The Consequences of “Consideration Payments”: Lessons from Radio Payola

The prohibition of radio payola in 1960 gives us an opportunity to examine the effect that “consideration payments” had on the record labels that used them and on overall product variety. Using a historical Billboard chart data, we find that the prohibition of payola reduced musical variety and overall record sales, but may have helped increase access for smaller record labels. These findings support the theory that payola payments, which may impose a non-trivial financial burden on the record label, serve to reduce the radio station’s risk.