Music Firm Settles Probe Into Payola

Warner Music Group has agreed to pay $5 million to settle a payola investigation led by New York Atty. Gen. Eliot Spitzer, becoming the second record company in four months to formally admit to improper promotion practices.

In a document released Tuesday by Spitzer, senior executives at Warner, the third-largest U.S. music company, were accused of overseeing “pay-for-play” practices that included giving radio station employees trips, laptop computers, Super Bowl tickets and other items in exchange for airplay of specific songs.

Federal and New York state laws prohibit trading anything of value for airplay unless the transaction is disclosed to station management and listeners.

“Warner Music has illegally provided radio stations with financial benefits to obtain airplay and boost the chart position of its songs,” said a settlement document released by Spitzer’s office, which alleged that pay-for-play was used to bolster such hit bands as Green Day, My Chemical Romance and R.E.M., and was “condoned by senior executives at Warner Music record labels.”

In July, the nation’s second-largest music company, Sony BMG Music Entertainment, settled a similar probe with Spitzer’s office, agreeing to pay a $10-million fine and to discontinue certain practices.

Spitzer is still investigating the two other major record corporations -- Universal Music Group and EMI Group -- as well as several radio companies, including Clear Channel Communications Inc., Infinity Broadcasting Corp. and Entercom Communications Corp.

As part of Warner’s settlement, executives promised to stop giving programmers gifts in exchange for airplay and to end the use of independent middlemen to improperly influence radio stations. The fine will be distributed to not-for-profit groups by Rockefeller Philanthropy Advisors.

In a statement, the music company described the settlement process as “valuable.” “From our perspective, radio cannot be too consumer-driven,” the statement said. “The music that people hear on the radio always should represent the highest quality the industry has to offer.”

Tuesday’s settlement made clear that record labels weren’t always the instigators of pay-for-play. Spitzer noted that radio stations regularly requested improper gifts. He said that programmers at stations owned by the nation’s largest radio companies, Clear Channel and Infinity, were more active in soliciting gifts.

Representatives from Infinity declined to comment. In a statement, Clear Channel said the company had “zero tolerance for pay-for-play” and that it was investigating the attorney general’s claims.

The Federal Communications Commission’s Jonathan S. Adelstein said Tuesday that radio stations that insisted upon gifts were potentially violating regulations.

“This adds more dirt to the mountain of evidence that there is rampant payola in the music business,” the FCC commissioner said of Spitzer’s investigation. Broadcast executives who violate FCC rules risk fines, license revocation and criminal sanctions of as much as one year in jail.

In a statement, the FCC said it would review the Warner Music settlement “and investigate any incidents in which the agreement discloses evidence of payola rule violations.” If such violations are found, “the commission will take swift action.”

A Warner Music executive said Spitzer agreed to a company request to avoid identifying music company employees in his settlement document, and said the company did not anticipate any layoffs in the wake of the investigation. Earlier this year, after Spitzer launched his investigation, the company instituted policies prohibiting much of the behavior detailed Tuesday.

The attorney general’s document offers numerous instances of executives at Warner Bros. Records, Reprise Records, Lava Records and Atlantic Records using improper gifts to influence airplay.

In one e-mail released by Spitzer, a Warner Bros. Records employee described the program director of Infinity’s WAQZ-FM (97.3) in Cincinnati as “a whore” -- the implication being that airplay on his station was, in effect, for sale.

The document also said that Warner Music paid to send Dave Universal, then the program director at Entercom’s WKSE-FM (98.5) in Buffalo, N.Y., on a personal trip to Miami, and gave him a laptop computer, tickets to sporting events and other items in exchange for airplay.

Universal, whom Spitzer also mentioned by name in the Sony BMG settlement, was fired by WKSE for accepting improper gifts. He has since been hired by another Buffalo radio station.

The document also alleges that, in exchange for airplay, Warner Music paid for radio station expenses, including getting an unspecified station’s logo painted on a vehicle, production costs for radio jingles and expenses incurred in hiring a voice-over person.

“Warner Music promotion department employees dangle the prospect of promotional support as an explicit and implicit inducement for the programmers to add songs and/or increase airplay,” the settlement document said.

The document also details the company’s use of “syndicated programs,” in which Warner Music received airplay in exchange for purchasing advertising on music countdown shows such as those hosted by Carson Daly and Ryan Seacrest on Clear Channel stations.

Once part of media giant Time Warner Inc., Warner Music was sold in March 2004 for $2.6 billion to a group led by private equity firm Thomas H. Lee Partners and Chief Executive Edgar Bronfman Jr., heir to the Seagram spirits fortune and once head of Universal Music.

Warner Music went public last May at $17 a share, but the company’s stock price has failed to appreciate considerably since then. Its shares closed Tuesday at $17.61, up 21 cents.

Some analysts said the settlement was good news for the company.

“They removed a lingering cloud,” said Bishop Cheen, an analyst at Wachovia Securities, which owns some of Warner Music’s bonds. “Nobody likes uncertainty. And in the jaded world we live in, a $5-million fine is pretty mild.”