Pay for Play Radio Probe Heats Up

April 20, 2006 — -- The Federal Communications Commission has stepped up the pressure on four of the nation's largest radio station operators by sending formal letters of inquiry to Clear Channel, CBS, Entercom and Citadel asking for information that could show whether the radio companies received any consideration in exchange for playing songs.

"The formal phase of inquiry has begun," FCC Commissioner Jonathan Adelstein told ABC News. "We had asked for some records in the past, and now we are asking for more. We are also giving the radio companies a chance to respond to specific allegations against them."

The letters of inquiry sent yesterday and first reported by the Los Angeles Times are the latest step in an FCC probe that has become increasingly aggressive since February 9, when ABC News first reported that the four conglomerates were under investigation for allegedly receiving money, gifts and other compensation in exchange for increasing the number of times certain record company's artists' songs were played.

In part, the FCC's letters of inquiry are intended to get the radio station owners to increase their offers, two FCC sources told ABC News. In the case of Citadel, the company's June acquisition of more than $2 billion in radio assets from ABC could be delayed if a settlement is not reached. A March petition filed with the FCC by Citadel competitor Red Wolf accused the company of illegal and unethical business practices, including payola. A failure to quickly resolve that FCC matter could also affect the deal.

ABC declined to comment.

The letters from the FCC put the full force of Chairman Kevin Martin behind the probe. Several of his commissioners and his enforcement division have strongly urged him to take this tough stance.

The letters came after settlement talks with the companies stalled after the FCC rejected their offers to pay relatively small fines. Asked if the formal investigation meant settlement talks were over, Adelstein said no.

"Just because we are investigating does not mean we can't continue settlement talks, assuming they make meaningful offers."

Those settlement talks began in early spring following Adelstein's confirmation to ABC News that the FCC had under way a wide-ranging investigation into hundreds of individual radio stations owned by these four corporations.   New York Attorney General Eliot Spitzer had heavily pressured the FCC to launch a probe based on his findings in a two-year pay-for-play investigation. That investigation first determined that the nation's largest record companies used unsavory business practices to help drive certain artists to the top of the charts while not disclosing that the airtime was a paid promotion. Executives for Edgar Bronfman's Warner Music Group and for Sony BMG settled with Spitzer for $5 million and $10 million respectively. They also agreed to halt questionable practices and cooperate with Spitzer.  Spitzer, who used consumer fraud laws to make his case, does not have the right to prosecute anyone under the federal pay-for-play statute, so he turned his information on the radio stations over to the FCC.

Spitzer's investigators told ABC News Thursday "we welcome and applaud the recent FCC action."

On April 3, ABC News disclosed that settlement talks were under way, and ABC News has since learned that Clear Channel made offers of between $1.5 million and $3 million, and the other three companies made offers of $1 million or more. None of the offers have been accepted by the FCC, though the agency is open to more offers. While the FCC probe appears significant, the federal government has not had great success in past payola investigations. In 1960, disc jockey Alan Freed was indicted under commercial bribery laws for accepting $2,500 to play certain songs. Freed said that the money was a token of appreciation and that it did not affect airplay.

He paid a small fine, but his career was over.

The following year the FCC banned payola, making the practice a misdemeanor. In the early 1970s, a more than two-year probe through 1975 known as the Project Sound investigation by the U.S. Attorney's Office in Newark, N.J., went nowhere. The government investigated claims that CBS Records colluded with known organized crime figures to bribe radio stations. Although 19 people were indicted in 1975, the investigation failed to send anyone to jail on payola charges.

In 1986, Brian Ross' investigation "The New Payola" prompted one of the largest probes into the problem. Ross, then reporting for NBC News, linked the Network, a loose mob-connected organization of independent promoters in the music industry, to major record labels. Capitol Records and MCA withdrew from the Network, which eventually disbanded.