Payola: That Same Old Song

There's been a great deal of giggling going on in Parmelee family email the past couple of days because of Sony's (NYSE: SNE  ) recent $10 million payola settlement with the New York Attorney General's office.

Payola, or pay for play, is the practice of record companies paying radio stations to play their artists' music. Payola was believed to be dead during the past few decades. That's changed. It has been rumored to be alive and well for quite some time. So you'll have to forgive me for not being surprised to see this settlement quietly announced. Having a father who has been a DJ all of his life and a brother who worked in the record industry for a couple of years, I've heard many of the rumors before.

My father never received any offers of pay for play, primarily because he hasn't worked at a radio station in one of the large markets -- the ones record companies targeted for years. But when you're in the industry or have any connections to the record industry, it's not uncommon to hear stories about every expense under the sun being charged to "the artist," or CDs being traded to employees at various retailers for the hottest gadget on the market. Having heard all of these stories numerous times, I swore off even considering a recording company as an investment long ago. Sure, someone might make a little money that way, but I have no interest in owning a piece of such a messy business.

This is why I giggle when I hear the record industry complaining that sales are down due to music piracy over the Internet. The record industry isn't exactly a safe haven of morality, and for it to complain of theft is more than a bit amusing. Music piracy is a problem and it's wrong. There is no doubt about that. But, it's not like the record companies run a tight ship or have ever made much of an attempt to rein in expenses and really reward shareholders. Then there's the fact that they are liberal with the charges to the artists. At the end of the day, the folks who really struggle to make a buck off of CD sales through the major record companies are the artists.

I honestly believe Sony got off cheap by paying $10 million for years of abuses, and I won't be surprised to see Warner Music (NYSE: WMG  ) or any of the other industry players announce similar settlements in the near future. It's been an industry with difficult competitive dynamics for a long time, and there's no reason to believe it will change.

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NathanParmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.


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