updated 4/13/2007 4:34:07 PM ET 2007-04-13T20:34:07

Federal regulators Friday announced an unprecedented settlement with four radio broadcast companies on charges of accepting cash and merchandise from record companies in exchange for airplay.

The four broadcasters will pay a $12.5 million fine and agree that their 1,653 stations won’t engage in “payola” practices, according to a consent decree with the Federal Communications Commission.

The radio companies involved— Clear Channel Communications Inc., CBS Radio, Entercom Communications Corp. and Citadel Broadcasting Corp. — represent four of the nation’s six largest radio station owners. They admit to no wrongdoing under the three-year settlement.

A separate agreement was negotiated by the American Association of Independent Music and the radio groups. In that deal, the broadcasters agreed to provide 8,400 half-hour segments of free airtime for independent record labels and local artists.

The free airtime, between 6 a.m. and midnight, would be granted to companies not owned or controlled by the nation’s four dominant music labels — Sony BMG Music Entertainment, Warner Music Group, Universal Music Group and EMI Group. CBS will provide 800 hours, Citadel 1,300, Clear Channel 1,600, and Entercom 500, according to a list obtained by The Associated Press.

“Payola hurts musicians, the radio industry and the free flow of creative talent because music is chosen on the basis of who can pay the most — not who sounds the best,” said FCC Commissioner Jonathan Adelstein, who has been largely credited with pushing the two-year investigation. “While this settlement is not a panacea to all payola woes, it requires the implementation of certain meaningful reform measures that should change corporate practices and behavior.”

But Paul Porter, co-founder of media watchdog group Industry Ears, says the agreement does not go nearly far enough.

“You’re basically talking about a fine and a fine doesn’t stop payola,” Porter said, adding that the broadcasters did not have to admit guilt and that he expects radio playlists to remain virtually unchanged. “Twelve million dollars is nothing for the big four companies.”

CBS Radio and Entercom issued separate statements saying they were pleased to settle with the FCC and would continue to comply with sponsorship identification rules. CBS said many of the business practices detailed in the consent decree mirror those adopted as part of the company’s previous settlement with former New York Attorney General Eliot Spitzer.

Representatives from Clear Channel and Citadel did not return calls for comment.

Peter Gordon, founder of Thirsty Ear Recordings in Norwalk, Conn., led the separate negotiations on behalf of the independents and said the “real time commitment” from broadcasters will give local artists a chance to get some airplay at hours normally dominated by songs from major labels.

“We want to create the cycle and then grow it,” Gordon said. “This is the beginning, not the end. It’s a tangible plan to get traction in the market.”

But Porter said that deal is too broad and unenforceable. “There’s no checks and balances,” he said.

Gordon acknowledged that the broadcasters’ participation is voluntary and said there is no set date by which they must provide airtime for independent or local artists.

The consent decree is the second-largest penalty ever assessed by the FCC, trailing only a $24 million settlement reached with Univision Communications Inc. regarding children’s television obligations.

Breaking down the fine, Entercom pays $4 million, Clear Channel owes $3.5 million, Citadel was fined $2 million, and CBS will pay $3 million.

Payola has been around as long as the radio industry and was made illegal after scandals in the late 1950s, but it can be difficult to prove.

In recent years, independent record promoters have acted as middlemen to deliver payments to radio stations in exchange for airplay. Other forms of inducement include lavish prizes meant for listeners that wind up going to station employees, promises by record companies of concerts by well-known artists in exchange for airplay, and payments for promotional expenses and station equipment.

And pay-for-play investigations have been uncommon in recent years at the FCC. The last time the agency took action was March 2000 when Clear Channel-owned stations KHKS-FM in Denton, Texas, and WKQI-FM in Detroit, Mich., were fined $4,000 each.

Most recent payola headlines have been generated by Spitzer, now New York’s governor, who has criticized the FCC’s inaction. He brokered settlements with the four major record labels totaling $30.1 million, as well as with two broadcasters, CBS and Entercom, for another $6.25 million.

Sen. Russ Feingold, D-Wis., who has sponsored legislation designed to help independent artists and radio stations compete against corporate counterparts, urged the FCC to seek action against other radio station licensees identified in Spitzer’s investigation.

Adelstein said more actions are planned. “Today’s agreement is just the first wave of this investigation, more waves are coming,” he said.

Federal law and FCC rules require broadcasters to inform listeners if a station is being paid to play a song. The FCC can fine licensees, but criminal investigations are conducted by the Department of Justice.

Under the terms of this settlement, broadcasters agree to closer scrutiny in dealings with record companies, including limits on gifts, a promise to keep a database of all items worth more than $25 supplied by those companies, the employment of independent compliance officers to make sure stations follow the rules and a new “payola hot line” for employees to report infractions.

Under the separate agreement with the independent music group, a set of “rules of engagement” are aimed at requiring equal access to radio music programmers for all record companies as well as transparency in their dealings, Gordon said.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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