Spitzer’s latest focus: The record industry

New York Atty. Gen. Eliot Spitzer’s office is investigating whether the nation’s largest record companies are skirting payola laws by hiring middlemen to influence which songs are heard on the public airwaves.

Spitzer’s office served subpoenas last month on Sony BMG Music Entertainment, Universal Music Group, EMI Group and Warner Music Group, seeking copies of all e-mails, letters, contracts and other correspondence between the firms and the industry’s leading independent promoters.

Radio stations and promoters themselves have not been subpoenaed, sources said. News of the inquiry was first reported Friday in the New York Times.

The world of music promotion and influence peddling is a murky one usually kept out of public view. Independent promoters have figured out ways to get around laws banning payments to broadcasters to play specific songs without disclosing the practice to listeners.

The days of blatant payola are gone -- record labels no longer trade cash, drugs and prostitutes to deejays and program directors for airplay of specific songs.

Today, promoters pay radio stations annual fees that they say are not tied to airplay of specific songs. But critics say the payments represent an end-run around the law and continue to influence what songs are played.

Practitioners of this estimated $60-million-a-year promotion trade -- largely hidden under layers of arms-length alliances and thick legal opinions -- seek to determine the songs that will reach the airwaves and climb the music industry charts.

Radio airplay is considered the most powerful promotional tool for record companies. Many people buy records based solely on what they hear on the radio, which is why musicians and consumers say it is important that payments not influence the selection of songs.

EMI Group acknowledged in a statement receiving subpoenas. The company said it was cooperating and had acted properly. The other three companies, while not commenting publicly, said they too were cooperating and had nothing to conceal.

Spitzer’s office declined to comment. But sources said the investigation was in its early stages and might not lead to any indictments or charges.

Some music industry executives questioned the timing of Spitzer’s probe. They said independent promotion was on the wane in an industry consumed by the more devastating problem of piracy.

Once the most powerful figures in radio, independent promoters have watched their influence evaporate and their budgets slashed by as much as 75% in the last four years, as record companies have coped with shrinking profits blamed on illegal CD burning and downloading. The industry’s top promoter, for instance, has shut down two of his firm’s four offices and fired three-quarters of his 50-person staff.

Independent promoters privately said Spitzer’s probe had not touched on new ways that money flows to radio stations. Many record labels now are using their own promotional staffs to pitch free vacations, flyaway concert trips and $1,000 bonuses to program directors who add specific songs to their playlists.

The attorney general’s subpoenas only have sought correspondence between record labels and independent promoters, not between labels and radio stations.

In past investigations of the mutual fund and insurance industries, Spitzer has been criticized for intruding into areas governed by federal agencies, including the Securities and Exchange Commission. Now he is moving into the realm of the Federal Communications Commission, which is responsible for enforcing payola laws.

But the FCC has been criticized for its lax policing of the airwaves, levying few payola violations against broadcasters in the last decade. The agency, for instance, this year fined Viacom $550,000 for allowing Janet Jackson to expose her breast on national television. During the last decade, the FCC has brought only one fine of $8,000 in a payola case.

Despite federal laws governing the payola, legal experts said Spitzer was free to prosecute corruption in the promotion world as long as it involved record firms and radio stations based in the New York area.

Record and radio executives privately said that the probe had the potential to uncover other questionable practices, including annual Christmas benefit shows in which artists are pressured to donate appearances in exchange for airplay of their newest songs.