THE RECORD COMPANY EXECUTIVE THING (excerpt)
RS: You signed the Grateful Dead. What's the history of that?
SMITH: At the time I was in any number of jobs. I think I was a singles A&R man, national promotion man. I came up and saw the Grateful Dead one night at an unforgettable evening at the Avalon. I'd never seen anything like that, never seen a light show, people sitting around on the floor and immediately...
RS: Who took you by to see the Dead?
SMITH: Tom Donahue arranged it. I was having dinner with somebody at Ernie's in San Francisco, and I was wearing my blue Bank of America suit. My wife looks pretty nice in her basic black with pearls. Tom told me, "No one will notice over at the Avalon." When I got there I realized it was so - I looked like I was in costume, I guess, like everybody else. Heard the Dead, was really excited, because they were a rock and roll band like those I remembered in my years as a disc jockey, the period that everybody turns to now, Chuck Berry and Fats and Richard, those are the years, I was there when they brought around Elvis Presley and tried to explain that name to me. The Grateful Dead to me was that kind of band, one of the real rock and roll bands, and I loved it.
RS: When was this?
SMITH: It was 1966 - early '66. That night, that was my first meeting with Danny Rifkin and Rock Scully, who were the first of many management teams that have been with the Dead, and I met Jerry and Bob and Phil... After that, I didn't see very much of the band because it was Danny and Rock that I would see, and they were telling me what they could do in San Francisco alone with their records. The band was not known outside San Francisco; they had not played anywhere else.
RS: What did you think of Rock and Danny when you first met - this was your first sort of contact with the new culture?
SMITH: Yeah, it was really my first. I can't tell you what I owe the Grateful Dead personally - professionally and personally - I never tell them what I owe them - and I've said it before: I grew up a lot with them, I grew up learning there was another way to live, there was another way to make records, there was another way to sell records, there was another kind of music, and my real first exposure, after my proper, middle class background in Boston. It was rather a jolt, but never unpleasant - difficult sometimes because Rock and Danny and the guys really were different than anything I'd ever known, and I spent time at the house on Ashbury Street and we discussed producers and so on...they came down and they made their first album, and I never really had that much to do for the band themselves. They were, I think, highly suspicious of me.
RS: You told me once that Rock and Danny always - on negotiating sessions - would say, "You got to come take some LSD with us."
SMITH: They always felt that I should turn on to acid and they always told Tom Donahue that they were gonna get me, in the best way possible. I don't think there was any animosity about them getting me, but they felt I should really turn on with them, and I didn't see the necessity for it myself. I dug their music. Maybe I would've dug it more with acid. I never did do it, anyhow. I don't know if that colored the relationship or not, I think that's incidental.
It was extremely difficult because they made their judgments based on emotion without any sense of pragmatism. There was very little reality and much fantasy involved with the Dead during that period. I kinda get a little disturbed and so does Jerry Garcia at the point an interviewer starts, "How are you getting along with your record company?" They got along pretty fine with their record company; really, there was no trouble until after we did that first album, which was not a good album. Then there was a beef and we recorded all over the United States and mixed and mastered all over the United States, and put out an album that was...and then junked it all and started again.
RS: At a cost of what?
SMITH: At that point around $50-60,000. And then we finally got an album which was again not a good album...it was always my own feeling - I'm not an A&R man and I don't involve myself creatively, certainly with guys like the Dead who are so musical and know what they're doing - but I always felt that they squeezed all the vitality out of those performances by involving themselves with mixing and trying to fill up 16 tracks or 24 tracks or whatever, rather than playing their music and letting people hear it.
So then we got into the next album, and that was really a flash point, because by this time you must understand there had come Ron Racow into the picture, Danny Rifkin had moved out, and then Lenny Hart was involved, and before Lenny Hart, Bill Graham and Brian Rohan were in and out of the picture in management; so that seeing all these managers come about, and the boys themselves getting so screwed up with their own finances and always this SOS call to the record company, "The instruments are gonna be repossessed, we need tax money, we gotta have money," and so forth. We came through with the money every time because I really believed in this group. And then they proceeded to make an album everywhere in the United States of America. And then came the historic day that Brian Rohan and Bill Graham came to my office - they were managing the group at the time, that was before Lenny Hart - and we had spent over $93,000 and did not have an album yet.
I had just received a bill for $22,000 or more from a recording studio here. I really blew at that point and offered to sell them back their tapes and let them go anywhere they wanted to. Let's get out. And Bill Graham - it was the first dealing I had with Bill Graham in business - said, "What will satisfy you to pay this $22,000 bill at the studio?" I said I got to have - 'cause that's now about $120,000 and we're not through yet - I've got to have three albums out of all these tapes. My God, they had 20 miles of tape! They had recorded live, studio, everywhere!
I said if I can get the tapes for three finished LPs, it'll cost me $50,000 apiece but at least I have a chance, and I don't have a chance with one album to earn back $120,000. He went and talked to the boys, he talked to the band, and they did it, by god they did it, they gave me Live Dead, and they gave me one just before that too. Anthem of the Sun, Aoxomoxoa.
From the point of Live Dead we really took off because that was somewhat indicative of the kind of music they played and it was by far the most successful album. Then Lenny Hart got on the scene, Mickey's dad, and he represented the group. Now in the interim you've got to understand all the things that went down: we had kept our plan that the boys - Danny, Rock, Ron, the band - were doing to do a promotion tour with an album, it was gonna cost us $35,000, they were gonna do free concerts across the United States, they were gonna map out the cities, we were gonna provide the funds, the promotional help and so forth, loud speaker systems in parks, all set up, I had allocated that money, I had bought my company on it, I had taken $35,000 on it, and then they never did it. It all fell apart.
Then subsequently with the next album, the plan was the band, the family, everybody involved with the family was going out to promote this themselves. I think there were 12 people supposed to leave. The first day eight did not show. We were waiting at the plane, promotion people were waiting, and that kinda petered out and fizzled. Well, then there was the difficulty with Lenny Hart in which there is some claim that some money disappeared. And in the interim we had to face the decision whether to re-sign the Dead or not re-sign the Dead.
RS: What did the balance sheet on the Dead look like?
SMITH: The Dead - we had made money on the Dead, we had in fact come out, not very much, not very much, the Dead themselves were in a terrible hole, because of recording costs, and those indulgences over a period of time, they were in a negative position. We had not lost money because the Live Dead bailed it all out, the Live Dead was the last album in that first contract.
I had lived through these three years through these changes, I had watched what had happened with this band, I had seen a new certain maturity about their careers, about their lives and things they wanted out of life and about their music - which was always mature, it seemed to me - I'd seen that happen and I knew the Dead may never ever be super sellers, but they represent something in this rock music world and they have from me respect, really that...they have stayed together under circumstances that some of these other groups would have pulled the plug and run for the hills immediately. Always up tight for money, and even now we're in a hassle about renegotiating. They're with us for two more years, but last year we had to re-sign or not re-sign and come up with a good deal of money, and I forced that contract through.
I was not at that point one of the two principals of the company, I still worked for somebody, and I got a great deal of static about re-signing them, 'cause the deal was stiff, I gave them a fair deal, but I knew that our record company, if we do represent something in today's music, could not afford to let the Grateful Dead go, they are too much a part of the...and too much a fact of it, regardless of whether they meant a lot of profit for our company or a minor profit, they're too important for us to let them go somewhere else.
RS: You say you broke even on the Dead. What is the financial structure of making a record?
SMITH: I figure, a record company signs a new group, that they're on the hook $50,000 for openers. The group usually needs some money, you give them $20,000 advance or $25,000, whatever they need for equipment, to live, to get it together, to pay old bills, to be able to allow themselves the luxury of rehearsing without pressures on them and playing gigs...anywhere, new bands you can pay anywhere up to $50,000 if their reputation is sound. And then you've got to make records with them, and nobody makes records for less than $25-30,000. An album by the time you're into it, you've got a cover, you've mastered and mixed it, it's very difficult to count on doing it for less. Occasionally you can but...
RS: A modern five, six piece band...
SMITH: The studio time is so expensive, 16-track, over $100 an hour for the time in the studio, and then you must promote them, you must do some kind of job in presenting them, properly merchandising them and offering them to the public. If you're going to sign a new act, you're in $50,000, and consider that low.
RS: Let's say the retail price of a record is...
SMITH: The listed retail price is $4.98 for a record. We sell it to our distributors - that's the only part we're involved in - the landed price comes down when it's all over to about $2.10 an album. That's what we get, what we sell it to distributors for.
He then sells it to his retail stores, his racks for $2.47, $2.74, the different price structures, whatever the market takes.
[ . . . ]
RS: How much do the royalties account for?
SMITH: Well, the way it breaks down - it's kind of a complicated system. We base the royalties on a retail price, the $4.98 minus what is called a "packaging deduction" in the record business, for the raw record, the pressing of it and the cover, so we pay a royalty percentage on the basis of $4.44.
RS: $4.98 less what is actually costs to manufacture?
SMITH: 50 cents is more than it costs. It doesn't cost 50 cents to manufacture, it costs maybe 30 to 38 cents, but then again $4.98 is not a realistic price...but there had to be some kind of ground rules. I had hoped that we would all get together and make some more realistic appraisal of what royalties we pay...each percentage from our company is 4.4 cents, so if you have a 5 percent royalty deal, you'd be getting about 22 cents per record as an artist. For publishing royalties, you usually pay anywhere from 18 to 24 cents a record, an album, usually 2 cents a selection. That's got to change now too, because you're getting 8 minute selections instead of 12, 6 on a side, so that you're really cheating somebody to pay them 2 cents for an 8 minute selection and 2 cents for a 3. So we are paying royalties, and then we have to pay the manufacturer of the record, and we have to pay American Federation of Musicians 1 1/2 percent. They get 6.6 cents for every record produced in the country . . . On top of that we have to amortize all of our costs. That's not bullshit, we really have to do that, and our profit margin, the profit margin on a record, depending on royalties, is anywhere from 75 cents to $1.00. Well, you don't make profit until such point that you cover that money you put up in the first place.
RS: If you gave an act $25,000 in advance and $25,000 to record the album, how many albums do you have to sell before you start making money?
SMITH: We start making money after we've sold 75-80,000 albums. That gets us off the hook because we're recovering - at 75-80,000 albums we've made, at 75 or 80 cents an album, we've made our $50 or $60,000. Now we're off the hook, but promotional costs are not recoverable, they are out of pocket expenses, the tour, ads in Rolling Stone and Billboard are non-recoverable, non-chargeable, they are the cost of doing business. You would have to sell on an act about 75,000 albums to be even. That's pretty staggering.
RS: And that pays the group back all their advance money?
SMITH: No, the group does not have their advance money back because they are recovering it at a much lesser rate than we are. You see, they are only recovering at 5 or 7 or 8 percent, but they are also recovering in terms of publishing, so a normal act is making no less than 5 percent. Figure they are making 7 percent, which is about 30 cents, 50 cents an album - at 100,000 albums they've paid back all their advance and their recording costs, and from then on they're earning, they're ahead of the game. They're making it at that point.
It used to be, in the old days, making record albums in four days, Frank Sinatra, Dean Martin, Andy Williams, that you didn't charge the artist studio time because the studio time was four days, and now studio time is so prohibitive and you're subject to such indulgences of artists, in addition to those who sincerely need all that time, that the record company would have to be able to recover that or we couldn't exist. When I say at 75,000 you get even, you know how few albums sell 75,000 - 10-15 percent of the albums.
[ . . . ]
RS: The standard royalty these days with a rock group starts somewhere around 7 percent.
SMITH: 5-7 percent and they go up to 10 percent. You see, you have to pay a producer who shares a couple of percent too, depending on who the producer is. Those are standard deals. And artists now are asking less for advances than for good royalties. I think the tolerable limit for any new act is around 10 percent. If you're dealing with the renewal of a contract like for Simon & Garfunkel at this point you may be talking 12 or 13 percent, but what does that matter? You're taking a little bit less profit but there's no risk any more.
[ . . . ]
We're going to have to protect those artists we have in terms of their own investments and future because they are going to drop out by the wayside, they are not going to be as popular. I told Jerry Garcia that he and Delaney Bramlett had worked on every album last year except The Humpbacked Whale.
RS: Do you see a process whereby the talents of an artist are just mined beyond where they can go?
SMITH: It's possible that Delaney and Bonnie spread themselves out over so many projects - God, producing records for people, playing on dates, making their own albums, getting together a road show, playing at benefits, popping up on other people's concerts to play - they became the yentas of the rock world, they were everywhere. Maybe they just didn't take care of enough business to make something for themselves.
[ . . . ]
RS: One can see how the record business has changed with the Grateful Dead coming along, with this sophisticated rock and roll audience. That accounts for sales of the Grateful Dead or the Rolling Stones, say, between 300-600,000, and that's been dominant for the last three years, but now it seems to be slipping. Sales seem to have peaked, unless you can get an AM hit. . . .
SMITH: Yes and no. [ . . . ] That sophisticated audience - we have another artist who's in that bag of the Dead, that I wish would explode more, he's even had AM hits; I'm talking about Van Morrison, a particular favorite of this paper.
RS: What are his sales?
SMITH: Van's in the 250,000 class, 275-300,000 at best. This album is around 280,000, something like that, it continues to sell but there have been two major hit records from it, two AM single records. We're still searching around, that's a big problem.
RS: Would you say it comes down to the fact that he is without sex appeal?
SMITH: It could be. Van doesn't throw off star quality, he's a silent, very private little guy who is an absolute musical masterpiece. I think the sheer weight of his brilliance as a writer - I don't use that word loosely - I'm talking to so many major artists who are looking for Van's songs, and looking to his next album to find things. I think he has an influence, that will do it, he'll go in the back door. He himself will not a star. What he'll represent will be a star, the fact that he is a silent, brooding genius, sitting there throwing off great hits and making great music. He'll explode, he'll explode before the Dead will explode, unless the Dead catch a single record.
But this super-sophisticate audience is growing in numbers, I think it is growing in numbers, I think they will continue to be a very important influence. . . .
(by Jann Wenner, from Rolling Stone, 8 July 1971)