Bribery is a good thing because it helps the bribed to learn what is best! So argues law & economics professor Thomas W. Hazlett “in today’s Financial Times”:http://news.ft.com/cms/s/61a388f6-0ce3-11da-ba02-00000e2511c8.html :
bq. Payola was made famous by scandals in the 1950s, when “cash, drugs and women” were traded to rock and roll disc jockeys in exchange for airtime, but the practice has a richer history. In both Britain and the US, 19th- and early 20th-century performers Âcollected side-payments from music publishing houses for singing their songs.
bq. Ronald Coase, the Nobel PrizeÂwinning economist, explained the practice in 1979. Radio stations own something valuable: songs played more tend to sell more. Competition for airtime develops, but how one conducts the best auction – given that station revenues come primarily from selling audiences to advertisers – is complicated.
bq. One view is that radio stations should be faithful to listeners and make choices based only on their DJs’ honest musical appreciation. But how do they know what gangsta rap track is top quality? Payola helps them learn, because record companies will tend to value airtime the most for releases for which they have the highest expectations of future sales.
I’d love to read commentary on this over at “Marginal Revolution”:http://www.marginalrevolution.com/ . Tyler?
{ 35 comments }
Seth Finkelstein 08.15.05 at 2:11 am
Exactly. As Hayek teaches us, prices in the free market are signaling information. So bribery is a recommendation with value behind it. After all, if a record company were to always bribe DJ’s to play flops, they’d go out of business. So bribery works as a process of resource optimization, and it’s only you nanny-staters who object to it.
[Just in case it’s not clear, the above is satire!]
[Though I suspect someone will argue it seriously …]
nik 08.15.05 at 3:01 am
It’s kind odd that (even though he’s a law professor) he can’t see the difference between proper and improper payments. If a radio station wants to auction places on playlists, that’s fine, if someone bribes station executives, then that’s a different situation.
abb1 08.15.05 at 6:18 am
This is maddening – these motherfuckas made me listen to low quality gangsta rap all this time.
Jack 08.15.05 at 6:20 am
He also says:
I think he may have outfoxed himself.
Richard Bellamy 08.15.05 at 8:16 am
I think the problem here is the “Crap Follow Up Album By Big Star.” Let’s say, Paul Anka puts out a swing album covering Nirvana’s Smells Like Teen Spirit. Not having heard the whole album, it is difficult to know whether this is a brilliantly inspired crossover idea like Reggae Dylan, or the biggest piece of dreck since Frank Sinatra singing Bad, Bad Leroy Brown.
This being a Paul Anka album, it will sell more than a better album put out by some guy named Saul Anka (unrelated). An indifferent DJ would say, “Listen, you were going to buy Paul’s album, but check out Saul’s!” However, it airplay will increase sales by 10%, irrespective of quality, then I have an interested in payolaing Paul’s album over Saul’s. Overall sales will increase (benefiting the record company), although the overall consumer satisfaction will drop.
harry b 08.15.05 at 8:40 am
Tyler gives a much richer defence of Alan Freed et al in his book on commercial culture, among other things saying that they helped undermine the effective colour bar in radio. Convinced me.
Tyler Cowen 08.15.05 at 9:20 am
Thanks for the citation, Harry B is right, I cover this in detail in my book *In Praise of Commercial Culture*, see also a recent Slate.com piece, plus once Alex blogged on this, see http://www.marginalrevolution.com/marginalrevolution/2004/06/payola.html, I believe in a later version of that post he then cited me!
Tyler Cowen
Ray 08.15.05 at 9:48 am
Isn’t the basic argument that Payola is essentially fraudulent? The DJ is making an implicit claim that he is choosing records based on his perception of their quality, but isn’t really. So there’s no problem with record companies buying airtime for records, as long as everyone understands that’s what’s going on.
Alex Tabarrok 08.15.05 at 9:57 am
Here is my post on Payola already noted by Tyler above:
http://www.marginalrevolution.com/marginalrevolution/2004/06/payola.html
this follow up has a nice quote from Tyler’s in Praise of Commercial Culture
http://www.marginalrevolution.com/marginalrevolution/2004/06/payola_ii.html
and here is John Mellencamp expressing the economic way of thinking on payola.
http://www.marginalrevolution.com/marginalrevolution/2004/06/mellencamp_on_p.html
paul 08.15.05 at 10:03 am
The argument that payola is based on expectations of potential sales is so filled with caveats as to be useless for information-transfer purposes. Obviously payola will be based on the payola-giver’s perception of utility, but the things that go into that perception include many items that bear no relation to the quality (even “quality” defined as “sales potential”) of the track in question.
Does the track belong to a famous/powerful artist who could decamp to another label? Does it belong to a friend or current/past/potential sex partner of another artist/manager/principal at the label? Does it belong (or is it connected) to anyone who is currently/potentially in litigation with the label or one of its managers/principals? Is there a video that for some reason (including perceptions of future sales) has been made or is in production? Concert bookings ditto? And that’s pretty much the shortest list I can think of.
Matt 08.15.05 at 10:10 am
There’s also a rather strange gap or perhaps equivocation in the last senetnce above from “top quality” to “will sell the best in the minds of record industry producers”. I suppose those two might go to gether but as is it certainly seems to make the argument invalid.
duus 08.15.05 at 10:27 am
these economic arguments rest firmly on the assumption of exogenous preferences that map unambigiously to social welfare. are radio stations the conduit or creator of taste? probably some mix, i’d imagine.
Seth Gordon 08.15.05 at 10:35 am
If studio owners were truly confident in their judgement that album A would have higher sales than album B, then wouldn’t they maximize their profits by selling album A at a higher price than album B?
robbo 08.15.05 at 12:14 pm
On the television side, ab-cruncher manufactureres tend to value airtime the most for releases for which they have the highest expectations of future sales. That’s why infomercials are consistently among the best shows on TV.
Ben Alpers 08.15.05 at 12:44 pm
Does it belong to a friend or current/past/potential sex partner…?
But you’re forgetting, paul, that we necessarily choose our friends and sex partners in a utility maximizing fashion, so, by definition, there’s nothing uneconomical about favoring them. It’s all the efficient workings of the magical market!
Dan Simon 08.15.05 at 2:38 pm
Let’s say, Paul Anka puts out a swing album covering Nirvana’s Smells Like Teen Spirit….This being a Paul Anka album, it will sell more than a better album put out by some guy named Saul Anka (unrelated).
You mean this?
dave heasman 08.15.05 at 4:03 pm
In the 50s, in the US airplay was stitched up by the major record labels and the ASCAP music publishers.
In the 60s in the UK airplay was monopolised by four record companies and three publishing companies.
Payola to Alan Freed, or to the UK pirate stations, ushered in some wonderful stuff from King & Sun records, and from Procol Harum and those (you’d think) incredibly uncommercial records by the Who – “Happy Jack”, “I’m a Boy” etc.
Sony/BMG, i.e. half the record industry, bribing major radio stations is a rather different proposition, innit?
Daniel 08.15.05 at 6:06 pm
the words “my” and “eye” come to mind.
1) The colour bar in American music in the 1950s is a red herring. Sam Philips didn’t need payola to play (and record) black artists. The fact is that everything, good and bad, that happened in the USA in that period was tangled up with race relations and so it is unsurprising that payola was.
2) Ray above is correct, though I doubt that anyone was convinced he wasn’t by any of the highfalutin economic arguments. If the DJ says “hey, here’s a record I’ve been paid to play” then that’s not payola. The hidden ingredient in payola is the fact that the DJ’s playing the track has greater promotional value if he doesn’t disclose he’s been bribed; in other words, if he dishonestly exploits his relationship with the listeners.
3) The professor’s drawing of a fine distinction between news reporting and gangsta rap is unfortunate and racially loaded itself; I think it was Chuck D who pointed out that rap is black CNN. Certainly, if payola ruled the airwaves, it might have been difficult for people who lived outside the district of Compton (the one in Los Angeles; the town of the same name in Surrey is a rather pleasant suburb of Guildford) to have found out exactly what the state of relations between the local community and the police were.
Steve Carr 08.15.05 at 7:04 pm
Publishers pay book stores to put certain books on tables in the front of the store. Food companies pay supermarkets for shelf space. It’s hard to see, in economic terms, what the difference is between these things and payola, yet it’s only the latter that’s illegal.
The illegality of payola, in fact, demonstrates that the race issue is not a red herring. Unquestionably, one of the reasons why Congress got all worked up about payola in the late 1950s and early 1960s was that the power of ASCAP and the biggest record labels was being threatened by smaller labels, and that payola was seen as a vehicle by which rock n’ roll was entering the marketplace.
Barry Freed 08.15.05 at 9:13 pm
This is maddening – these motherfuckas made me listen to low quality gangsta rap all this time.
ROTFLMAO!
Tracy W 08.15.05 at 11:36 pm
What theory are you using to distinguish bribery from normal payments for services? I.e. if I hire a DJ for a party I’m throwing on the condition that she only plays ’60s music, is that bribery? And if not, how do you distinguish my hypothetical case from payoloa?
From Wikipedia: Bribery is the practice of offering a professional or an authority person money or other favours in order to circumvent ethics or other rules in a variety of situations. It is a form of corruption and is generally illegal, or at least cause for sanctions from one’s employer or professional organisation.
By that definition, payola is only bribery if there are rules or ethics binding DJs to not accept money to play particular music.
Noticeably this definition does not say whose ethics or legal rules are binding. If there is a law against playing ’60s music, then presumably my offer to the DJ is bribery. However, if the DJ thinks that playing ’60s music is unethical, and I think it is perfectly okay, then am I committing an act of bribery? How about if both I and the DJ are perfectly fine with playing ’60s music, and Chris thinks it is unethical? Am I then committing bribery?
Consequently, I think to argue that payola is bribery requires some argument that payola violates some ethical or other rule that the DJs are required to uphold.
Now, let us assume that there is a legal or ethical rule that DJs should uphold. E.g. The International Association of DJs has passed a resolution that payola is bribery. If someone then advocates changing this rule, are they therefore advocating bribery?
To put this in a different example. Let us say that the NZ government bans hiring DJs to play ’60s music. If I write an article arguing that there are economics benefits to allowing people to hire DJs to play ’60s music, am I therefore advocating bribery? If I am not, how can you say that Thomas W. Hazlett is?
Ray 08.16.05 at 3:44 am
Steve, my usual bookshop has a table in the fiction department called ‘Staff recommendations’. If the bookshops were selling space on those tables, instead of getting staff to fill them, that would be equivalent to payola. The problem is the difference between the stated motive and the actual motive.
Tracy, the difference is obvious. If you hire a DJ to play 60’s music, then you are establishing a set of ethical rules for the DJ to follow (if she accepts the job) – notably, that she should only play 60’s music.
If you advertise a gig at which this DJ will be playing, and don’t tell anyone that the DJ will only be playing 60’s music, you are acting unethically.
If someone pays that DJ to only play 60’s music from one publisher, the DJ is acting unethically. She’s restricting her choice in ways that you’re not aware of, and you didn’t agree to. Sure, she will still be playing 60’s music, but you have a right to be pissed off.
dsquared 08.16.05 at 5:11 am
hard to see, in economic terms, what the difference is between these things and payola
No it’s not. In bookshops and groceries there are these things which we economists call “neighbouring shelves”. You can compare and select between different books on the shelf a lot more easily and enjoyably than you can listen to two radio stations at the same time. I’m less surprised at economists’ studied inability to make quite obvious distinctions between media and between forms of advertising than I should be (advertising is a massive blind spot in modern economics) but Ray’s implicit model is the correct one; disk jockeys provide an implicit certification role by playing a record which bookshops don’t by putting the book on a shelf.
Alex 08.16.05 at 5:47 am
Really, this is one of those arguments that falls in the category of That’s Just Completely Fucking Stupid.
For a start, it’s a case of perverse incentives. The payer’s interest is to increase the sales of the record by more than the cost of the bribe. Assuming more airplay=more sales, playing it more often will do it. But if the record is a dog, it might induce as many if not more listeners to switch radio stations even if it did boost the sales. The point is that the DJ is being paid to sabotage the station’s interests.
And secondly, why assume that the payer’s decision to pay maps to their judgment of quality? “Hey, have you heard this really great song? It’s so fantastic we’ll PAY you to play it!” Would that really suggest to you that it was good? Wouldn’t it be more likely that they would bribe you to play music you wouldn’t otherwise play – after all, if the bribe is the price of playing that record rather than another, there’s no value in bribing the DJ to play a record he or she would anyway!
Grand Moff Texan 08.16.05 at 11:35 am
Payola helps them learn, because record companies will tend to value airtime the most for releases for which they have the highest expectations of future sales.
“The market” is an amnesiac, masturbating.
.
Grand Moff Texan 08.16.05 at 11:39 am
Payola helps them learn, because record companies will tend to value airtime the most for releases for which they have the highest expectations of future sales.
“The market” is an amnesiac, masturbating.
.
dsquared 08.16.05 at 12:32 pm
btw, in passing, note that Hazlett’s entire thesis here is not consistent with any view of “the wisdom of crowds”; one does not have to be James Surowiecki to believe that the collected opinion of independent radio DJs across the nation[1] might be a better summary of popular taste than the forecasts of a single media buying department at a record company. If these people who formulate “expectations of future sales” are so clever that know our own music taste better than we do, perhaps they ought to be planning something more important?
[1]yes yes clear channel I know
concurring 08.16.05 at 12:44 pm
This reminds me of the argument by Dennis Carlton Daniel Fischel in “The Regulation of Insider Trading,” 35 Stan. L. Rev. 857 (1983). They claimed that insider trading would be beneficial to a corporation and would not harm outsiders.
“If insiders trade, the share price will move closer to what it would have been had the information been disclosed.” Or, the insiders could issue a statement from the company. Allowing insider trading would encourage holding back information until the insiders made money from the deal. Their other defenses for insider trading are equally weak.
Ragout 08.16.05 at 1:17 pm
I’m under the impression that DJ’s do not usually choose their own playlists, especially at the big chain radio stations (like Clear Channel). So I don’t see the argument that payola is bad because it represents a fraudulent endorsement by the DJ.
If payola is wrong, is corporate dictation of the playlist wrong? If DJs aren’t really choosing their own playlist, how can they fraudulently endorse anything?
Daniel 08.16.05 at 3:29 pm
If payola is wrong, is corporate dictation of the playlist wrong?
Yes it is, in principle and I for one would like to see some truth-in-advertising requirement that disc jockeys who don’t choose their own records make some acknowledgement of the fact because they are trading off the past and present of disc jockeys who do. In related news, pop stars who lip-sync at their live appearances ought to acknowledge the fact on their publicity material.
Tracy W 08.16.05 at 5:23 pm
Ray – you are placing a set of ethics here on the DJ and me without having gained the DJ’s or my consent to them. I agree that if the DJ has promised to select music based only on her aesthetic appreciation and then accepts payola she has behaved unethically. But if the DJ has not made any such commitment and accepts payola, has she necessarily been involved in bribery?
You may think it is unethical, but why is that a basis for deciding the transaction is bribery? If a devout Christian thinks buying and consuming porn is unethical, does that mean that a completely unrelated person who buys “Memoirs of a Woman of Pleasure” is really bribing the bookseller? Or the publisher? (And, if the criteria is that someone, out there, thinks that what you are doing is unethical, then the Christian is committing bribery whenever he buys a bible.)
And, to take the case closer to Hazlett’s, if I argue that your ethical rule is wrong, am I therefore advocating bribery?
Ray 08.17.05 at 4:03 am
Tracy, the problem seems to be that you don’t accept the idea of implicit agreements. I think the idea that every element of every contract must be explicit is more than a little weird, especially when such contracts include the contract between a radio DJ or a gig promoter and the audience.
For example, most clubs will only have basic information on their posters – the names of the DJs playing, the hours, and the price. Nowhere on a poster does the promoter promise that the DJ will not play the same record over and over again, that the sound system is not an iPod with a couple of car speakers attached, that the DJs will be playing more than one song each before the music is turned off. But all of these things are understood to be part of the deal.
Brendan 08.17.05 at 2:57 pm
this is just to test something don’t read itTracy W 08.17.05 at 7:01 pm
Ray, I definitely do not think that just because one person asserts that an implicit agreement is in place, that any other parties are bound by that assertion and are behaving unethically if they don’t keep to it.
Otherwise I would be churning out children to meet my grandmother’s demands. :)
You, and Chris, are asserting that payola is unethical and therefore paying DJs to play particular music is bribery. I am wondering what happens if a DJ does not agree with your view and pointing out that if the criteria for bribery is simply offering to pay for something that someone else regards as unethical, there is a vast amount of bribery going on around the world.
When I am going to a club, I generally expect the music to vary somewhat, the sound system to be of reasonable quality, and there to be more than one song. But that has a lot to do with how I live in a city with a competitive nightlife scene and people would just go somewhere else if the music was bad. I have other expectations of nightlife that have been surprised, e.g. that the chef doesn’t come out of the kitchen waving a machete around and then slam it into the table, but I didn’t get all upset and claim that behaviour was not ethical because it upset some implicit agreement (the chef was putting on an act).
And I’m not upset that the Irish pub near work advertises “live music every Friday night” and yet I have never heard it playing classical or jazz, despite how it sets no restrictions on the sort of music that will be played. Presumably you are.
Ray 08.18.05 at 3:32 am
There’s probably not much point in continuing something that’s fallen off the front page, but…
The problem is not one person thinking that an implicit agreement in place, the problem is that the man on the Clapham omnibus thinks an agreement is in place. He thinks (and so do you) that a club will have a reasonable (attempt at a) sound system, that a DJ advertised on a poster will play more than one song, that ‘live music’ doesn’t mean the barman sings a couple of verses of ‘The Wild Rover’ and then plugs in the CD player. There’s a difference between one person’s opinion and a resonable expectation.
The Irish pub near your work doesn’t advertise a broad range of music, and I don’t think its reasonable to expect ‘music’ in that context to mean ‘different types of music’ either. (It doesn’t exclude jazz, but it doesn’t suggest that jazz is included either.)
If I went to a club that had a good sound system, but then the power went out and the system failed, I wouldn’t call that unethical behaviour. If I went to a club where a DJ was advertised, and his flight was cancelled or his records were stolen, I wouldn’t blame the club. And I wouldn’t blame a restaurant if the chef threw a fit one day, even though its not behaviour I’d expect. But if the power went out because the club hadn’t paid its bills, the promoter knew the DJ wouldn’t make it a week in advance and didn’t tell anyone, or the chef went crazy every single night and the owners did nothing about it, I would say their behaviour was unethical.
Again, I think your problem is with the idea of implicit agreements, the idea that customers can have legitiomate expectations of a product that aren’t specified in a contract, and that the courts will recognise and give weight to those expectations. If you think that’s silly thatis up to you, but payola is probably issue 95,763 on the list of things affected.
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