Primary Wave Music’s CEO Larry Mestel Visits WPU
Larry Mestel, president of Primary Wave Music, visited William Paterson University’s 2018 Music Management Seminar Series on April 3, 2018. Here are the great notes.
After college, Larry worked at an accounting firm, Ernst & Young, for three year. In 1989, Larry started at Island Records. He was helping PolyGram buy Island. Larry met Island’s then-owner, Chris Blackwell. Larry was Chris’s right-hand man for 11 years. In 2000, when Clive Davis was let go of Arista Records, Larry and LA Reid went in to run Arista. He left because he was spending too much time in the non-music parts of Chris’s businesses.
Arista at the time had Outkast and Santana and Dido and Whitney Houston, so he felt he had to leave Island. Was at Arista for 4 years and “then I made a huge mistake.” He left Arista and went to run Virgin Records in 2004. When he signed a contract to go to Virgin, it took him four months to start because his Arista contract had to end. By the time he got to Virgin, Janet Jackson was the label’s biggest artist. She had recently been banned from MTV because of her wardrobe malfunction. The Stones left. Lenny Kravitz went cold. It was a dead label.
And the business was suddenly dying.
In 2006, he started Primary Wave. The reason was “very simple.” Front-line big labels were only interested in breaking new and developing artists. “Nobody really cared about the icons and the legends, like Def Leppard, like Aerosmith, like Nirvana.” The majors had large staffs working the new artists/songs, but very few working the catalog. He decided to start a publishing business focusing on icons and legends.
He raised about $60 million in a week when he started the company. He was lucky. Courtney Love needed to sell half of the Kurt Cobain publishing catalog. Larry knew the lawyer working the deal. He was able to buy the catalog. He brought over people he knew from Island, Virgin and Arista. “By the way, I had no idea what the music publishing business was when I started a music publishing company.” He didn’t understand synch fees, for example.
Most publishers brag about how much money they collect. In Larry’s opinion, music publishers “historically add very little value to the creative process.” He wanted to change the paradigm. Rather than just answer the phone, he wanted to make the calls and be proactive. “I’m administration agnostic.” He has non-exclusive deals with labels to collect for them all around the world.
They have a 12-person digital team. They’re doing e-commerce, social media. They’re pitching the DSPs and playlists. They have brand people pitching Converse. They have marketing people, like a label. They run the company like a record company, like a marketing and branding company. They focus on putting the music in commercials, movies, television shows. They let others do the collecting for them.
For the Kurt Cobain catalog, they felt they had to show artists that they were different. “One of the first things we did when we bout the Kurt Cobain catalog, we thought, ‘Here’s a legend.'” They didn’t want to blow the value by licensing him to fast food restaurants. They saw that Cobain only wore Converse sneakers. They went to Converse and pitched a Kurt Cobain sneaker. But, Primary Wave, to make money from their rights, put the lyrics on the Sneakers so that they didn’t give away business to Courtney Love, who owns name & likeness.
The sneakers made a royalty for each sale for Primary Wave and became a great sales story for them to pitch other artists, like Aerosmith.
One of their brand guys pitched an idea. For “Dream On,” they thought about a lottery connection. The guy called up a company called G-Tech, which owns about 50% of the world’s lotteries (scratch off games, etc.). “We pitched G-Tech on a concept. We had storyboards printed up. We had mock scratch off cards printed up.” They pitch a Massachusetts lottery, because of where Aerosmith is from. The company said, “You’re thinking too small.” They wanted this to be a national promotion. The game was called “Dream On” and there were music phrases under each scratch off. They made a royalty from every sale. They got a synch from using the song in TV commercials promoting the game. The received performance income from the TV commercials.
With Smokey Robinson, whom they recently signed, they asked what Smokey’s company had done for him over the past 30 years. Smokey said, “They’ve collected for me.” Primary Wave said, “We’re going to market for you. We’re going to create a holiday for you.” They bought the catalog. “First thing we did, we set out to create a holiday for Smokey Robinson.” They pitched Hallmark and American Greetings a holiday on the second Sunday of every Rocktober. Father/Daughter Day. American Greetings took the deal. In 2018, the greeting cards will play Smokey’s “My Girl.” The commercials around the card play “My Girl.” They make a royalty on every card and a synch from every commercial.
When they bought the Cobain catalog 12 years ago, people were still buying CDs. “Heart Shape Box” was a big song. The company made a box in the shape of a heart, made 500 of them, and filled them with CDs. When the box opened, the song would play. They sent the numbered boxes to creative agencies, movie producers, music supervisors, TV directors/editors…
For Aerosmith, they wrapped a harmonica box with a scarf. When you opened the box, you got a harmonica and all of the Aerosmith CDs. The box played “Dream On.” They made 1,000 and sent them to a similar list to the Cobain box.
They want to acquire as many iconic song catalogs as possible. If they were to ever sell their current catalog, it would be because they felt they had done all they could and maximized every opportunity.
There are more deals available now because the iconic artists are older and are more interested in protecting their family estate planning, tax laws, and the estate in Hawaii. They like to team up with the artist. Because they’re a marketing company, it’s better to partner with an artist and only buy 50-75% of an artist’s catalog. “There are a lot more deals now because of the age of the artist.”
A deal they didn’t do. Swiffer mops was going to use “She’s Gone” by Hall & Oates in a commercial, maybe a $500,000 deal. They called Darryl Hall. He had had a dream about the deal the night before. He didn’t like the idea of using the song with a mop company. While Primary Wave had rights to do whatever they wanted with the song, they ended up acquiescing to Hall’s wishes. “It’s not often an artist turns down a half million dollar commercial, but he didn’t want us to do it so we didn’t do it.”
What new innovations has Primary Wave been a part of? The company pitches streaming playlists. They also appreciate new technology, like Alexa. “The more places our music can be heard, the better.” Unlike the labels, Primary Wave makes money from public performance. They appreciate new innovations and technologies.
Primary Wave also manages about 40 artists, such as Cee Lo and Chris Robinson of the Black Crowes. Their management deals are 360 deals; the company benefits from every revenue stream for an artist.
One catalog they wanted was the Lieber & Stoller catalog. The company likes to sign songwriters who are artists too. When it came to Lieber & Stoller, these guys were just songwriters. The offer was 18 times gross margin, bigger than 18 times net income. They were doing about $4 million a year in songwriting earnings (this is back in 2009). Primary Wave only had one competitor in the deal. The duo wanted to do the deal. Their kids wanted as much money as possible. The guys were only talking to Primary Wave and Sony/ATV, which offered 20 times gross margin. Larry flew out three different times to LA to sit on Jerry Lieber’s porch and hear the same story each time. And each time, he’d raise his offer just a little bit more. Larry’s final offer was 21 times margin. Sony/ATV came in at 23 times. This was at the six-month mark. Larry flew back. Jerry and Mike voted for Primary Wave. The families voted for Sony. Sony won. “That was one I really, really wanted.” When asked if, in the long run, it was better that they didn’t get the deal, he said probably. The money was really too high.
Will sampling become easier to clear in the future? Larry felt that in maybe ten years. there will be a central clearinghouse for clearances. “It’ll get easier to clear things, but I don’t see artists giving up ultimate control over how a sample is cleared.”
Two pieces of advice he has for people today. “One, to get started as early as possible. In the music business, unless you’re managing your friend’s from college band, you have to start as an assistant.” Nobody comes in as the head of marketing. Even the Harvard grads come in as somebody’s assistant. The second piece of advice? “You gotta be really, really passionate about being in the music business. It’s not a 9 to 5. It’s a 9 to whenever. I travel every week.”
What about the Spotify public listing? “It’s all about streaming. So Spotify better do well.” Record royalties from a stream are about 6x more than publishers.
His proudest moment since starting the company? “Everyone in the company is a partner. There is no staff. When someone is with the company for a certain number of years, they have profit participation. Before then, everyone is still a partner. 1/3 of the people working in the company share in its profit success.”
“We are about growing. Every time we get a big success, that brings us a lot of pride and joy.”
But really, his proudest moment? The Bob Marley deal because “he’s a true global citizen, global artist. That acquisition is something I’m personally very proud of. Not only did we buy Bob Marley in that transaction, we bought Free and John Martyn” and more. “All Right Now” is one of his favorite songs of all time. “It’s really cool to own one of your favorite songs.”
How did he get that first $60 million? He left Virgin around November, 2005. He wanted to start Primary Wave in January, 2006. He was introduced to someone who said he’d give $100 million. “Wow, I don’t even have to try.” Larry didn’t do any due diligence on the guy to see who he was and what he was all about. His first acquisition was the MGM soundtrack catalog. He met the $100 million guy twice. Larry’s wife said, “So who is this guy? Have you done any background on him?” His wife said call a friend who knows investors. Larry didn’t want to but he finally broke down and made the call. “Do you know this guy?” Silence. “Larry, if you do business with this guy, don’t ever call me again?”
Larry finally started doing a search. Tax fraud. Litigation with everyone. Bad guy. Was being sued by everybody. He cancelled the deal and had a week to close the deal with MGM within days or the deal was off. He worked his tail off for a week meeting people, putting things together, teaching investors about music. At his last meeting, he walked out and left his books behind. The group who went into the room behind him read the books, took them home, and invested $60 million.
“It’s better to be lucky than good.”
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Professor David Philp is Assistant Professor Music & Entertainment Industries and Popular Music Studies at William Paterson University. He is the co-host of the only FREE advice college radio-based music & entertainment industry talk show in America, Music Biz 101 & More, which airs live most Wednesday nights and is available as a podcast HERE every night (days too). Your favorite professor is also co-author (with Dr. Steve Marcone) of Managing Your Band – 6th Edition. Reach him at PhilpD@wpunj.edu or find him on LinkedIn HERE.