• by Wayne Friedman , July 26, 2005

Music marketing executives say Sony BMG Music Entertainment's illegal music marketing activities have come at a paradoxical moment, when branded entertainment deals are on the rise. Sony will be forced to pay $10 million in fines to New York State for bribing radio stations to play Sony artists' songs.

The agreement by Sony BMG was a result of a civil case brought by New York State Attorney General Eliot Spitzer. A 1960 federal law and related state laws bar record companies from offering financial incentives in exchange for airplay, so-called "payola." Spitzer said that pursuing criminal charges would have been a lot more difficult to prosecute.

Sony BMG said in a statement that some of its employees had engaged in "wrong and improper" practices. Some of the company's artists include Aretha Franklin, Tony Bennett, Beyonce Knowles, and the Dixie Chicks. Music labels don't do much paid advertising. Much of its marketing--almost 90% of its promotion activities--still involve getting songs played on radio stations or producing music videos played on cable music networks. Having an artist's song played is advertising itself, say marketing executives.

But many music marketers, desperate to get songs played, have paid money to radio stations and disc jockeys. In the 1950s and 60s, a host of payola scandals led to the 1960 laws. Spitzer said the current system is more sophisticated, using contests and other marketing incentives to mask and hide payments. The $10 million will be given to not-for-profit entities and for music education programs, Spitzer said.

Marketing executives say Sony's deal--which could spill over to other music labels--is an interesting moment in music marketing, considering the tremendous attention and growth of branded entertainment in all kinds of media.

Isn't what Sony does to get its brands played on radio stations similar to what other consumer marketing brands do--mobile phones, cars, and soft drinks, for example--in paying to get its brands in media such as television and film?

"In a roundabout way, it seems to be," says Leo Kivijarv, vp of PQ Media, a Connecticut-based research company that monitors branded entertainment activities. "But I would need to go to my law books to find out for sure."

One thing is certain: Paid branded entertainment is legal in radio--just not for recorded music. PQ Media said some $22.4 million was paid for branded product placement on radio--up 12.9% versus the year before. Most brands are products or services--restaurants, car dealers, for example--being mentioned by talk show hosts and disc jockeys while they banter on the air.

And while it may be against the law for music labels to pay to get their own brands placed in a particular media such as radio, there is no law against music labels taking money for brands when they want to be associated with artists' songs.

PQ Media says one of the fastest-growing media areas of branded entertainment is songs and music videos--where young-skewing consumer brands, such as cars, mobile phones, and soft drinks, want to be. Kivijarv says branded entertainment in recorded music was $25.5 million in 2004, up 23.4% versus the year before.