Scott and Matt don't have a problem with payola. I do. Here's why...
Payola deceives consumers and hurts recording artists. Payola is an explicit quid pro quo in which a record agent compensates a DJ for playing a specific song. Unlike other kinds of promotions, payola is covert and "contractual." Payola is distinct from other perks and promotions designed to instill a more nebulous sense of obligation (aka "good will").
Not all pay-for-play is payola. The FCC payola and sponsorship identification rules allow pay-for-play, as long as the paid material is identified as such:
Thus, for example, if record companies or their agents pay broadcasters to play records on the air, those payments are legitimate if the required sponsorship identification message is aired. If it is not aired as required by the Communications Act and the Commission's rules, the broadcast station will be subject to enforcement action.
If the Juice Tiger buys airtime for an infomercial, it shows up in your TV listings as "paid programming." If Sony wants to run a Celine Dion radio infomerical, the FCC won't stop them, as long as they disclose the sponsorship to the audience.
Slate's Daniel Gross doesn't think payola is a big deal because it doesn't really undermine consumer choice. He argues that if you don't like what your station is playing, you can change the channel. He also notes that radio isn't the all-powerful gatekeeper it once was. Today's consumers have a variety of sources of music and a variety of media to store and play it.
Nevertheless, payola undermines consumer choice. Consumer choice isn't just the ability to listen to a station whose programming you tend to like. Consumers should also be able to make an informed choice about the different services offered in the radio market.
The station that runs on payola is offering a fundamentally different service than a station whose DJs have creative control. An independent DJ is offering her expertise and aesthetic judgment. It's her job to listen to way more music than I'll ever hear and to choose the good stuff.
As a consumer, I want independence from my DJ. In a payola system, I can't choose to listen to independent radio because I have no way of knowing who's taking which bribes from whom.
Payola also hurts recording artists by distorting royalties. Sweeps week is one particularly egregious example. Royalties are supposed to be a function of total airplay. But it's too cumbersome to record each play individually. So, sweeps weeks are used as estimates. The record companies often bribe DJs to overplay certain artists during sweeps week. That's just plain stealing from artists who got more play during the rest of the year than they did during sweeps.
Payola was considered scandalous in the 1950s because consumers wanted the DJ's taste and expertise. A lot of people say that they know about payola and don't care, but if they're really as jaded as they let on, why do the record companies prefer to operate in secret? Sony just lost 10 million on secret deals that could have been legal if they'd put appropriate disclaimers on the paid material. Why take that risk? Because labels and stations know that consumers don't like being force-fed.