Payola, or paying DJs to play certain songs, is controversial but was common practice at Sony Music. It aimed to gain airtime to promote songs, but disadvantaged other artists. While it increased sales, it did so unethically by deceiving listeners and limiting exposure for most artists. Sony was accused of payola and settled for $10 million, damaging its reputation. Though legal, payola violates the ethics of equal opportunity and fairness when most benefit is given to only a few paid artists.

1. SONY CASE #2:<br />Co-opting Stakeholders?<br />Sony music implicated in payola scandal<br />QUESTION 1<br />The selection system theory suggests that the value of a product is derived from the recognition of its essential characteristics. This is achieved through a competitive process distinguished via the relationship between the selectors and the selected. Three fundamental selection systems can be identified: market, peer and expert selection. Within the music industry, expert selection comes from professionals such as DJs, by virtue of their skills, knowledge and abilities. In turn, this legitimizes the quality of the product, which subsequently reflects its performance in the market. Therefore, it can be argued that the expert and market selection systems for the music industry are tiered, making it necessary for producers to gain expert selection before moving on to the market stage (Wijnberg & Gemser 2000).<br />Payola involves providing expert selectors (DJs) with material and financial incentives, inducing them to “pre-select” music to play on air. This is done with the intention of attaining broadcasting airtime in the belief that repetition would lead to commercial sales and acknowledgement by the market. Hence, the logic behind payola is to ensure expert, and subsequently market selection, in order to realize substantial economic benefits (Quintane & Mol 2007).<br />The dominant selectors within the music industry can be identified as the persons making decisions about which records to be broadcast by the media. Close relationships with these individuals allow producers to align with radio and TV networks, in a bid to enhance their influence on the competitive process. DJs are effective as primary expert selectors because they provide the audience with a sense of authenticity regarding their music. It has been suggested that this process plays an important role in laying the foundations of the listener’s self-image, both as individuals, and as part of a larger social group (Mol & Wijnberg, 2007). These strong associations with the music aired then transcend into highly profitable increases in album sales. Due to this, it is evident that engaging targeted groups of selectors, or even attacking other groups of selectors allied with competitors, will give the company an edge in the competitive market (Mol & Wijnberg 2007).<br />QUESTION 2<br />Different groups of Sony stakeholders had various reasons for their discontent over the payola scandal. Shareholders, who are induced to invest in companies on the basis that they will receive a return on their investment in the form of increasing share prices and dividends, watched Sony spend $10 million on the payola settlement, rather than on creating shareholder value (Jones 2010). Furthermore, in the three days following the settlement, Sony’s share prices dropped 6.71%, although they later recovered (Wikinvest 2010). Managers may also have been displeased because the revelation of their malpractice was likely to put them at risk of losing their positions and the related power and status. Employees would also have been concerned that the unethical behaviour of their employer clashed with their morals and may also reduce their ability to find positions in other organisations (Jones 2010; Cialdini 2004). In the opinion of customers, the practice of payola distorted the true value of the product. According to the value selection theory, consumers resort to the selectors to determine the value of products (Wijnberg & Gemser 2000). Therefore, it is likely that listeners would be displeased, upon realizing that they had deceived by trusting a bribed DJ, or a falsified expert selector, to determine the value of their recommended music.<br />Sony had further incentive to settle the lawsuit quickly, since at this time Sony was pursuing a lawsuit against Kazaa on the grounds that Kazaa was distributed “with the object of promoting its use to infringe copyright” (Zeller 2005). Being exposed in the payola scandal had the potential to affect the outcome of the file-sharing trail (Quintane & Mol 2007). Therefore Sony was eager settle the case in order to recover its reputation in the industry and with consumers as quickly as possible and avoid any adverse impact on its case against Kazaa. It did this through firing or disciplining top executives, agreeing to stricter policies regarding radio promotion of its artists, and through paying the $10 million fine (Leeds & Story 2005). But $10 million was a small price to pay to have the incident out of the media sooner, as the adage goes ''a bad settlement is better than a good trial,'' which is especially true where company reputations are at stake (Cummings 1987). <br />QUESTION 3<br />Payola, or ‘pay-for-play’ (Kosar 2008) is the playing of specific music by DJs at radio stations in exchange for some form of incentive or payment. In 2005, record label Sony Music disputed with Attorney General Elliot Spitzer in a $10 million settlement regarding Payola (Quintane & Mol 2007). In review of its ethics, whilst Payola does not breach moral rights directly, it certainly has implementations from the utilitarian and justice perspectives.<br />Moral rights refer to the legal rights of recording artists where their work cannot be transferred, assigned or sold without permission (Moral & Copyright 2010). Payola does not breach this right directly as all music aired on radio are announced by their title and artist name. Indirectly however, individual artist’s integrity rights (Moral Rights 2006) are violated as Sony’s unauthorized decision to bribe DJs without the artist’s knowledge may result in negative effects on the artist’s image or reputation. <br />The utilitarian viewpoint focuses on producing the greatest good for the greatest number of people (Saha & Kulkarni 2011). Payola breaches this as by ‘generating [more] commercial sales’ for one artist, it reduces it for another or others. Therefore only the selected artists paid for by record label companies such as Sony Music benefit from Payola. However, due to the substantial commercial benefits Payola has on the market; it can be argued that this transaction potentially favours all parties. <br />The justice model focuses on ensuring equal distribution of costs and benefits amongst individuals and groups across society (Kosar 2008). As it is of ‘crucial importance’ to get airtime and repetition, Payola limits other artist’s exposure to get recognition, thereby negatively affecting their careers. Payola is also unbeneficial for the DJ as seen in the example of Alan Freed and Dick Clark, incarceration may result from being arrested. <br />Whilst Payola may appear to be harmless on the surface, delving into the complexities of the ethics provide a detailed insight into the bribery act. It is evident through the moral rights and utilitarian models, a small group will benefit from the practice of Payola. However, its consequences of unethical misconduct are unfavourable to the majority of society.<br />References<br />Cialdini, R 2004, ‘The Hidden Costs of Organizational Dishonesty’, Management Review Spring, vol. 45, no. 3, pp. 67-73.<br />Cummings, N 1987, ‘The Law; Settling Out of Court: Gamble or Skill?’, The New York Times, December 4<br />Jones, G 2010, Organizational theory, design and change, 6th ed., Pearson Prentice Hall, New Jersey.<br />Kosar, D 2008, ‘Payola-can-pay-for-play be practically enforced?’, Kosar Publication, no. 23, p. 211-249.<br />Leeds, J & Story, L 2005, ‘Radio Payoffs Are Described as Sony Settles’, The New York Times, July 26 <br />Mol, J. & Wijnberg, N. 2007. Competition, selection and Rock and Roll: the <br />economics of payola and authenticity. Journal of Economic Issues. Viewed 22 March 2011. <http://findarticles.com/p/articles/mi_qa5437/is_3_41/ai_n29375887/pg_10/?tag=content;col1><br />Moral rights 2011, Australian Copyright Council, viewed 22 March 2011, <http://www.copyright.org.au/admin/cms-acc1/_images/4441121314d00133cba5b6.pdf ><br />Music & Copyright 2010, Australian Copyright Council, viewed 22 March 2011, <http://www.copyright.org.au/admin/cms-acc1/_images/11961644624ce9fe69be8e0.pdf>.<br />Quintane, E. & Mol, J. 2007. Co-opting Stakeholders? Sony Music implicated in <br />payola scandal. University of Melbourne.<br />Saha, L & Kulkarni, V 2011, ’Ethican issues in management research’, Indian Journal of Commerce & Management Studies, no. 2, p. 1-8.<br />Wijnberg, N. & Gemser, G. 2000. Adding Value to Innovation: Impressionism and <br />the Transformation of the Selection System in Visual Arts, Organization Science, 11: 323-329.<br />Wikinvest, 2010, Wikinvest, viewed 23 March 2011, <http://www.wikinvest.com/stock/Sony_%28SNE%29/WikiChart>.<br />Zeller, T 2005, ‘Sharing Culture Likely to Pause but Not Wither’, The New York Times, June 28.<br />