Radio Conglomerates in Talks to Settle Payola Probe

Four major radio conglomerates under investigation for demanding payment to play records have engaged in settlement talks with the Federal Communications Commission, sources at the regulatory body told ABC News.

The largest radio conglomerate, Clear Channel, made an offer so low that it was "laughable," FCC and record industry sources said. According to one high-level FCC source, Clear Channel began the discussions with an offer of $500,000 but moved toward $1 million when its offer was rebuffed. The FCC source said Clear Channel has now suggested a willingness to settle in the $1.5 million to $3 million range. The source said two other radio conglomerates, Entercom and Citadel, have made offers of $1 million each. CBS Radio has yet to make an offer, a source familiar with the FCC talks said.

Asked to comment on the settlement offers, FCC Commissioner Jonathan Adelstein said that "any settlement offer and consent decree has to reflect the scope and nature of the alleged violations."

According to the Los Angeles Times, "Negotiations with Clear Channel Communications Inc., CBS Radio Inc., Entercom Communications Corp. and Citadel Broadcasting Corp. have bogged down over how large a fine the companies should pay and what constitutes improper on-air promotion, according to industry and agency sources familiar with the talks."

Representatives of Clear Channel, CBS, Citadel and Entercom declined to comment on the talks, Reuters reported.

The investigation into radio practices was first reported in February by ABC's Chief Investigative Correspondent Brian Ross on ABCNEWS.com and on ABC's "Primetime." An FCC source now says settlement discussions are under way following the FCC's ordering radio stations to submit records and explain their actions.

Before the FCC's investigation of the radio stations, Eliot Spitzer, the New York state attorney general, had arrived at settlements with two record companies that were part of his original payola investigation. Spitzer's investigation is what prompted the FCC to begin its probe. In his original payola probe, Spitzer said the radio stations appeared to be complicit. He confirmed to ABC that he had also expanded his investigation of the radio stations' parent companies.

Paying to play records on the radio -- payola -- seems as old as the recording industry itself, but now it's not just the low-level disc jockeys who are under investigation; it's also record companies and conglomerates that own hundreds of the nation's radio stations. One company that Spitzer filed suit against last month, Entercom, owns and operates 105 radio stations, including seven stations in Buffalo and four in Rochester.

Spitzer filed a lawsuit against Entercom on March 8, making it the first radio conglomerate to be sued as part of the investigation. The lawsuit charges Entercom with trading airtime for gifts and payments. The suit seeks an end to the alleged practices, reforms to ensure that artistry and popularity determine airplay, and that appropriate fines and penalties are imposed. Entercom has said the company is cooperating with the investigation.

Entercom is one of the nine largest radio conglomerates that are under investigation, as reported in the "Primetime" investigation that aired in February. According to music industry documents, payments to radio stations in a variety of forms have helped launch some of the country's best-known hits and Grammy winners, including "Daughters," last year's Grammy winner for song of the year, and last year's best new artist, Grammy winner Maroon 5.

While the songs became hugely popular, it apparently was not just popularity and talent that got them such heavy radio airplay.

"It is certainly the case that payola has been a part of the promotional structure for many of the artists who are out there," Spitzer told ABC News. He said the latest version of payola involved people at the management level of record labels and radio broadcasting companies.

Spitzer said that despite the sweeping use of iPods and the Internet to get music, it still all comes down to airtime. "Airtime drives sales, sales means revenue, and the way a song gains popularity is still to be heard over the air by the listening audience."

Payola goes back to the beginning of rock 'n' roll, in the 1950s, when Chuck Berry's songs were linked to it.

"Historically, it had been cash, other contraband, favors of illicit sorts, that were given to DJs to get airtime for various labels, but the process and mechanisms of payola became more institutionalized over the decades," Spitzer explained. "[It's] slightly more sophisticated, slightly more corporate," he said, "but the essence of the scam is still the same ."

And, he added, still illegal.

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