Payola Laws & The Greatest Music You’ve Never Heard

The laws and regulations our politicians and governmental agencies put into place can distort markets and restrict our options as consumers. Lately the media has been shining a light on legal protections for taxis and hotels that prevent innovative companies like Uber and Airbnb from entering new markets. Regulations like these – ones that make it hard for newcomers to break into big industries – are typically created under the guise of protecting consumers. In reality, these regulations often protect industry monopolies that already enjoy positions of privilege and power. Consider Tesla’s dilemna: the myriad of state laws that block Tesla from opening retail stores across America are the result of protections franchise dealers put in place over decades to block the manufacturers they represent (Ford, Toyota, etc.) from selling directly to consumers.

Even the music you hear on the radio is deeply impacted by regulation. You might be surprised by the system that stacks the deck against even the best independent music from ever reaching listeners.

Over the last decade, technology has empowered countless artists to produce high-quality recordings without a major record label – and without having to relinquish ownership of their songs or master recordings. Yet despite the explosion in great music available, major radio stations are playing less new music than ever before; as a result, the songs that are played today get a disproportionately high amount of airplay. While some claim that playing less variety (fewer songs from fewer artists) is what listeners want, it’s really the result of the virtual monopoly that major record labels have on radio airplay. The biggest enabler in this monopoly, and keeping independent artists off the radio, are payola laws.

What is payola? Essentially, payola is the illegal practice of paying radio stations to play specific songs without a disclosure that listeners are hearing paid advertising. Payola laws grew out of events in the 1950s, a period when the established music powers were threatened by the rise of rock ‘n roll. Some DJs were taking money from artists to play their songs on air, and the music establishment, fighting these scrappy newcomers, took their interests to the FCC in order to enact laws that prevented pay-for-play music.

Proponents may say payola laws protect consumers by preventing “bad music” from getting on the air (i.e. someone makes a terrible song and pays a station to play it). But isn’t it already in the best interest of radio stations’ to avoid playing “bad” music in order to keep listeners on their station?

From the beginning, payola laws were designed to protect the industry establishment and block newcomers. Because major labels invest so much money to produce each superstar, their return-on-investment is dependent on getting their music played for the public. Despite the “protections” offered by payola rules, the big record labels have found innovative ways to engage in payola themselves. By hiring independent promoters, or “indies,” the big record labels leverage middlemen to essentially pass money to radio stations in the form of promotions and giveaways. These days, labels are sending their biggest acts to play radio-conglomerate backed festivals at suspiciously low fees. (Hint: the radio folks pocket unusually large profits from ticket sales.)

Payola works. Last year, Macklemore became the first indie artist since Lisa Loeb in 1994 to score a number one song. As a rule, the big three record labels (Warner, Sony, Universal) dominate the charts. In fact, radio stations have grown so accustomed to playing what the big labels put out that few stations even have local programmers anymore. Program directors working for big radio conglomerates choose music for stations that are hundreds, even thousands of miles away. If you are listening to the radio (and in many cases satellite and streaming services), you are basically being force-fed music by the majors.

Meanwhile, there are some incredible independent artists being deprived of airplay that is critical to their commercial viability. Despite the soaring popularity of online streaming services, Nielsen data shows that FM radio still has powerful reach.

So what if radio stations did accept money for playing a new song? Programmers could use data to find out if the song should continue to get airplay. Google has perfected this process, accepting money for new business listings via the Google Adwords program then watching consumer click-through rates in determining those most deserving of top placement in search results. Pandora leverages data too, employing its thumbs up, thumbs down, and skip buttons to personalize what individual listeners hear from its catalog of music. As radio attracts more online listeners, it could use data to vet new pay-for-play music and improve the variety and quality of what reaches the masses.

Such a system will be a win-win for radio and for artists. Radio and streaming services need the revenue, and their listeners would gladly listen to a new artist as opposed to an ad for a furniture store or politician. Artists need exposure in reaching new fans to purchase music and merchandise, buy tickets to shows, follow them on social media (which can lead to sponsorships), and even “Kickstart” a new video or studio time.

Music lovers should want a system where small, independent record labels and emerging or established artists can pay to have their music heard. It is perfectly legal to pay-to-play in great venues – even the NFL has reportedly asked performers to pay-to-play at Super Bowl halftime – so why not let emerging artists buy airtime to reach new fans? Consumers would benefit as radio, streaming, and satellite services turn to listener data – rather than the enticements of promoters – to find the hidden gems listeners love.

The good news is that it likely won’t take an act of Congress to level the playing field in music. As new startups like Uber and Tesla are showing us, it’s just a matter of time until the right technology-driven company comes along to disrupt the industry with a new business model that breaks the major labels’ monopolistic stranglehold on our culture.