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Payola

Payola. Advertising, Consideration Payment, Entry Strategy, Entry Deterrent, or Prisoners’ Dilemma. Definition. Payments from record labels to radio stations or disc jockeys for more airplay or “spins” for their records. Similar to “consideration payments”

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Payola

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  1. Payola Advertising, Consideration Payment, Entry Strategy, Entry Deterrent, or Prisoners’ Dilemma

  2. Definition • Payments from record labels to radio stations or disc jockeys for more airplay or “spins” for their records. • Similar to “consideration payments” • Slotting allowances for favorable shelf placement • Merchandising allowances, such as those involved in the resale price maintenance allegations in the late 1990’s

  3. History • Reports of payola go back into the 1930’s • Payola was not widely used until the 1950’s when radio switched from live broadcasts to playing recordings • FCC and FTC began investigations in 1959 • May have been prompted by cheating scandals involving TV quiz shows • Amendments to the Communications Act outlawed payola effective Sept. 13, 1960.

  4. Effects of Outlawing Payola (Rennhoff)

  5. Effects of Outlawing Payola • Stylistic variety fell • Weeks with a new #1 increased • Chart turnover increased (BB Top 100 Songs) • Shares of hits by major labels fell • Shares of hits by minor labels rose

  6. Motivations for Payola • Advertising • Pay for access to consumers as in 2-sided markets • Signaling • Indicate higher quality products (slotting) • Entry Strategy (1950’s, Coase) • New firms lacking established stars can “buy” airplay • Entry Deterrence Strategy (1970’s, Dannen) • Raise barriers to entry by new/niche labels • Prisoners’ Dilemma • Adopt payola to avoid losses when others use it

  7. Concentration Payola Outlawed

  8. The Prisoners’ Dilemma

  9. Payola as a Prisoners’ Dilemma Game

  10. Is Payola Really Dead? (Alexander) • In late 1970’s • Passage of the Racketeer Influenced and Corrupt Organizations act increased penalties for payola. • A group of independent promoters – “the Network” – were paid to represent major label’s interests to radio station operators. • By mid 1980’s • Record companies retained independent promoters, but did not inquire into the use of payola. • Given the increased penalties, contracting out promotion became the more efficient option. • In the Digital Age, is payola relevant?

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