Payola, in the American music industry, is the illegal practice of payment or other inducement by record companies for the broadcast of recordings on music radio in which the song is presented as being part of the normal day's broadcast. Under U.S. law, 47 U.S.C. § 317, a radio station can play a specific song in exchange for money, but this must be disclosed on the air as being sponsored airtime, and that play of the song should not be counted as a "regular airplay".
The term has come to refer to any secret payment made to cast a product in a favorable light (such as obtaining positive reviews).
Some radio stations report spins of the newest and most popular songs to industry publications. The number of times the songs are played can influence the perceived popularity of a song.
The term payola is likely a portmanteau, of the words “pay” and either Pianola (a once-common name for player pianos), or “Victrola”, trade name of the widely known early phonographs made by RCA Victor. Payola has come to mean the payment of a bribe in commerce and in law to say or do a certain thing against the rules of law, but more specifically a commercial bribe. The FCC defines "payola" as a violation of the sponsorship identification rule that in 2005-06 resulted in tens of millions of dollars in fines to cable corporations in New York.
"Payola, in one form or another, is as old as the music business." In earlier eras there was not much public scrutiny of the reasons songs became hits. The ad agencies which had labored for NBC radio & TV show Your Hit Parade for 20 years refused to reveal the specific methods that were used to determine top hits, only stating generally that they were based on "readings of radio requests, sheet music sales, dance-hall favorites and jukebox tabulations". Attempts to create a code to stop payola were met with lukewarm appreciation by publishers.
Prosecution for payola in the 1950s was in part a reaction of the traditional music establishment against newcomers. Hit radio was a threat to the wages of song-pluggers. Radio hits also threatened old revenue streams; for example, by the middle of the 1940s, three-quarters of the records produced in the USA went into jukeboxes.Still, in the 1950s, independent record companies or music publishers frequently used payola to promote rock and roll on American radio; it promoted cultural diversity and disc jockeys were less inclined to indulge their own personal and racial biases. 
Alan Freed, a disc jockey and early supporter of rock and roll (and also widely credited for actually coining the term), had his career and reputation greatly harmed by a payola scandal. Dick Clark's early career was nearly derailed by a payola scandal, but he avoided trouble by selling his stake in a record company and cooperating with authorities. Attempts were made to link all payola with rock and roll music.
The amount of money involved is largely unpublished; however, one deejay, Phil Lind of WAIT (AM) in Chicago, disclosed in Congressional hearings that he had taken $22,000 to play a record.
Payola to DJs is less of a concern today, as they are rarely involved in choosing the songs. Modern radio is widely based on company-delivered playlists, often scheduling every song, commercial break, and DJ talk time, and most shows are pre-recorded well in advance of their broadcast.
A different form of payola has been used by the record industry through the loophole of being able to pay a third party or independent record promoters ("indies"; not to be confused with independent record labels), who will then go and "promote" those songs to radio stations. Offering the radio stations "promotion payments," the independents get the songs that their clients, record companies, want on the playlists of radio stations around the country.
This newer type of payola was an attempt to sidestep FCC regulations. Since the independent intermediaries were the ones actually paying the stations, it was thought that their inducements did not fall under the "payola" rules, so a radio station need not report them as paid promotions.
Former New York State Attorney General Eliot Spitzer prosecuted payola-related crimes in his jurisdiction. His office settled out of court with Sony BMG Music Entertainment in July 2005, Warner Music Group in November 2005 and Universal Music Group in May 2006. The three conglomerates agreed to pay $10 million, $5 million, and $12 million respectively to New York State non-profit organizations that will fund music education and appreciation programs. EMI remains under investigation.
Concern about contemporary forms of payola prompted an investigation during which the FCC established firmly that the "loophole" was still a violation of the law. In 2007, four companies (CBS Radio, Citadel, Clear Channel, and Entercom) settled on paying $12.5 million in fines and accepting tougher restrictions than the legal requirements for three years, although no company admitted any wrongdoing. Because of the increased legal scrutiny, some larger radio companies (including industry giant Clear Channel) now flatly refuse to have any contact with independent promoters.