Payola and satellite radio

by on March 5, 2017 at 12:43 am in Economics, Music, Uncategorized | Permalink

In the last two weeks I’ve heard the new George Harrison box set mentioned so often on channel 26 Sirius satellite radio — accompanied by the playing of Harrison songs — that I’ve concluded some form of payola is going on.  In its early days, satellite radio was critical of the mainstream radio stations for this practice, but now it’s jumped on board.  And you know what — no one cares!  Even on the internet, there is hardly anyone complaining.  Hard to believe, I know, but that is maybe one indirect advantage of the current political polarization.

And why should you complain about satellite radio payola?  Without payola, the stations choose songs (directly or indirectly, through dj instructions) to pull in the marginal subscriber.  With payola, payments from IP holders become a separate influence on program content.  Those payments are most likely to come from IP holders whose products show a high elasticity of demand with respect to advertising.  In other words, the influence of producer surplus rises, relative to consumer surplus.

Intuitively, that seems to me “music that a lot of listeners already are familiar with, even if they don’t know that a new boxed set just has been released” is how that category translates into satellite radio circa 2017.  Or, in other words, George Harrison.

Perhaps the most underrated George Harrison song is “You.

Addendum: Interestingly, payola in earlier parts of the 20th century seemed to favor music for the young, black music, and new, previously undiscovered artists.  It’s worth thinking through why this has changed.  For 1950-2000, there is no “marginal subscriber to radio” the way there is for satellite radio, rather most listeners are in the relevant network.  Furthermore, today’s satellite radio listeners are I believe considerably older and somewhat wealthier than the typical radio listener, either now or earlier.  When more or less everyone was on the “free radio network,” the high elasticity of profits with respect to advertising was for the artists who otherwise wouldn’t get much exposure.  In contrast, today it is for “golden oldies,” where the taste for the product already is there but information about availability may be lacking.

Here are previous MR posts on the economics of payola.

1 Some Guy March 5, 2017 at 12:57 am

Huh. I never knew it wasn’t legal.

2 Ray Lopez March 5, 2017 at 1:20 am

Yeah, payola was made illegal in the 1960s, earlier than I thought. Like comparative advertising, which is also illegal de facto, as well as inside trading in the stock market, seems payola is a victimless crime. If you don’t like the song, as J.C. Mellencamp said on payola (he favors it), don’t listen to the radio station. Payola won’t make a hit out of a non-hit and it allowed black musicians to break the color barrier. (nowadays it might be the reverse of that in rap, given that there are hardly any white rappers anymore…Eminem… Vanilla Ice…Iggy Azalea? )

3 msgkings March 5, 2017 at 10:28 am

“hardly any white rappers ANYMORE” LOL

Hookers and chess, Ray.

4 Ray Lopez March 5, 2017 at 11:04 am

What? You don’t remember Eminem? He doesn’t perform anymore, neither does Vanilla Ice (though his one-hit wonder is still popular in the Philippines), while Ms. Iggy just released some new material a few days ago after a three year absence. They are the minorities in rap music, unless you count foreign artists (like Greek rappers for example, there’s quite a genre in Balkan rap music, where they blend traditional ballads with modern rap). Do keep up msgkings, even though you’re in middle age like the rest of us…

5 Dan Lavatan-Jeltz March 5, 2017 at 2:51 pm

Marshall Mathers does still tour, I saw him not too long ago and I checked online and he has a gig this summer.

6 Andre March 5, 2017 at 12:13 pm

There are plenty of white rappers, producers too, it’s just that hardly any rappers can blow up as big as an Eminem did. Slim Jesus, R.A., Logic, gmebe. And don’t forget lame ass Macklemore winning album of everything a couple years ago.

The whole studio album thing is practically dead in hip hop. People blow up with mix tapes and instagram then get signed. I can’t imagine most of their stuff could get on the radio even if they were paying.

7 Thiago Ribeiro March 5, 2017 at 4:32 am

It must be. “U-2, Syngman Rhee, Payola and Kennedy, Chubby Checker, “Psycho”, Belgians In the Congo. “

8 Rich Berger March 5, 2017 at 6:35 am

And transistor radios.

9 Thiago Ribeiro March 5, 2017 at 7:14 am

Indeed. I may be wrong, but weren’t transistor radios an important part of the failure of the Generals’ Coup in Algeria in 1961? The soldiers could listen de Gaulle.

10 derek March 5, 2017 at 2:11 am

My last truck came with a free subscription for a few months. I was utterly unimpressed, and didn’t subscribe.

11 Jan March 5, 2017 at 6:52 am

Same. With the ability to play anything off of my phone on the car speakers, there is really no need for satellite. I still catch FM radio sometimes for exposure to new music, which mostly my wife likes, and public radio. Commercials suck, but changing the channel is easy.

12 Dan Lavatan-Jeltz March 5, 2017 at 2:56 pm

I think that is the case, the only time I have used it is with car rental fleets – it is hard to imagine any consumer actually consciously subscribing. If there are marginal subscribers they consist of the entertainment marketing manager for the big three auto makers.

13 zbicyclist March 5, 2017 at 2:17 am

If there are enough choices, there’s less concern about the purity of those choices.

If I’ve got 100 satellite and 30 terrestrial radio stations (plus a CD player and the ability to use my phone through the car speakers), there’s not much reason to care about what’s on channel 26 if it’s not one of my presets.

14 steveslr March 5, 2017 at 11:38 pm

Right.

If it’s 1955 and your car radio only picks up, say, 9 AM stations during daylight hours, and each station is making big profits because the government handed them property rights to certain bandwidths, it’s hardly unreasonable for the government to put restrictions on how sleazily they can profit off their gift.

15 So Much For Subtlety March 5, 2017 at 2:32 am

When radio spectrum was rare and stations few, it made sense to have a public service ethos to broadcasting. With digital radio the number of stations that can be broadcast must be enormous – more than anyone could listen to. We don’t ban payola in fruit shops – or book shops.

Is it a type of advertising? The radio makes money by selling air space. Presumably the problem here is that the advertising is disguised as comment and so it is form of lying to the consumers. However in the end, the listeners want to listen, they pay for that. Advertisers want to sell ads. They will pay for that. Music companies want to shift albums or downloads and so they will try to get their music before the consumer – and clearly they are willing to pay for that. The radio station is providing a form of public service that greatly enriches many people’s lives. Less so than before. They get paid by everyone to do so.

I don’t see the problem except perhaps they need to be more open about what they are doing. Still, the correct solution may be for everyone to assume they are pimping their credibility. The only losers are those members of the broadcasting fraternity that like to think of themselves as a cut above that sort of thing. Maybe they were behind the payola ban.

16 prior_test2 March 5, 2017 at 3:07 am

So, let’s compare what the kids these days are doing, and a subscription model from the end of the broadcast era, back –

‘According to data from Edison Research, the percentage of Americans 12 years of age or older who have listened to online radio in the past month has once again continued to grow – rising from 53% in 2015 to 57%. That share is about double the percentage of Americans who had done so in 2010 (27%). Updated data for devices of choice for online radio listening in 2015 were not available, but during 2014, 73% listened on smartphones, while 61% listened on desktops and laptops.’ Let us simply call that number 150 million, and recognize that some people listen online in ways unlikely to be measured. Such as the global pirate framework (cannot give any links here, though) and people with multiple thousands of downloaded and catalogged songs, where one could argue this involves something like negative payola.

However, the preceding was just to place the below information, representing a 1/5 of the people above, in context –

‘Satellite and web-based listening in cars

Sirius XM – the only satellite radio platform in the U.S. – reported an uptick in subscribers in 2015 to 29.6 million, up from 27.3 million in 2014.

According to Edison Research, web-based radio listening in cars held about steady, revealing a slowdown from the growth of the past several years. As of January 2016, 37% of U.S. adult cellphone owners have listened to online radio in the car. That is just slightly more than the 35% who did so in January 2015, but about six times the share (6%) who had done so in 2010.’ http://www.journalism.org/2016/06/15/audio-fact-sheet/

There is nothing all that interesting in payola involving in a single market, using a technology billions of people do not have access to. Nor would they likely pay for it, assuming it was available, as their current access to music essentially 24 hours a day is more than adequate for their listening desires.

17 steveslr March 5, 2017 at 5:43 am

In marketing strategy class in 1981 at UCLA B-school, I was on a team with a guy who was obsessed with getting rich off of outer space. Good luck with that, I figured, although he was so much smarter than me that I couldn’t rule it out. But it seemed a very sci-fi ambition.

Later he pretty much invented the satellite radio business.

Now he’s listed as the highest paid female CEO in America.

A very sci-fi life.

18 Thiago Ribeiro March 5, 2017 at 7:22 am

I guess inventing the satellite rasio business instead of, say, teying to mine asteroids strikes the right combination of prosaic and “sci-fi” that makes for a profitable technical advance.

19 Dan Lavatan-Jeltz March 5, 2017 at 3:04 pm

That seems to be Safra Catz from Oracle with $57M, and she had nothing to do with satellites or radios.

20 Jan March 5, 2017 at 6:35 pm

Martine Rothblatt, but she isn’t highest compensated, right?

21 steveslr March 5, 2017 at 11:39 pm
22 Rich Berger March 5, 2017 at 6:39 am

Did TC get a payoff to post about those Monteverdi madrigals? I wouldn’t care if he did; my wife and I have been listening to Book V and enjoy them. I think I’ve had enough of George and his loopy slide guitar.

23 prior_test2 March 5, 2017 at 9:07 am

His loopy guitar is now gently weeping.

24 cthulhu March 5, 2017 at 2:40 pm

Of course, Eric Clapton played the lead guitar (uncredited) on “While My Guitar Gently Weeps”; but it’s one of Harrison’s best compositions.

25 msgkings March 5, 2017 at 10:25 pm

Do yourself a favor and watch this (you may have already). This is called making a guitar gently shred Hendrix-style on this song. Look at Dhani Harrison just laughing at the talent on display…

https://www.youtube.com/watch?v=6SFNW5F8K9Y

26 steveslr March 5, 2017 at 11:40 pm

I really like the happiness on George Harrison’s face as Prince wails.

27 steveslr March 5, 2017 at 11:40 pm

George Harrison’s son’s

28 msgkings March 6, 2017 at 1:06 pm

Exactly (his name is Dhani Harrison). People get labeled as a ‘musical genius’ all the time, but in Prince’s case this is (was! 🙁 ) inarguably true.

29 Gary Leff March 5, 2017 at 7:01 am

American Hot Wax is an underrated film.

30 Arnold Kling March 5, 2017 at 9:03 am

I have thought this for quite some time about satellite radio. I hope Spotify survives.

31 Marcus March 5, 2017 at 10:15 am

Friar Tyler Cowan, saving the wealthy from the underclass, one Beatle at a time.

32 Roger March 5, 2017 at 11:23 am

I rented a car with satellite radio last week and heard how they played a George Harrison song off the new album at least every half hour, if not more. However, this is not proof that they committed a major crime. I assumed it was a marketing ploy, creating a theme around a major figure in classic rock. Perhaps I am naive. But perhaps not.

33 Turkey Vulture March 5, 2017 at 12:25 pm

I use non-internet radio for the same purpose as I use non-internet TV: live sports and related commentary. When I’ve rented a car with satellite radio, it was nice to have a wider selection of games to listen to. If I remember correctly I was able to listen to the local broadcast of a Bills games while in California. The NFL apparently doesn’t let radio stations stream NFL broadcasts online (whereas the NHL does, one of the rare things the NHL does right), so that was my only way to listen to the game live while traveling.

For music, I have Amazon Music and Pandora, my locally-stored music, and Youtube if I really need something specific that isn’t available elsewhere. So even when satellite radio has been available to me, I’ve opted to play music from one of those sources instead. It seems like anyone who opts for music on satellite radio despite all of these other available options actually wants someone else to influence their music listening by choosing the songs they hear. Such people shouldn’t be particularly bothered if some songs are being played because of payola rather than because the DJ or some other listener likes them.

34 Rich Berger March 5, 2017 at 1:50 pm

You want someone else to drive the bus? There are plenty of playlists from many sources. I use Napster now which was previously Rhapsody and chose a playlist called Out music. I heard a Tuareg group called tinariwen, a group called Moon Duo and someone else called the Dirty Projectors. The things these kids listen to!

35 Turkey Vulture March 5, 2017 at 2:53 pm

Good point, I haven’t really availed myself of pre-selected playlists so I had forgotten it was an option. Pandora is my main way to get occasional exposure to new artists and songs I might like.

So I guess I really don’t know why anyone would listen to satellite radio. You can duplicate every aspect of it, and more, with your phone. Unless you are in a location where satellite service is reliable and cell signal isn’t. But from my limited satellite radio experience over the past couple years, I had more signal issues with the radio than with my phone.

36 Turkey Vulture March 5, 2017 at 3:05 pm

*don’t know why anyone would listen to satellite radio for music, that is

37 Rich Berger March 5, 2017 at 4:23 pm

Without digging into the matter further, I figure that the satellites in satellite radio are a sunk cost and the company is simply trying to maximum revenue until it dies. I have satellite radios in two of my cars and I cancelled my subscriptions a few years back. I keep getting offers of 5 months for $20 which I turn down. If I was an OTR trucker I might consider satellite again, but Pandora and Napster and my old CDs transferred to iTunes are fine. And podcasts, too.

If you are a sports fan, as you point out, the MLB/NFL/NHL networks are great on satellite.

38 Turkey Vulture March 5, 2017 at 3:10 pm

I’m wondering about my claim about NFL broadcasts now. I am pretty sure I was able to listen to NFL broadcasts when I streamed the Buffalo station online through my browser this past season. I think it was only app-based NFL broadcasts that won’t stream. They said it wasn’t available “due to NFL regulations…” when I tried to stream through the app, but that could just be that the station doesn’t pay for those rights, not a general ban.

39 Bill March 5, 2017 at 12:25 pm

Payola also applies to the internet.

40 prior_test2 March 5, 2017 at 12:28 pm

Absolutely – the pirate bay is undoubtedly rife with payola.

41 Bill March 5, 2017 at 4:14 pm

Was this a paid comment?

42 Moo cow March 5, 2017 at 12:34 pm

There’s so much new music out there I have difficulty filtering it all. But what gets the attention? A $500 boxed set of vinyl album reissues by a dead rock star?

43 Wesley Mouch March 5, 2017 at 2:09 pm

I was in radio broadcasting in the 60s and 70s. What made payola illegal was that the airplay was technically paid advertising and the sponsor’s name was not identified as required by the FCC. Every ad must identify who paid for it (cf. political ads). It would have been perfectly legal to be paid for airplay as long as the record label was identified as the advertiser.

Whether this applies to satellite radio I do not know.

It was not uncommon then to wrap airplay, etc. into a “promotion” in which copies of the record were given away (or tickets to a concert or some such). Keywords: “promotional consideration furnished by…” I would not be surprised to learn that is what is going on here.

44 JMCSF March 5, 2017 at 8:58 pm

They certainly do it with album sales. For the Madonna MDNA Concert, everybody got a copy of her MDNA album bundled into the ticket. I am sure those albums were all purchased in the first weeks release to boost numbers. The thing is that anybody who went to that concert probably already had a copy of the album.

45 test March 8, 2017 at 2:24 pm

fascinating post!

46 Mike S March 13, 2017 at 5:16 am

Interesting fact about Payola scandal in the ’50s is that it literally took down the man who coined the term Rock n Roll–Alan Freed. It is interesting how scandals in the popular and predominant 1950s mediums of television (Quiz Show Scandals) and radio (Payola) still have significant ramifications today. Game shows like the Price is Right and Jeopardy follow very strict procedures that came about during those 50s scandals.

Somewhat related is an old but good read about how the Price is Right became gamed by recycling the same products in their showcases.

http://www.esquire.com/news-politics/a7922/price-is-right-perfect-bid-0810/

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