Company Town : Record Industry Nervous Over New Payola Prosecution

Record promotion--the shadowy practice of persuading radio stations to play new songs--is under siege again.

The Los Angeles office of the Justice Department is preparing to prosecute the biggest payola case in history--which six years ago accused independent promotion kingpin Joseph Isgro of bribing radio programmers and racketeering. The case, which was dismissed in 1990 and reinstated two years later, is expected to reach trial before September.

Last month, the U.S. 9th Circuit Court of Appeals reversed a ruling by U.S. District Judge James M. Ideman, who in 1993 had barred testimony from a key government witness in the trial. The appeals court also concluded that Ideman, who has repeatedly chastised the Justice Department for misconduct, should be replaced by another judge. These actions strengthened the government’s case.

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“We are very pleased that the case is moving forward,” said Drew Pitt, assistant U.S. attorney with the Organized Crime Strike Force in Los Angeles. “We’re eager to get rolling in court.”

There is a small chance the trial could be derailed by a last-minute plea bargain, but sources in both camps believe such an arrangement is unlikely.

Some music industry insiders are concerned that renewed interest in Isgro’s case could spur the government to expand its probe of record business practices to current promotion tactics--characterized by federal officials as “legally cloudy.” The government is also probing other industry practices.

“There’s no doubt that the publicity surrounding this case is bound to make people in the record industry nervous,” one top label executive said. “Nobody wants anything to do with it.”

During the 1980s, Isgro was one of the most successful members of the self-described Network, a loose affiliation of nine key independent promoters who reportedly charged the industry a collective $60 million a year to ensure radio airplay of their recordings across the nation.

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A payola scandal erupted in February, 1986, after NBC News reported that Isgro and another record promoter had met with several East Coast organized-crime figures at a hotel before a rock ‘n’ roll awards dinner. The NBC report also alleged that several members of the promoters’ Network were offering radio programmers payola--cash, drugs and prostitutes’ services--to get songs played.

Isgro and other promoters denied the charges, but within days of the telecast, 12 record companies had cut their ties to any firm doing independent promotion. The allegations triggered grand jury investigations in Newark, Los Angeles and New York, and one of Isgro’s former associates, Ralph Tashjian, eventually pleaded guilty to payola-related charges in 1989.

Isgro was indicted in Los Angeles in November, 1989, on payola and 56 other felony counts, including racketeering and conspiracy to distribute cocaine.

Judge Ideman dismissed the charges against Isgro in September, 1990, after learning that lead prosecutor William S. Lynch had concealed critical information that cast doubt on the credibility of the government’s key witness as well as on the merits of the case. Ideman publicly chastised the prosecutor, as did the Justice Department, which formally reprimanded him for failing to produce the information.

The case was reinstated because the appeals court ruled that Ideman had gone beyond his authority in throwing it out. The appeals court last month ruled that Ideman has no authority to suppress key testimony.

Isgro, who has since expanded his entertainment horizons as executive producer of Danny DeVito’s 1992 film “Hoffa,” declined to comment.

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Isgro’s defense lawyer, Donald M. Re, says he’s amazed that the government is still pursuing the case.

“This is nothing but a railroad job,” Re said this week. “You have a situation here where two courts have found that the government committed misconduct, but the Justice Department refuses to acknowledge they did anything wrong. What more do these people need to make this case go away?”

Isgro’s attorney isn’t the only one who wishes the case would disappear.

Although the promotion profession is no longer tainted by allegations about underworld cash, drugs and prostitutes, a new coterie of outside contractors has devised increasingly sophisticated strategies for influencing broadcasters without getting trapped in the net of federal laws.

Sources estimate that the six major record conglomerates spend at least $60 million a year to get songs played on radio--almost half of it paid to outside contractors whose effectiveness has come under increasing scrutiny from the corporate chiefs now running the industry.

Some record-company-financed contractors are said to dish out as much as $100,000 annually per radio station to maintain exclusive agreements with station managers over whom they claim to have influence.

Record executives also spend big bucks paying advertising and consultation fees to a clique of fiercely competitive former promoters.

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Although current promotion methods employed by outside contractors have not been challenged by the government, executives have been re-evaluating their use of these methods since the advent of computerized monitoring systems in 1991.

Now able to look at which records are played on the radio and sold in stores with previously unavailable accuracy, companies are struggling to distance themselves from cost-ineffective promotion practices that could pose legal problems in the future. Some insiders believe Isgro’s trial may hasten that process.