Phil Chess, co-founder of Chess Records, died recently. The New York Times obituary author took a swipe at Chess’ ethics: Chess persuaded radio stations, “not infrequently with the help of cash payments to play their records (October 20, 2016, A23).” Payola provides an example contrasting the public’s sense of business ethics with an economist’s analysis.
The idea of independent record labels, such as Chess, paying disc jockeys to play their label’s artists songs scandalized the nation during the 1950s. Commentators wrung their hands over America’s “loss of innocence,” but the decade was notorious for Americans losing their innocence with rigged game shows and U-2 (the spy plane, not Bono). Our great-grandparents seemed remarkably careless handling America’s innocence.
Phil Chess and his brother, Leonard, were Jewish immigrants, who recorded and marketed such seminal performers as Muddy Waters, Little Walter, Howling Wolf, and Chuck Berry. The 1950s were anything but staid, and the Chess Brothers and other independents shook up the music world. Prior to rock’n’roll, number one hit songs in America included Johnny Ray’s “Cry” and Patti Page’s “How Much Is that Doggie (In the Window)?” Most African-American performers were relegated to low-power radio stations, and few crossed racial lines. Rock, of course, outraged many (mostly white) Americans. The foes of rock wondered how such “filth” could displace the likes of Doris Day (“Que Sera, Sera”), or Perry Como. There had to be something fishy going on.
Payola was a longstanding practice in the music industry; music publishers paid music hall performers to sing their songs. In order to get their music played on the radio, smaller labels paid disc jockeys to play their music. At first, the practice elicited yawns, with one U.S. Senator comparing the practice to paying a headwaiter to get a good table. When the game show scandal erupted (sponsors and producers of the show gave favored participants the answers in advance; the lucky participants agreed to appear stumped for dramatic purposes before responding with the correct answer), someone recalled that chicanery was occurring in the music industry. Now the rock’n’roll-hating population had their conspiracy: Rock was only popular because of bribery.
Legislators jostled each other to express outrage, with one representative claiming, “these practices constitute unfair competition with honest businessmen who refuse to engage in them. They tend to drive out of business small firms who lack the means to survive this unfair competition.”
Nobel-Prize Winner in Economics, Ronald Coase analyzed the payola scandal and concluded differently. Banning payola benefited the established labels, who could afford nationwide marketing departments. By banning payola, the big music companies could stymie new entrants into the industry. Without payola, Sun Records with Elvis and Chess with Chuck Berry might have been marginalized to regional markets in the South, and the world kept safe from rock’n’roll.
Coase noted that the radio stations were not injured; payola meant that more people would want to be disc jockeys, thereby suppressing disc jockeys’ salaries (which would be more than offset by payola). Disc jockeys would carefully consider whether the payola was worth the potential diminution in their popularity; if the disc jockeys accepted money to play dreck, their ratings would fall. The disc jockeys were, in essence, “experts,” who considered what music would please their fans. If playing an Elvis record proved popular, the disc jockey gained popularity and cash on the side.
The fans who liked rock’n’roll benefited by the independent record companies’ innovation and the disc jockey’s willingness to introduce new performers and genres. Fans who disliked rock still had radio stations playing their kind of music.
The biggest losers from payola were the established recording companies, who lost market shares. The representative’s plaint about payola driving out small businesses was wrong.
Alan Freed was one of the biggest disc jockey busted in the ensuing scandal. Freed certainly did some rather unsavory things, such as claim co-authorship of songs. He was convicted of commercial bribery, but as Coase points out, the bribery charge was ambiguous. The radio stations almost certainly knew of the payola, and such payments were not necessarily contrary to the radio stations’ interest. Freed’s touting of rock’n’roll proved popular and presumably profitable. The disc jockeys might have openly stated they were receiving payola, just as today’s game and talk shows acknowledge “donated” goods and services.
American would move on to greater scandals in the future. Chess and the other independent record company owners are almost all dead. Their innovation and willingness to take risks (yes, in the hopes of making money) altered American’s cultural tastes. All hail rock’n’roll!
The views and opinions expressed are those of the author and do not imply endorsement by the University of Northern Iowa.