Here is the transcription of an article published by Billboard on August 10, 1959. MEMPHIS – This quiet, cotton-ginning river town is coming up with a new commercial gimmick again. The town’s got a talent for turning up the unexpected in music.
The new gimmick is more commercial than any, in that it has to do with money more than with music. A group of Memphis businessmen has devised an intriguing new way for financing a record company, embellished by the latest styles in capital gains and all that jazz.
Ten men have launched Peak Records, which has released six singles to date with 10 more due in the next 60 days. Among these new
mahoffs [
1 ] are a grocer, a manufacturer of ornemental iron, two lawyers, a bakery manager (who doubles as the label’s musical director), a radio station engineer, a chicken and egg wholesaler, a cosmetic distributor, and a clothier. Together, these men put up half the risk capital for their disks. Where does the other half come from ? That’s where the gimmick is.
For every artist signed, Peak sets up a company within the company in the form of a limited partnership. Then it seeks outside investors in each artist. That is, the owners put up $1,000 per artist, and raise an additional $1,000 from others, preferably in small chunks of $200 apiece. The company retains a 60 per cent interest in the artist, the outside money buying a 40 per cent interest.
Starting with a $2,000 fund behind an artist, the label issues a release, usually at a cost of about $1,000, followed by another very thereafter. Then the investors pray that one of them hits at least moderately. If it does, no profits are paid out. Instead, they are plowed back into the artist for a third release within six months, followed by a fourth within a year. After 13 months, an accounting is made and profits are paid. The timing is such, that the profit on the original investment - if there is one - is now eligible for a capital gain.
The label meanwhile retains an option to buy back the outstanding interest in the artist before the end of the second year. If they decide to this – which, of course, they would do only if the artist turns out to be a money maker – the original investors make out just dandy.
Suppose, for instance, that one of the first two records by an artists is a modest hit, netting $10,000. The other three are total failures, losing $6,000, including promotional costs taken out of previous profits. The company would buy the artist back from the partnership for $4,000, representing undeclared profits, plus about $500, representing additional sales to be expected out of inventory. Total price is thus $4,500. Total investment was $2,000. In less then a year, an investment was more than doubled at a low capital gain tax rate.
The company advises its investors to hedge against risks of the disk business by investing small amounts in any one artist, spreading available cash around a number of them on the theory that one or more of them is bound to pay off. A number of ivestors are expected to buy a piece of as many as 10 artists, as fast as the label signs them.
The big risk rides on the first couple of releases of any artist. If both flop, the fund is wiped out. In fact, if the first release is produced in an expensive session, consuming most of the original $2,000 fund, a single flop can end the partnership. But the theory is that most investors will be riding several entries simultaneously, so that one winner, ever on a small investment, will cover a good many losers.
Peak’s chairman of the board,
Abe Sauer, an iron manufacturer, points out that the owners of the label take 50 per cent of the loss, thus management shares the risk with outside investorts. On winners, management takes 60 per cent of the profit, thus enjoying only a 10 per cent differential for their role as entrepreneurs. Of course, their option to buy back the full ownership of successful artists provides another long-range advantage to the management group.
Among the early releases on Peak’s partnership plan are two by
Eddie Cash, « Land of Promise » and « Doin’ All Right, » and one by
the Eberly Twins [ 2 ], who are deejays in Little Rock, « Sittin’ in the Drive-In ».
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[ 1 ] mahoff : "big cheese", "important person". See
The Word Detective. Ex. : Madoff was a mahoff.
[ 2 ] Actually, the Morgan Twins.
.
Four Peak Records releases are listed in
Rockin' Country Style. Another release is #155 "Sputnik Hires A Band" by Sputnik Monroe. Label shot here. (45cat)
I'm not aware of any other releases on the same label. But the American Recording Corporation of Memphis Tennessee produced also at least two records on the Al-Be label [ Charlie Fury & the Rebel Rockets and Jay Rainwater ]
Dale Vaughn on Von was also produced by the American Recording Corp. (cut in the studio built on to back of Lansky Brothers Clothes Shop on Beale Street).
Chairman Abe Sauer is the only name cited by the article.
Bernie Frieden (or Freiden), Howard Chambers, and Curtis Foster were execs of the Peak and Al-Be labels.
The clothier cited in the article was one of the Lansky Brothers (Alvin?).
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