Ever since Clear Channel pledged to sever its connections with independent promoters, the world of music promotion has been exposed for all to view and judge.
What the public doesn't realize is that, according to some, much of the music we hear on prominent rock and Top 40 radio stations is played because independent promoters pay the stations to add it to their playlists. Because it is illegal for record companies to directly pay radio stations to play their music -- or for radio stations to play music someone paying them to play, at least without disclosing on the air that the time is paid for -- they bring in a middleman, the independent promoter, or "indie." This is reportedly how it works:
An indie approaches a radio station manager or group owner about becoming their exclusive representative. In exchange, the indie will pay the station an annual payment of $75,000 to $100,000 per year (for medium-sized markets) for "promotional support." This means the indie gives the station money, vacations, or gifts in other forms (often gift cards or American Express money cards) that they can use for their promotions, or for whatever use they choose. Because the "gifts" are to be used for promotions, the pay-for-play is side-stepped. The station's part of the deal is to add songs the indie recommends to their playlists. These are called "adds" in the business. Most stations have an average of three adds each week.
The indie then contacts record companies to tell them he has this agreement with the station. He charges the record company a fee (usually around $1,000) every time the station adds one of the label's songs to its playlist. For most singles, the record companies are paying in the neighborhood of $100,000 to $250,000 to indies. According to some, if they don't, the songs won't get played. In addition, there are "spin maintenance" charges to keep the song on the list. To avoid legal problems, indies have their lawyers examine their records to make sure the transactions are still on the legal side of the line. The real problems come in when, rather than using the money or "gifts" for promotions such as vacation giveaways for listeners, the program directors or other station staff pocket the money themselves.
Since part of the 1996 Telecommunications Act increased the number of radio stations an individual company could own in a single market and eliminated the cap on the number of stations it could own nationally, there has been a huge run by large corporations to buy up as many radio stations as possible. Rather than having more than 5,000 radio station owners in the country, four companies now own 62% of the Top 40 radio market. In addition, the vertical market has been affected. These same large corporations, such as Clear Channel, own not only the radio stations, but concert venues as well. This puts into the hands of a few large players much of the control over what music makes the Top 40 and what we, as the listening public, get to hear. Centralized decision making regarding playlists is typical. Disk jockeys and station managers may not have the control they used to have over what gets played and what doesn't. Small record companies who can't afford to pay the indies have an extremely hard time getting their music on the air.
While many stations deny that indies have this control over what they play, others, like Radio One, which owns 65 radio stations across the country, admit accepting money from indies. After all, it isn't illegal, and it's another revenue stream for them.
See the Joint Statement on Current Issues in Radio (PDF) for more information.
By the way, those charges for independent promotion come out of the artists royalties -- not the record company's profits.