to conspire to act collectively. “We also contend that they were aware the NBC News report was pending and that it was going to be unfavorable, so they said, here’s our pretext for quitting,” Cannata said.

Court documents filed in the Isgro suit show that on Oct. 1, 1985--several months before the NBC report--the heads of a number of record companies discussed the problem of independent promotion at a board meeting of the industry’s trade group, the Recording Industry Assn. of America. The executives voted at the meeting to begin an investigation to see if it “involves or results in criminal violations or other violations of federal regulations.”

The documents indicate that CBS Records, the only company not sued by Isgro, was reluctant to get involved in any group effort directed at independent promoters, citing potential antitrust implications.

Attention Required

Three weeks later, MCA Inc. President Sidney Sheinberg wrote a letter to Thomas Wyman, then chairman of CBS Inc., urging CBS to join the other companies in calling for the investigation.

“In our judgment questions raised by rumors concerning the practices of independent promoters in the record industry require the attention of corporate management,” Sheinberg said in the letter, which is part of the court file in the Isgro case.

Referring to an earlier telephone conversation, Sheinberg wrote, “It is out of personal friendship that I mentioned our concern and alerted you to a situation which I felt might someday be embarrassing to you . . . it should not take ’60 Minutes’ to determine what the facts are.’ ”

Interestingly, three days after the NBC telecast, the RIAA issued a statement saying, “We have no knowledge that any firm or individual with whom our companies do business is engaged in any illegal activity, contrary to reports in recent televised network broadcasts. . . . We find it unjustified and distressing that the recording industry is so indiscriminately maligned by insidious innuendo.”

The most colorful passages in the depositions and court documents concern Isgro’s alleged consorting with members of organized crime. Isgro has denied that he’s ever done business with Mafia figures or that he’s ever met Gambino boss John Gotti. He does acknowledge, however, that he knows Joseph (Joe Piney) Armone, the 70-year-old reputed underboss of the Gambino family, who was at the Helmsley with Gotti on the evening of Jan. 23, 1986.

Isgro claims that Armone is a longtime family friend whom he often refers to as “Uncle Joe.”

“He was my father’s best friend; I have a linguine dinner with him every time I go to New York,” he said.

In an apparent effort to prove that Isgro had met with the mobsters at the Helmsley, lawyers for MCA and Warner recently attempted to depose Armone in a Florida prison, where he’s currently serving 15 years on a racketeering conviction. Armone refused to talk, however.

One document that the defense filed in the Isgro case is a transcript of a wiretapped phone conversation between Armone and Paul Castellano, Gotti’s predecessor as Gambino boss who was murdered in 1985. The transcript was introduced into evidence at Armone’s racketeering trial. In the phone conversation, Armone tells Castellano: “The kid in California came in to see me. . . . They give him $50,000 to $100,000 to push a record, the company, just to make a record, you know.” Castellano replies: “That’s good, you know, promotion work.” Isgro’s name was not mentioned in the conversation.

Isgro’s attorneys argue that the organized crime allegations raised by the defense only serve to prejudice the judge and jury against their client, that they are irrelevant to the antitrust case.

“The real question is, what was the record companies’ frame of mind when they decided to suspend independent promotion in March, 1986?” Cannata asked. “Was it because of bad publicity or high cost?”