NY TIMES McClusky Payola/ Jeff Leeds

The New York Times--------------------
November 3, 2005
Music Promoter to Abandon a Radio Policy He Developed
By JEFF LEEDS

Jeff McClusky, a music entrepreneur who emerged as an influential behind-the-scenes player in the 1990's by devising a technique to curry favor with radio programmers while sidestepping laws against bribery, said this week that he was dumping the business model he pioneered.The move by Mr. McClusky comes three months after the New York attorney general, Eliot Spitzer, stunned the music business with revelations that the nation's second-biggest music corporation, Sony BMG Music Entertainment, bribed radio station personnel and engaged in other improper promotion practices. In a settlement with Mr. Spitzer, Sony BMG agreed to a series of changes - including severing ties to certain independent promoters - and to pay $10 million.Federal law prohibits broadcasters from accepting cash or anything of value in exchange for play of a specific song unless the transaction is disclosed to listeners. But since the late 1980's, the major record companies have used a tactic honed by Mr. McClusky.In the structure he engineered, Mr. McClusky provided "budgets," or annual fees, to radio stations, which could use the money to pay for T-shirts, contests and other promotions - but which were not supposed to be tied to airplay of specific songs. He would then bill record companies for each song added to a station's playlist.Major radio corporations and record labels embraced the system for years. But Mr. McClusky said yesterday that amid radio industry consolidation, shrinking music sales, and most recently, the chilling effect of Mr. Spitzer's inquiry, it was time to switch gears.Mr. McClusky said he notified the 30 stations with which he has deals - down from about 175 five years ago - that he would not renew contracts that call for him to provide them with annual fees. But he said he hoped to persuade them that he and his staff remain a valuable source of information and advice about new music. He also plans to continue working for major record companies - by being paid a flat amount instead of fees tied to radio playlists.Mr. McClusky, who is based in Chicago, added that his most profitable business was providing consulting to clients like music publishers and merchandise companies, who are looking for undiscovered artists, as well as venture capital firms interested in the music industry.All of that reflects a profound change for Mr. McClusky, whose tactics were adopted by about dozen major rivals.Independent promoters began to lose their footing after Congress passed a 1996 telecommunications bill that led to rapid consolidation of the radio industry. Clear Channel Communications, now the nation's largest radio corporation, then went from about 40 stations to about 1,200, and with its new leverage, directed independent promoters to negotiate with executives at corporate headquarters, not with individual station programmers. To many label executives, the move appeared to diminish whatever influence the promoters had in pushing programmers to add songs. (Clear Channel ended its ties with the promoters in 2003).Moreover, as the industry watched its sales decline amid Internet piracy, label executives sharply reduced payments to the promoters, draining their revenue.Mr. Spitzer's investigation appeared to be the nail in the coffin. Mr. Spitzer described Mr. McClusky's business model as "an effort to dodge the payola laws" and a means to "perpetuate the fiction" that stations were not receiving money or gifts from record companies in exchange for airplay.As part of its settlement with Mr. Spitzer, Sony BMG enacted a series of restrictions - including an agreement not to reimburse independent promoters for any expense made for a station or programmer - that effectively destroyed the foundation of Mr. McClusky's system. The other three major record companies - Vivendi Universal, Warner Music Group and EMI Group - remain under investigation by Mr. Spitzer, but are expected to agree to similar limits.Mr. McClusky said the terms still appeared to allow him to work for the companies on retainer. "Whether or not I agree with it, it is what it is," he said, "and I choose to comply because I do not want to interrupt the excellent promotion relationship I've had with Sony BMG labels."

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