Payola in the Radio business has actually been around since the 1920s. The word comes from a merging of the words Pay and Victrola. Victrola was a brand name gramophone product of the Victor Talking Machine Company. A gramophone was an early record player. And since we don't have "records" anymore, for the benefit of those who grew up only with CDs, a record player used a "needle" to amplify recorded grooves in circular plastic that spun underneath it. (Like a CD player only bigger, klunkier, and mechanical instead of sleek and digital.)
As radio stations began to use Victrolas to provide music for transmission, record companies soon realized that getting their songs played on the radio was very helpful in selling sheet music and more recordings. Cash was an easy way to do that and continued to be for a long time.
By the 1950s, some popular DJs were not only given cash and gifts to promote artists and songs but sometimes were even given ownership of a portion or all of a song. Of course, this meant royalties went right into their pockets. As you can imagine, this provided quite an incentive for influential DJs to help to make those recordings popular.
According to www.history-of-rock.com
The first court case involving payola was in 1960. On May 9, Alan Freed was indicted for accepting $2,500 which he claimed was a token of gratitude and did not affect airplay. He paid a small fine and was released. His career faltered and in 1965 he drank himself to death.
Before [DJ] Alan Freed's indictment, payola was not illegal, however, but commercial bribery was. After the trial, the anti-payola statute was passed under which payola became a misdemeanor, penalty by up to $10,000 in fines and one year in prison.
In the 1970s especially, it was prevalent for record reps to use popular drugs like cocaine to ply DJs and decision makers at radio stations in order to get airplay for songs.
Payola has even taken the form of providing prostitutes to radio personalities, Program Directors, and other important station personnel.
More recently it has taken the form of promotional items like Fly Away prizes for contests where the tabs for hotels, airfare, and concert tickets are picked up by the record company so a station can hold a contest for its listeners without putting up the money for the prize.
On July 25 of this year, New York Attorney General Eliot Spitzer announced an agreement to halt pervasive "pay-for-play" in the music industry. Under the agreement, SONY BMG MUSIC ENTERTAINMENT agreed to stop making payments and providing expensive gifts to radio stations and their employees in return for "airplay" for the company's songs.