Rossman Payola 2

However, as I show in the book, --

there is no evidence that radio corporations
routinely coordinate their behavior.

Here is the diffusion curve
across top-40 stations of "Umbrella",

but this time it's broken out
by radio company.

And, as you can see, the curves are
basically the same for each company.

And that's not what you'd expect
if decisions were made centrally

at corporate headquarters.

So, basically,
corporate radio is off the hook,

but we still have a whodunit
for what is coordinating radio.

Well, here is a good candidate
for what could be coordinating radio.

This is an invoice from
somebody at Atlantic Records

showing gifts bought for radio stations

in order to promote
various artists on that record label.

Typically the gifts are worth
a few hundred dollars

and the station passes them
along to listeners.

The tenth caller gets concert tickets,
that sort of thing.

Record labels are very aggressive
about promoting singles to radio stations

in much the same way as
pharmaceutical companies are

at promoting new drugs to doctors.

Some types of promotion like
mailing a CD and a press kit

are perfectly and unequivocally legal.

Others are gray areas or outright illegal,

such as bribing a disc jockey
or bribing a radio programmer.

This particular document
comes from the appendix

to a consent decree
with the state of New York.

So obviously the state of New York felt
that this was at the very least suspicious,

and the record label thought
that it was suspicious enough

that they better settle the case
rather than fight it.

The fundamental model
on the sociology of culture

comes from a 1972 article by Paul Hirsch.

The gatekeeping model treats
culture industries as a series of stages,

and there's a progressive winnowing
as most people fail

at each successive stage.

You start with the original authors.

This could be garage bands
with a demo tape,

or the guy who has a book manuscript,

or an actor who has a headshot
and is trying to get into the movies,

something like that.

Then you have cultural distributors.

These are the companies
who help put out art.

They accept only a fraction of
these aspiring authors who approach them.

Most bands don't get a record deal.

Most authors don't get published.

Most aspiring actors don't get cast.

From there, you move on
to surrogate consumers.

These are the folks who
publicize or validate culture.

Critics, awards, radio stations, etcetera.

Sometimes these people could be
also called tastemakers.

Again, most work that makes it
to this stage fails at this stage.

For instance, most books that are published
don't get reviewed in The New York Times.

Finally, you get to actual consumers.

Again, most things that
get published and get publicized

still don't get to be hits
with the consuming public.

Now what Hirsch hit upon --

was that the key relationships
is between cultural distributors

and surrogate consumers,

the folks who circulate art
and the folks who publicize art, --

and, in pop music, this traditionally means
record labels and radio stations.

Of course, it is possible to overdo
the strength of this relationship.

Since the radio records business model

came to characterize
the music industry in the 1950s,

there have been four scandals about
"payola" or music bribery.

The details vary considerably.

Payola used to involve
drugs and the mafia,

but more recently it is mostly
about things like

free concert tickets
to give to the tenth caller.

You can read about the details
of each of these periods in my book

or in the book "Hitman"
by Frederick Damon,

but I want to emphasize
that payola keeps coming back,

or, if you want to be
less judgmental about it,

very aggressive and dubiously legal
radio promotion techniques keep coming back.

There's a scandal and a prosecution
and, about 15 years later,

there will be another scandal
and another prosecution.

It's kind of like a cicada
for white-collar crime.

But we can ask why would this be.
Why would it keep coming back?

Why don't they learn the lesson
that if you do this,

you'll eventually go to prison,
or get fined,

or have to sign a consent decree?

Let's game it out.

Consider two record labels
seeking airplay.

Think about it
from the perspective of Label 1.

If Label 2 doesn't bribe,
then Label 1 has a choice.

Do I split the airplay and keep my money?

Or do I pay a small bribe
and get all the airplay?

Given this choice,

Label 1 would probably rather pay
a little bit of money and get a lot of airplay.

They'd rather have
the airplay than the money.

Now conversely let's imagine that
Label 1 knows that Label 2 is going to bribe.

If so, it has a choice
between saving its money,

but not getting any airplay whatsoever

or paying a lot of money
and splitting the airplay.

Under this situation,
Label 1 would reluctantly

rather pay the money
and get at least some airplay

than pay nothing and not get any airplay.

The interesting thing here is that,
regardless of what Label 2 does,

the Label 1 is better off paying a bribe.

So we can say that bribery is
a strictly dominant strategy

for Label Number 1.

Now of course Label 2 faces
an exactly parallel set of incentives,

so we can also say that bribery is
a strictly dominant strategy for Label 2.

Now, when you have the intersection
of these two dominant strategies,

you see that equilibrium.

We get both labels paying bribes,

enough that the two labels
still share airplay equally

just like when neither of them
was paying bribes.

They just have to pay for it now.

So the arms race
of promotional expenses

ends up putting the record labels
in a prisoner's dilemma

where they get nothing more
than they could have gotten

and they end up having
to pay for a lot more.

Now as Ronald Coase notes
in a 1979 article,

this dynamic predates
the recorded music industry.

You used to actually see it
with the sheet music publishers

bribing Vaudeville acts

back when the music industry was based
on people buying sheet music

that they saw performed on stage.

And, it's interesting to note,
and Coase does note this,

that cultural distributor firms --

would benefit if they could agree
not to pay bribes.

Indeed, we've seen several attempts at
monopolistic cartels to avoid paying bribes.

Coase notes, following
Sanjack and Sanjack, that, --

during the Vaudeville Era,
you had this with

the music publishers'
protective association.

And then following Coase's article,
more recently in 1986,

after there was a scandal
involving the mafia,

The Recording Industry Association of America
voted to stop paying bribes.

But, the problem is that like all cartels,
these agreements were vulnerable to cheating.

And so you get a basic pattern
that when publicity is valuable,

people end up paying for it
one way or another.

And so you...