Radio Chain Hit With Payola Lawsuit

March 8, 2006 — -- New York Attorney General Eliot Spitzer filed a lawsuit today against one of the country's biggest radio conglomerates, alleging the company accepted gifts and other payments in exchange for putting songs by Jessica Simpson, Avril Lavigne and other artists on the air.

Details of Spitzer's investigation of radio station owners were first reported last month on "Primetime" and ABCNEWS.COM.

The suit, filed in State Supreme Court in Manhattan, alleges that Entercom Communications of Bala Cynwyd, Pa., sought and accepted payments from record labels and independent promoters to increase air time and chart position for various artists, including Simpson, Lavigne and Liz Phair.

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 under investigation; it's record companies and conglomerates that own hundreds of the nation's radio stations. Entercom owns and operates 105 radio stations, including seven stations in Buffalo and four in Rochester.

Last year, Spitzer obtained settlements from two major record labels, Sony BMG and Warner Music Group, to stop certain promotional practices and to pay fines, but Entercom is the first radio company to be sued as part of the investigation. The suit seeks an end to the illegal practices, reforms to ensure that air play is determined by artistic merit and popularity, and appropriate fines and penalties.

"By accepting secret payments in exchange for air time, Entercom compromised its radio programming and violated state and federal laws," Spitzer said in a statement. "What makes this case especially egregious is the extent to which senior management viewed control of the airways as an opportunity to garner illegal payments from record labels."

A spokesman for Entercom today issued this statement: "Entercom is a company that believes in playing by the rules and does so. We have firm policies prohibiting payola and requiring compliance with the federal sponsor identification rules, and we enforce them. We have cooperated fully with the attorney general's office in this investigation. Now that the attorney general has filed this civil action, we are confident that the issues will be fully and fairly resolved by the court."

The lawsuit cites evidence that Entercom executives were closely involved in allegedly illegal practices. In various documents and e-mails cited in the complaint, Entercom executives discussed strategies for supplementing radio station budgets with payments from independent promoters and record companies.

In an e-mail to an Entercom executive, a station manager described how he preferred to deal with record companies instead of independent promoters because the record companies were more generous:

"As of this date I choose not to work with an 'indie.' My program director Dave Universal is vehemently opposed to working with an indie.....Dave generates $90,000+ in record company annually for WKSE. I receive a weekly update of adds and dollars from Dave ....Forcing Dave to work with an indie at this time is the wrong move."

In another e-mail exchange, a program director at one radio station complained about the practice of using a CD previews program to generate revenue :

"The cd preview load for this weekend is crazy!! (...) people are hearing the same songs every hour or two. Are the few dollars earned with the CD previews worth killing our TSL [time spent listening] on the weekends?" An Entercom executive responded:

"These are not optional. They come from corporate and generate millions of dollars for Entercom."

Creating Rising Stars

Entercom is one of nine companies that have been under investigation as reported in the "Primetime" investigation that aired last month. 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 management levels of the 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."

The practice of 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 deejays 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.

Investigation Leads to Radio Gatekeepers

Spitzer's investigation led him to the radio industry and to radio program directors -- the gatekeepers of airtime -- like Dave Universal, mentioned in the e-mails cited in the Entercom lawsuit.

Universal, who was featured in the "Primetime" investigation, told ABC News chief investigative correspondent Brian Ross, "Apparently, I'm the poster boy for payola, little old me."

Before he was fired in the wake of the Spitzer payola investigation, Universal decided which songs got on the air at Kiss-FM in Buffalo, N.Y., owned by Entercom.

When asked how much money record companies were willing to spend to play songs at Kiss-FM, Universal said, "I'd say I usually raised probably about $100,000 a year."

"I did really well," Universal said. "I was Entercom's golden boy for a long time." Universal disputes that what he did was payola and denies doing anything illegal. Yet internal record company e-mails obtained by Spitzer spell out how Universal would demand specific payments for specific songs.

For example, after his station added a song by the group Franz Ferdinand, one Sony music executive complained to another: "It cost us over $4,000 to get Franz on WKSE" -- Universal's station

And for adding additional songs by Good Charlotte and Gretchen Wilson the total increased to "almost $5,000 in two weeks for overnight airplay."

The executive complained, "We are now once again on Dave Universal's agenda, which we swore we would never do again."

Universal admitted he asked for money to play songs, but he said he only did that after he had already decided to play them.

"Now I did go back and say I need a thousand, you know, what do you got on this record? Absolutely. I did that every single time," he said. "I would take whatever I thought I could get."

Universal insisted there is nothing wrong with that. "I'm reinvesting that on the product," he said. "It's not a bribe because it's money they're giving to help pay and promote their artists."

But isn't that payola? Universal thinks not.

"Not at all, because you're making these decisions after the fact," he said. "Every label had money out there. You played the records that were best for your radio station."

Universal insisted that his decisions about which songs to play were never made with money in mind. "No matter what, you made the decisions and then you went and tried to get as much money as you could."

Unfortunately for Universal, the attorney general didn't excuse his logic.

"So he's saying, 'I was guilty of extortion, not bribery,'" Spitzer told Ross.

"Interestingly, he acknowledges taking the money, which he shouldn't be doing. Now, the claim that I wasn't influenced, you know, it's like, historically, judges who say, 'Well, of course I took $5,000 from the plaintiff's lawyer, but I didn't let it influence my determination.'"

In any case, Universal said he didn't get the money. Almost all of it, he said, went to the radio station or to Entercom's bottom line.

"It was good for Entercom," Universal said. "It was good for them, because I brought that money in. I was the guy doing the work for them, as much money as I could bring in, the better I looked. If I brought in two, three grand that week, I looked like a savior."

Spitzer said that is still illegal behavior. "I don't disagree with him that the benefits flowed in many different directions, but it was wrong and improper and illegal."

Ongoing Probe

Dave Field, CEO of Entercom, declined to be interviewed by "Primetime" before Spitzer's lawsuit. Outside of the Entercom lawsuit, Spitzer and his team continue to pore over boxloads of documents regarding eight other of the country's largest radio companies, including ABC, to see if they are involved in payola. Of the six companies that responded to the "Primetime" program, all said they are cooperating and take the issue seriously.

"Based on the evidence we have seen, some of the radio conglomerates clearly are participating, and knowledge of this and orchestration of this came from the very top," said Spitzer. "The behavior has been unethical, improper, illegal and a sanction of some severity clearly should be imposed."

Spitzer's investigation caught the eye of the FCC. According to FCC Commissioner Jonathan Adelstein, the FCC has a wide-ranging investigation under way.

"These are probably the most widespread and flagrant violations of FCC rules in the history of American broadcasting," Adelstein told ABC News. "We've never seen such a systematic abuse of what is the public trust here."

Adelstein said the FCC is looking into hundreds of radio stations, from large chains and conglomerates to small, individual stations, for potential violations.

If violations are found, the penalties can be quite serious and range from loss of license to potentially very large fines. More important, Adelstein added, some of the allegations are criminal acts that can be punishable by up to one year in jail. If any criminal acts are found to have occurred, the FCC will refer them to the Department of Justice.

"We really need to put a stop to this," said Adelstein. "The problem is that for new artists that are trying to get on the air, it's almost impossible if the only people who are taking up the airwaves are those who've been, basically, who have paid off somebody in order to get play."

And in response to Spitzer's lawsuit, Adelstein added: "The New York Attorney General investigation is piling evidence on top of evidence of the widespread abuse of the public trust. Given the voluminous documents pointing to major, systematic violations of FCC rules, the penalties should be commensurate with the crime. We can't let any violators get away with a slap on the wrist."

Despite what Adelstein said, Spitzer said today the FCC is not moving fast enough and hard enough.

"Almost a year after payola was exposed in significant detail, the FCC has yet to respond in any meaningful way," he said. "The agency's inaction is especially disappointing given the pervasive nature of this problem and its corrosive impact on the entertainment industry."