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.