8.01.2005

Who needs Ambien when you have Charles?

Tommy left a good comment on my last post that has forced me to clarify my position on payola. Be warned though, I was an economics major, so I am going to substitute boring music theory with dreadful coma inducing economic theory. I should start advertising this site as perfect for insomniacs. Or put some disclaimer up: “Do not operate heavy machinery or drive a car until you know how you will react to A Single Syllable.”


The question is does payola get bands more airplay than they deserve? First I have to clarify what I mean by deserve: we are in a business world so quality of music doesn't matter. For example, from an aesthetic standpoint I don't think that “Let Me Hold You” by Bow Wow (featuring Omarion) deserves to be played at all. But that is not the question of course. In this world deserve refers to the number of listeners the song brings to the radio station.


For the purposes of this post I am going to use Clear Channel as my radio conglomerate. They are not the only, but they are the one most people have heard of. They also own a lot of radio stations and probably control what you are listening to.


Clear Channel is a big publicly traded company. They conduct a lot of research do determine what listeners want to hear. I know, I have actually participated in some studies. They called me on the phone and would play two songs at a time and ask which I preferred. So we will assume that have scads of data on songs and what the expected number of listeners would be if they played a certain song 10 times a day.


Clear Channel wants to maximize listenership as much as possible. The more people that listen, the more they can charge for advertising and thus the more money the company makes. Each song on the radio is calculated to get the most number of people listening to, say DC101 in DC, as possible. Remember that the in the current radio business model, Djs don't get to select the music they play. Similarly, I don't think the meager music that gets played on MTV reflects the preferences of the Vjs.


The use of payola assumes that the song being pushed would not be played as much, or at all, without the use of a bribe. If that song were not going to be played as much, then the assumption is that fewer people would listen to the radio station if it were played. Thus the song played as a result of payola represents a loss in revenue for Clear Channel. As a publicly traded company, Clear Channel wants to maximize revenues and profits to increase dividends and stock price. That is their goal. So the only way that payola can get a song on a Clear Channel station more than it deserves to be would be for that payola to make up for, or exceed, the loss in revenue that occurs by not playing whatever they would be playing absent payola. Economist's love to talk about choice, so remember that the choice to play a payola song is a choice not to play another song, there are only so many hours in the day.


So what was the payola? I have taken this list from an editorial by Eugene Robinson: personal trips, plasma TVs, laptops, Playstation 2s. Now I find it tough to believe that these covered any loss in revenue.


But payola still exists, but why? I suspect that it is a habit held over from a different era in music. It made more sense when Djs could play whatever they want. The famous payola case involves Alan Freed. He could play what he wanted, and didn't have to worry about revenues. He made a salary, so payola was just more money to him and thus it makes sense why he would change is playlists as a result or bribes. My point is that in the current business model that choice doesn't make sense.


If payola is really resulting in a change in playlists and thus a decrease in revenues than that is a problem of Corporate Governance and needs to be handled appropriately by shareholders and the SEC. According to Clear Channel's website, the stock is currently being traded at $32.80. To assume that payola is effective would be to assume that that price would be higher without it. If that is the case, then shareholders should be the truly outraged party here.


I believe that record labels still engage in payola because they have been for so long and all of their competitors still do it. It has become sort of an irrational arms race.


This isn't an apology for payola. I think that the people who engage in it should be prosecuted, or fined, or whatever. This also isn't a love note to Clear Channel. This is just an explanation of why I don't think that payola is putting songs on the radio that wouldn't be there in the first place. Basically, Eliot Spitzer is not going to get the New Pornographers on the radio.

4 comments:

  1. Could the value of payola possibly factor in the way DJs talk about certain songs? Presumably, on-air personalities don't need to gush about each song equally, even if their playlists are pre-ordained. I actually heard a DJ say on the air a couple days ago, "I don't really like that song, but I play it anyway." He might have a more glowing review if he had a plasma TV waiting for him at home.

    But the obvious solution to this problem is to live in towns with solid college radio stations. (KALX, WICB, WHCL, etc.)

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  2. I think you're mistakenly assuming that people weigh their choices based on the absolute quality of a good. I don't think they do. For example: the total amount of money I spend on hamburgers in a given year is unlikely to change even if the quality of hamburger available to me increases somewhat. It's certainly not going to change in a perfectly responsive way relative to absolute burger quality. Instead, restaurants will extract about the same amount of money from me so long as they remind me that burgers exist, and make them easy to get.

    Same with music. The relationship between music quality and personal music budgets is no doubt complex, but at some point people want novelty and something to listen to at the gym.

    But my main point would be that your argument seems to be that payola doesn't have an impact because to choose suboptimal music would be an irrational choice by clear channel. But paying for placement on the radio would be irrational for BMG, Sony, et al if payola didn't work and induce people to buy the music. Either some corporation's acting irrationally, or payola increases the industry's aggregate profit by allowing the record companies involved to sell us burgers made of circus animals (and some filler) and distract us from other, tastier, cheaper options.

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  3. I don't believe that people buy music based on the quality of the product, Billboard's charts would disabuse anyone of that notion.

    What I believe is that there was a time when payola made sense. Bruce Springsteen's career speaks to the power that individual radio programmer's use to have. After his first two records sold poorly he was in danger of being dropped from his label. He recorded “Born to Run” and the song was given to a few Djs who played it. The public liked the song a lot, and Bruce was given the extra time to record the album that made his career. In this world that wouldn't happen because those few Djs couldn't decided to play the song.

    I think that the practice of payola is continuing from an earlier time, and that record labels have yet to adapt to the new world of radio conglomerates. So the practice continues because a label sees its competitor's do it, and fear the result of ceasing the practice. Also label's have less incentive to stop this irrational practice because the cost of payola is passed on to the bands, probably under promotion costs and lumped in with posters and such. I can't find conclusive proof of this, it is just a suspicion. As an illegal action, payola isn't itemized in an artist's contract. So while the payola might be irrational, there is not financial incentive for the person deciding to do it to stop the practice.

    Basically, I can't find an economic argument for why Clear Channel would play something they wouldn't normally due to payola. The only reason that I think the economic model is useful is because it is being used by the decision makers at the radio stations.

    Jeff might have a point with the way that Djs talk about songs, but Djs usually only make me consider driving my car into a building.

    I must yield to Jay-Z though, from “99 Problems”:

    “Got beef with radio if I don't play they show
    They don't play my hits well I don't give a shit”

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  4. My name is Carrie James and i would like to show you my personal experience with Ambien.

    I have taken for 30 days. I am 23 years old. First I took it to help me fall asleep. After a couple of days I noticed that it made me feel really good, so I would take it just to feel the high that it gave me. I would had no memory of what I did the night before. Every night I did really weird things like send out strange emails, take weird pictures, and I fear that I did things that I still don't know about. I would also hallucinate. I would just spend a lot of time staring at things watching them move, like the wall or notes on sheet music. I was way too distracted to go to bed. It made me tired, but I didn't want to go to bed. I stopped taking it because I don't want to get involved with something like that. I think about it all the time and I have cravings for it, but I just don't think I need anymore problems.

    Side Effects :
    Hallucinations, feeling of being high, and no memory of things I did the night before.

    I hope this information will be useful to others,
    Carrie James

    ReplyDelete