Radio Industry’s Discomfort Grows Over Payola-Like Practice

Suffering from poor sales, major record labels continue to slash the payments they make to a coterie of middlemen hired to push songs to radio programmers, leaving Clear Channel Communications Inc. and other broadcasters trying to figure out where to go from here in the murky business of record promotion.

As a result of the record-label cutbacks, so-called independent promoters are finding themselves increasingly in a squeeze: They have signed contracts promising to pay annual fees of $200,000 or more to major radio stations for the exclusive right to pitch songs, but their main source of money is drying up.

San Antonio-based Clear Channel, the nation’s biggest radio broadcaster, was notified last week that one firm, Tri-State Promotions of Cincinnati, could no longer afford promotional fees it had guaranteed to the conglomerate’s major pop stations, including Los Angeles’ KIIS-FM, New York’s WHTZ-FM, San Francisco’s KYLD-FM and Miami’s WHYI-FM, sources said.

It was unclear whether Clear Channel would seek to renegotiate promotional deals for the stations, which rank among the richest and most influential in pop music.

Clear Channel declined to comment. Tri-State also declined to comment.

The development comes as radio broadcasters and federal agencies are trying to determine whether tactics by independent promoters violate payola laws, which prohibit radio stations from playing songs in exchange for money or anything of value without disclosing the transaction.

The middlemen provide stations with annual fees, often prorated and paid monthly. In exchange, the promoters are to receive notice of new songs added to the station’s playlist, so as to take credit for pushing the tune onto the air. Each time a song is added, the promoter charges the record label. But the promoters insist publicly that the fees they pay to radio stations are not tied to airplay of specific songs.

Record labels have complained to the Federal Communications Commission about big broadcasting chains using their muscle to demand increasing payments for promotion.

During the last three months, major labels have cut their payments by as much as 50% and reduced the number of stations nationwide for which promoters are able to collect fees for pitching songs, sources said. Universal Music Group, the world’s biggest record company, reduced its payments to promoters this summer, starting the trend.

Several labels, including Universal, have refused to pay Tri-State for songs that are added to playlists at Clear Channel’s big stations, sources said. Label executives say the middlemen are losing their influence as more stations are swallowed up by large conglomerates in the deregulated radio market.

But it’s not just the record labels that are having second thoughts about the use of middlemen: Broadcasters are also reconsidering their side of these relationships.

Emmis Communications Corp., owner of Los Angeles’ top-ranked KPWR-FM, plans to call a meeting of its senior managers this week to debate whether the Indianapolis-based radio chain should continue its deals with independent promoters.

“We’ll ask the question,” Emmis President Rick Cummings said. “I will tell you honestly, I sometimes have a hard time explaining what our stations really do to earn that money.”

The growing discomfort throughout the radio industry follows a decision by Atlanta-based Cox Radio Inc. to sever its ties to promoters, as reported Friday in The Times. As a result of the move, Cox will not renew deals with the promoters who pitch songs to its pop, rap and rock stations. Cox Radio chief Robert Neil said the existing independent promotion system “does invite abuse.”

The decision means Cox will end its deals with New York-based independent promoter Skip Bishop, who had arrangements, and in some cases written contracts, to pitch songs to six of the company’s stations, sources said. Chicago’s Jeff McClusky has had promotional deals with two Cox stations and Boston’s Jerry Brenner had a deal with one. Bishop couldn’t be reached, and McClusky and Brenner declined to comment on Cox’s move.

Various middlemen had deals with 14 of Cox’s stations and together provided an estimated $1 million in annual fees to the company. Cox said promoters’ deals to pitch songs to a handful of the company’s other stations lapsed several weeks ago.

Reaction to Cox’s move in the radio and record industries has been mixed. Proponents say the move is a step toward cleaning up a sector of the business that is rife with corruption.

But other radio and music executives said terminating the independent promotion deals will drive the scramble for airplay deep underground. They caution that it could lead to music executives secretly offering cash or other incentives directly to programmers, instead of providing contracted fees to stations.

Some radio executives say the existing promotional structure remains viable.

“We have total confidence in the system as it’s set up. We are comfortable with it,” said Lew Dickey, chief executive of Cumulus Media Inc., an Atlanta-based company that owns about 240 radio stations around the country.

Still, Dickey added, “If it were up to us, there would be no independent promotion relationships. The record labels would buy commercials on our radio stations to promote their products directly.”