Clear Channel Seeks Direct Connection to Record Labels

Clear Channel Communications, the nation’s largest radio broadcaster, wants a share of the tens of millions of dollars in record company promotional funds that go to independent promoters--and sometimes smack of payola.

The move is sending a shudder through the major labels, which see legal and ethical problems with paying money directly to broadcasters to help get their artists on the air.

The initiative, which the company expects to roll out around May, reflects a fundamental shift of power in the record business. In the past, powerful record labels were accused of bribing deejays operating at small, independent radio stations to influence what songs got airplay.

Industry mergers have moved the balance of power to radio groups, which today have the clout to launch a song simultaneously in scores of markets across the country--or consign it to oblivion.

Clear Channel, which controls 1,200 radio stations and owns the world’s biggest concert promoter, hopes to generate more than $20 million annually by selling chainwide advertising packages, research and a variety of airplay data to labels whose songs are played on its stations.

Clear Channel plans to sell ads to labels that would air immediately after the station plays the latest song by one of their artists. The brief ad would identify the artist who performed the preceding song, a practice that many stations have dropped.

Clear Channel said it would sell such an ad only if programmers had already determined the song was a hit. Sources say the company is pitching ads at $1,000 a pop that would run on 60-some stations.

Critics contend that the broadcast giant is using its newfound leverage as the nation’s largest chain to extract deals from record labels that appear to sidestep payola laws.

“Clear Channel is trying to skirt the law, using its power to shake down record companies in what amounts to legal payola,” said Steve Rendall, senior analyst for the New York-based media watchdog group FAIR.

Record company officials say they are reluctant to buck Clear Channel, with its dominant market position in radio and concert promotion, but they are uncertain how effective the new promotions will be.

Radio industry sources say there is another reason: Record companies could lose the power they already have to influence airplay at Clear Channel stations under the current system with independent agents.

And a direct play-for-pay arrangement between record company and radio broadcaster could be illegal.

Radio Group’s Plan Eliminates Middleman

Randy Michaels, chief executive of the San Antonio-based broadcast giant, acknowledged that the plan would probably rattle some cages in the music industry, but he insists the program is legal and not just a new corporate version of payola.

“We’re been moving very slowly in launching this initiative, trying to make sure we dot all the i’s and cross all the t’s in terms of the legal issues,” said Michaels, who is scheduled to deliver the keynote address Saturday at Radio & Records’ annual convention in Los Angeles.

“The fact is the industry spends a tremendous amount of money promoting records to our radio stations, and what we have here is an opportunity to take some of that money in right through the front door and put it on our books,” Michaels said. “We’ve come up with some innovative ways to generate new revenue streams for our shareholders’ benefit. And in the process, I think we can save the labels money by cutting out all of these middlemen.”

Radio airplay is the most powerful promotional tool for record companies. Many people buy records based solely on what they hear on the radio. Federal law prohibits radio stations from taking money or anything of value in exchange for playing songs without disclosing the payment to listeners.

Record labels have long skirted payola laws by shelling out millions of dollars each year to independent consultants who can dangle money, audio equipment, luxury cars and exotic vacations before station personnel. Independent promoters, who function as a buffer between labels and radio personnel, typically do not pay cash for airplay of specific songs but circumvent payola law by providing stations with annual promotion budgets.

Last fall, Clear Channel issued an internal edict barring programmers at its stations from renewing any contracts with independent promoters. As the company began kicking around ideas for its music initiative, Clear Channel initially considered installing an in-house promotion czar who would act as the radio giant’s exclusive liaison with the music industry, Michaels said.

In recent weeks, however, Michaels said the company has backed away from running its own record promotion arm and is now contemplating cutting an exclusive promotion pact with a third party. Michaels confirmed that at least two independent promoters have put in bids that could add more than $20 million to its bottom line.

The bet in the industry is that Clear Channel will ultimately cut an exclusive pact with Cincinnati-based Tri-State Promotions, which is run by Michaels’ longtime friends Bill Skull and Lenny Lyons.

“We haven’t made any decisions yet,” Michaels said. “Of course, Tri-State is the devil I know, and on the trust scale, they rate the highest in my book. I’ve been doing business with them a long time, and that’s where the comfort zone is. But we are still studying every option. Our plan is not exactly ripe yet. It’s a work in progress, but we should be able to announce something within a month.”

Michaels said the company’s think tank has come up with a variety of revenue-generating ideas, including selling research to labels based on reaction to records played on its stations. Clear Channel currently owns several research firms that monitor the response of listeners and program directors to new songs in most major Top 40, urban and adult contemporary radio markets across the nation. The company hopes eventually to charge labels for access to that information.

“We are trying to test the appetite of the labels for real information that comes directly from us, not just guessing by some third-party independent,” Michaels said. “We don’t have anything in mind that would tie the payment from record labels to airplay for specific titles. We may well sell information about what we are playing. We may well also sell research that would help guide labels to the songs that we believe have the greatest hit potential.”

Michaels acknowledged that the think tank has even considered selling late-night commercial time directly to labels for the purpose of promoting new songs.

“The argument would go like this: Would you rather hear a couple used-car commercials and carpet store ads in a row or a song that the record companies believe has hit potential?” Michaels said. “If we do it, of course we would run all the appropriate announcements required by law so that everyone would realize we got paid to play the record.”

‘Zero Tolerance for Payola’ Since Problems

Although some executives inside of Clear Channel’s think tank believe the company ought to launch its own record label, Michaels said he has already nixed that idea. He said running a label would present too many conflicts and possible problems for Clear Channel with payola laws.

Clear Channel was fined $8,000 last fall by the Federal Communications Commission for a promotion offered by a company it acquired that guaranteed airplay of a song by pop singer Bryan Adams in exchange for a series of free performances at its radio station concerts.

Michaels said the promotion occurred before Clear Channel purchased the station and would never happen again. In fact, he said the company’s stiff anti-payola stance recently resulted in the dismissal of two program directors.

“We have zero tolerance for payola here,” Michaels said. “We had to let a couple of guys go this year because their effectiveness had been compromised. The fact is the program director’s job is a tough one. The sales department is all over him. Corporate management keeps pushing him. Sometimes, it’s like his only friend is the record promoter, and occasionally they can be swayed by that.

“What I’m trying to do here is ensure that our employees make decisions based on objective data only,” Michaels said.