FCC investigates iHeart for Payola. Is Spotify next?

As the FCC investigates iHeart for payola, Chris Castle asks if Spotify will be next over playlist practices and fair compensation.

FCC investigates iHeart for Payola. Is Spotify next?

Op-ed by CHRIS CASTLE via Music Tech Policy

According to Thania Garcia writing in Variety:

The Federal Communications Commission has warned radio station owners that it is cracking down on what it describes as “payola” practices. 

In a letter sent Monday to iHeartMedia CEO Robert Pittman, FCC chairman Brendan Carr says the FCC is scrutinizing the company’s activity particularly around the live music events it hosts throughout the year. Specifically, the FCC is pressing iHeart on whether it improperly pressures artists to perform without payment at events such as the upcoming iHeartCountry Music Festival on May 3 in Austin, Texas.

FCC Chairman Carr raises this exact point in his “Notice of Apparent Liability” letter on February 24 to iHeart which followed up on an FCC Enforcement Advisory issued against iHeart on February 6. A little tip for our pals in monopoly radio who use their access to both the airwaves and simulcasts online to extract free stuff from artists rather than pay them–when you get these love notes from Chairman Carr, he intends for them to be responded to.

FCC Enforcement Notice on iHeart NoticeDownload

What Payola is and Isn’t

Let’s understand what “payola” is for a radio station as compared to Spotify’s payola based business practice. Payola refers to the illegal practice of paying a commercial radio station to play a song without disclosing the payment to the public. That’s right, the same commercial radio stations that also stiff artists on performance royalties–not only do they not pay us, they want us to pay them. (See also Hitmen for those reading along at home.)

This practice is considered unlawful because it undermines the integrity of the broadcast industry and misleads the audience about the popularity and quality of the promoted content.  Also known as the “Sponsorship Identification Rules,” the Federal Communications Commission (FCC) treats payola as a violation of the Sponsorship Identification Rules which require any broadcast of paid material to include a disclosure. You’ll see this sometimes in the “promotional consideration” announcements at the end of game shows, for example.

Payola occurs when a person or entity fails to disclose that they provided or promised to provide money, services, or other consideration in exchange for the inclusion of program matter in a broadcast before the broadcast occurs. Also called the “$50 handshake.”

Under Section 508 of the Communications Act of 1934, both the individual or entity providing the money, services, or other consideration and the recipient must make this disclosure so that the station can disclose the payment to its listeners or viewers when the matter is broadcast. These exchanges are rarely that clear cut–when the station comes to the artist (or more often the label) and engages in the payola shakedown, it’s more Frank Nitti style and you “get the idea.”

So here’s the punchline: failure to disclose such payment or provision of services is punishable by a fine of no more than $10,000 or a term of imprisonment of no more than one year, or both.

iHeart’s Problem

Chairman Carr is very specific about his inquiry which evidently was prompted by iHeart’s failure to respond to the Enforcement Advisory:

Specifically, it has come to my attention that the iHeartCountry Festival ’25 will be held in Austin, Texas, on May 3, 2025 (the Festival). As iHeart finalizes its approach to this particular music festival, I want to ensure that it does so in a way that complies with federal payola requirements.

It would be particularly concerning to me if, on the heels of the FCC’s Enforcement Advisory, iHeart is proceeding in a manner that does not comply with federal “payola” requirements. Indeed, I want to know whether iHeart is effectively and secretly forcing musicians to choose between, one, receiving their usual, ordinary, and full scale compensation for performing or, two, receiving less favorable airplay on iHeart radio stations. 

This upcoming iHeart event provides the Commission with a real-world example of how such events are put together—including artist solicitation and compensation—and the procedures that are in place to ensure compliance with the relevant statutes and regulations regarding sponsorship identification and to ensure that the concerns raised in the Enforcement Advisory are being appropriately addressed.

FCC Letter on iHeart PayolaDownload

It must be said that in an environment where money’s too tight to mention, it’s likely that the artists are covering their expenses to play iHeart’s festival by getting tour support from their labels particularly given the start-studded lineup. So iHeart’s one potentially criminal act drags down a lot of people who want the airplay and there’s only one way to get it. 

Do the Sponsorship Identification Rules Apply to Spotify?

We’ve raised the payola issue with Spotify many times (and actually starting with steering agreements before that with Pandora. Liz Pelly raised many of the same issues in her book on Spotify’s business practices with playlists. As Ms. Pelly demonstrates, not only have those practices not fallen away, they have become far more refined than a mere $50 handshake. 

“Steering agreements” have been in effect for many years and still are as far as I know. These deals, like Discovery Mode, pay less the more times a track is played by Pandora or iHeart. The terms apply to certain agreements only, so Pandora and iHeart know which tracks costs them less. Sirius and Music Choice have tried similar shenanigans. 

Is Spotify demanding payola for playlists or are steering agreements payola? I think so, although you’d need to use the term “payola” in a more general sense of “commercial bribery.” As the erudite David Oxenford noted a few years ago about Internet radio but could also have been speaking of Spotify:

The payola statute, 47 USC Section 508 [the one at issue with iHeart], applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves)…But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried [aka “Moondog” and Rock and Roll Hall of Fame Inductee] in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.

Moondog’s Revenge

Unfortunately, the FCC does not have jurisdiction under the Communications Act to regulate Spotify and those steering agreements. After a Close Encounter with Gigi Sohn, it is unlikely that this Congress is going to expand the jurisdiction of the FCC. 

However, it seems like Chairman Carr is in the mood to make some law here, and it might be a good time for the Senate Committee on Commerce, Science, and Transportation in the form of Senator Ted Cruz to open an investigation into Spotify’s payola practices right next to iHeart.