The process of record companies making secret payments to disk jockeys to make sure certain songs get played more on the air.

HIGHLY illegal, and certain to get your butt fired and likely sent to prison (see Alan Freed). Used to happen a lot more often in the 1950's when Rock and Roll was getting started.

How payola works today:

Record Company Representative: Hey, we've got this hot new act called Severe Tire Damage that we know just fits your format. Have a free CD.
Station Manager:Thank you. They're a little grunge for us, but we'll give it a shot.
RCR: Oh, and we also manage Tori Amos. Here are some front-row seat tickets for when she comes to this city next month, just for promotion.
SM:(Somewhat more interested) Yes, I'm sure these will make good contest prizes.

This is how most Radio stations get the cool shit they give away so often. Since the tickets, Aibos, big screen TVs, etc. are all classified as 'promotional' and go to listeners instead of the station employees, it's all perfectly legal, and the payola is realized when the station's reputation is raised to the point where they can charge more for advertising.

Of course, the vast majority of the radio stations are now actually owned by the same evil multinational conglomerates that own the four record labels that actually get sales.
Case in point - Mariah Carey signs to Sony, marries Tommy Mottola - head of Sony in the US. Mariah Carey records get played on radio stations owned by Sony. A lot. Mariah Carey divorces Tommy Mottola - suddenly her records get a lot less airplay.
The fact is that payola is no longer necessary, simply because the radio stations and the record companies are the same people - which is why (at least in the US - in the UK the most listened-to stations are non-commercial, so slightly different rules apply) no good new music at all makes it on to the radio.
Of course Mp3.com have brought payola back for the 21st century...

What they call ‘payola’ in the disc jockey business, they call ‘lobbying’ in Washington
Alan Freed

Brought to the attention of the American public in the 1950s and institutionalized in the 1990s, payola has actually been around ever since music has been sold to the masses.

The concept of paying someone to give a song exposure to the people, which is really all payola is, actually got started at Tin Pan Alley, the American sheet music publishers during the late 19th century. After a song had been written, the firm that owned it would pay to have it performed until the demand for the music was so great that it became self-sustaining. This was before radio existed, so the song-plugging campaign required the outlay of cash bribes or other gifts – a new suit, a crate of liquor, the services of a prostitute – to real, flesh-and-blood performers. The most important of these were the traveling vaudeville performers, who could carry a publisher’s song on tours all across the country. It didn’t even matter if they were singers; even the dancers, jugglers, and magicians needed background music for their acts. The selling of a hit song to the masses was ubiquitous wherever music was played in public. From the guy in charge of stocking the rolls on player pianos in bars and penny arcades, to the person playing the piano during a silent movie, everyone was on the take and everyone knew about it.

With the advent of music-based radio shows in the 1950s, the payola continued unabated, but somehow the public seemed to forget that it was going on. Instead of having to pay hundreds of performers around the country, the record companies had to pay the local disk jockeys, the new gatekeepers bringing music to the public. Payola was the status quo; everyone in the industry knew it even if the public had forgotten. So why would anyone rock the boat by exposing payola as a newfound scourge upon the industry? The payola scandal of the 1950s was really just part of a propaganda war between two performing-rights organizations, ASCAP and BMI.

Between 1948 and 1955, ¾ of the number one hits on the Billboard charts were songs administered by ASCAP. But as rock and roll music became more popular, ASCAP’s share of the market plummeted and the upstart BMI, who had most of the rock acts, surged. It was also during this time that the quiz show scandals of 1958 were emerging in the national consciousness and Congressmen were looking to grab big headlines by exposing any sort of improprieties in the media. By 1959, the Congressional subcommittee headed by Oren Harris (D-Arkansas) that had investigated the quiz show scandal was looking for a new media-related issue to investigate. With some guidance from ASCAP, they “discovered” payola. Payola had to be the only explanation why American kids had swallowed all that ugly, indecent noise called rock and roll. They had been bamboozled into thinking they liked it!

Everyone believed the idea that it was payola that had caused rock music and soon deejays were being subpoenaed to come to Washington and testify. Not all deejays, only ones that played rock and roll. Those who played more “adult friendly” fare were left alone because, as John Moss, a Democratic representative from California, stated, “good music did not require the payment of payola.”

The man hardest hit by the scandal was Alan Freed, the Cleveland disk jockey who first used the term “rock and roll” and made it widely available to a white audience. He also promoted racially mixed “record hops” and expressed a preference for black artists over the blander, safer white cover acts. Freed admitted that he took “gifts” from the record companies but denied that they had any effect on his playlists. Rep. Moss called him “one of the few comparatively truthful men we’ve had before of the committee,” but Freed was still convicted of bribery charges.

The manufactured payola scandal did not stop rock and roll, but deejays were no longer allowed to individually select their playlists. They were instead forced to stick to what the station selected for them, a format that became known as “Top 40” that is still the industry standard today. Federal communications laws were also passed that limited contact between record labels and radio station personnel and required that any pay-for-play deals had to be disclosed to listeners on the air.

This did not stop payola, it only evolved into what it has become today. This involved the creation of so-called “independent record promoters.” The indies pay the radio station for the privilege of representing a record label. Then, when a song gets airplay, the indie sends a bill to the record company. This is sheltered from federal prosecution because the middleman isn’t paying for the playing of specific songs, just purchasing “access” to the station.

The bottom line is that payola has always been around and is going to stay around in one form or another. While it may taint the popularity of songs on the radio, we are still able to make the final decision what to listen to with our wallets.

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