Retooling the Hit Factory

By Kitschy Hollywood standards, it's an architectural land-mark—a round building 13 stories high that looks like a stack of records with a needle on top. True, that wasn't the intent of architect Welton Becket, designer of the Cairo Hilton, when Capitol Tower opened in 1956. Instead, he claimed he was looking for "economy of construction, operation and maintenance, plus maximum utilization of space." Round buildings, or so it seemed at the time, were the coming trend, and if they didn't exactly catch on, the company that commissioned the tower, Capitol Records, was destined to become one of the legendary names in music. Today, the Tower is more than just the only round building in town, it's a major tourist attraction, complete with a beacon that has blinked out H-O-L-L-Y-W-O-O-D for more than 31 years. It has been on postcards, in movies and on TV, and it's arguably the only building in the world that makes an onlooker automatically think of music.

As well it should. It is, after all, where Frank Sinatra and Nat "King" Cole and Peggy Lee and Nelson Riddle used to hang out and make their music. It is where, a generation later, the Beach Boys first rode a musical wave, and where the Beatles, in mid-mania, found an American home.

Like movie studios and television networks, record companies seldom generate brand loyalty (continued on page 151)The Hit Factory(continued from page 112) among their customers. Few people scan the movie ads and say, "Honey, I'm in the mood for a Paramount picture. What about you?" Fewer still go into their local record store and say, "Got any new Atlantic albums? What about A&M?" So it should come as no surprise that the problems that have existed on and off for 17 years inside the Capitol Records tower are largely known only within the industry, and that the general public, seeing the building and hearing the name, might be shocked to know how the once-mighty Capitol Records has fallen on hard times, even in the midst of a record-business resurgence. And they're most certainly unaware of the attempts to salvage the trouble-torn company.

"It's so wormy in there," mutters one executive who turned down three job offers at Capitol after checking out the company.

Horrendous is how a ten-year employee describes the conditions before the new administration took over. "There was not a lot of pride inside the Tower," she explains.

Nor was there any reason for pride. Workers were abused, burned out or run off the property. The company was lethargic and out of touch when it came to signing new acts, and the old acts got older, broke up or simply lost their appeal.

Management blunders were compounded by episodes straight out of Ripley's Believe It or Not. There was, for instance, the cattle-prod incident of 1986. A Capitol promotion man accused his boss of berating him in the office, poking him with a battery-operated cattle prod and yelling, "You're dog meat. Go back to your stall." That one's in the courts.

And then there's the tale of a past executive who, upon taking office, was perturbed to see a veteran female singer still with the label. "What's that douche bag doing on our roster?" he demanded loudly at a meeting. He was talking about Tina Turner, who was, at the moment, poised for a comeback that would give Capitol one of its few shining moments.

Despite Tina, sales fell, and the once-proud name of Capitol became a pathetic industry joke, the Harold Stassen of the music world. But, like Tina, Capitol Records, under the guidance of a new team, is poised for a comeback, and in the world of show business, there are few stories that tantalize the imagination like that of a down-and-out performer, or company, emerging, once again, as a contender.

Not very long ago, insiders like to point out, NBC was considered to be a terminally ill network, until Grant Tinker came on as chairman and started the resurrection. Now Capitol Records has its own Tinker in the form of a square-looking, wisecracking record-industry legend with the unassuming name of Joe Smith.

When Smith ended a hiatus from the record business and moved into his office at the Tower early last year with the title of vice-chairman and chief executive of Capitol Industries-EMI, Inc., he encountered a mood so dark that when he made his first speech in front of 600 employees, he found himself urging them to be "a little looser, a little funkier, a little less neat, a little less orderly." It was, to those who heard about it later, a telling example of what had been wrong at Capitol. Even by laid-back L.A. standards, a record company is a casual place to work, with flexible hours, outrageous dress and idiosyncratic behavior the accepted norm.

But Smith went further, reminding the group that Capitol Records was not Prudential Insurance, suggesting "a little more music playing in the place." And "on those interminable elevator trips," he said, "you can speak up—and laugh. All of that's fine."

Smith got a standing ovation that day. His work, however, was just beginning.

•

It's not as if Smith had wandered into 13 unlucky stories of emptiness and desperation. Capitol-EMI was still a going concern, and it included Capitol Records, two smaller pop-music labels (EMI America and Manhattan) and a classical label (Angel). Capitol-EMI is a subsidiary of Thorn EMI, the London-based electronics and entertainment empire. Big names remained on the roster, among them the heavy-metal bands Poison, Great White, Iron Maiden and Megadeth; newer bands such as the Pet Shop Boys and Crowded House; rock war horses Bob Seger, Steve Miller, David Bowie, Joe Cocker, Heart and Paul McCartney; the singular Tina Turner and the new soul hero, Freddie Jackson; country crooners such as Barbara Mandrell, Anne Murray and Tanya Tucker; and, to round things out, Natalie Cole, daughter of Nat "King" Cole himself.

In the record business, however, a roster doesn't tell all. And history—even if it includes Sinatra and the Fab Four—means nothing. "I mage is key," admits Smith, who had created extremely successful images for Warner Bros. and Elektra-Asylum when he ran those labels. "At Capitol, it was like, 'Who are those guys?' " he remembers. "We'd see records on the charts, but the company was anonymous. I've em-ceed dinners for every conceivable disease over the years and I almost never had anyone from Capitol to introduce at the head table. Either deliberately or by coincidence, Capitol kept a low profile."

That hurt. MCA Records chief Irving Azoff was once one of the town's pre-eminent managers. "I had this perception that if you could get an act from zero to gold yourself, CBS Records was the place to be. If you were looking to sell an act based on image, A&M was the place to be. And if you were looking for just an all-around great label, Warner was it," says Azoff. "I stayed away from Capitol, because there were always rumors of impending executive changes and 'Will the company be sold?' I stayed away based on instability."

Azoff was hardly an isolated case. Bobby Colomby, a former drummer for Blood, Sweat and Tears who spent five years as a producer at Capitol, recalls a conversation he had with a prominent rock manager. "He asked me, 'Did you ever notice that the most powerful managers in the business don't have acts there?' He was talking about men like Frank DiLeo [Michael Jackson], Freddy DeMann [Madonna, Lionel Richie, Billy Idol] and Jon Landau [Bruce Springsteen]. It's because the kinds of managers who are successful at Capitol are very passive, people who do not make waves, who just allow that system to go unaltered."

Smith's first order of business was to change that image. "Smith is a great personality," says Bob Merlis, a Warner Bros. vice-president. "Before him, the building had more personality than the staff."

Capitol was the archetypal sleeping giant. Having come of age in the Fifties, it was stuck in the Fifties. It was an old boys' club—girls typed and fetched coffee, and when one dared ask about advancement, she was told by a senior executive, "It will be a cold day in hell before you see a woman vice-president in this company." When music changed, Capitol failed to change with it. Rock and roll and R&B were overlooked, and in more recent years, Capitol was slow to check out alternative rock, or to start up a department to service college radio stations, or to get into dance music. Such vital departments as marketing and public relations were understaffed.

Even when it came time for all record companies to band together—to honor an industry big shot, to join ranks against bootleggers, home taping or Tipper Gore—Capitol stood to the side, becoming vulnerable to derision from its peers. In 1971, for instance, when Capitol was going through its third president in about four months and was in the painful process of cutting its artists' roster of 280 down to 80, Warner Bros. Records sent out a newsletter with a front-page illustration of the Capitol Tower leaning precariously. "What's wrong with this picture?" asked the caption. Ironically, Smith was then executive vice-president of Warner Bros.

The sales figures were in keeping with the image. In 1984, the company's total market share was a miserable 6.7 percent; and when the 100 top-selling pop albums for 1986 were tallied, only five came from the flagship Capitol label. Worse yet, Capitol was considered a major financial drain on its parent company, with one report pegging the loss at $1,000,000 per month. Ugly rumors have haunted Capitol for years.

A record company's strength may be in its artists, but within the industry, the image comes from the top. Most successful labels have chief executives who act as super A&R men. A&R stands for artists and repertoire, a term coined in the earliest days of the record business to describe the department responsible for finding, signing and recording artists.

In the late Sixties, when rock exploded, a new breed emerged: the record exec as star. He would be at the clubs, checking out the hot new bands, or trekking to Boston or San Francisco, or to the Monterey Pop Festival, to snap up the latest rage. These guys became such a part of the rock landscape that, as rock became a fascination for the media, they were profiled in The New Yorker, Esquire and Rolling Stone. We're talking Clive Davis, during his CBS years, when he signed Janis Joplin, and Ahmet Ertegun of Atlantic, who signed the Stones. We're talking Walter Yetnikoff, who now heads CBS and is a high-bidding player who hangs out with Cyndi Lauper. We're also talking Joe Smith, who, before he took over Capitol, had joined John Lennon, Bob Dylan and Little Richard as a subject for a Rolling Stone interview.

We're not talking about Capitol Records, whose chairman, Bhaskar Menon, is from India, speaks with a pronounced accent and, while warm at heart, comes off stiff and awkward in public appearances. What Menon lacks in charisma he makes up for in brains. He's the man who hired Joe Smith.

"I came here to fight the big two," says Smith, referring to CBS and Warner. "My intention is for there to be a big three."

Smith is a short man who looks a decade younger than his 57 years, a sweater-and-slacks man with a salesman's smile. He's always in motion, roaming the hallways, darting in and out of offices, talking with the troops. "He's a saint," says one former employee. "He's classy and honorable, and he's a publicist's dream."

When Smith was president of Warner Bros. and Reprise Records (the label Warner bought from Frank Sinatra in 1963), the company signed and/or worked with Joni Mitchell, Van Morrison, James Taylor, Jimi Hendrix, Fleetwood Mac, the Faces, the Kinks, Neil Young, Randy Newman, Van Dyke Parks, the Grateful Dead, Captain Beefheart, the Mothers of Invention, Black Sabbath, the Doobie Brothers and Tiny Tim. It was an ideal list—full of mass-appeal showmen but with enough offbeat artists, such as Captain Beefheart, to give the label an all-important reputation for hipness.

"With the Fugs and Van Dyke Parks, we indicated that we were ready to take a chance on any kind of music," explains Smith, admitting that the idea was to give the company an image that said, "That's cool, that's what's going on." He once told another executive that he had signed Alice Cooper and Black Sabbath to pay for signing Van Dyke Parks and Randy Newman.

In 1975, Smith was named chairman of Elektra-Asylum records, a division of Warner Communications. E.-A. was known as an old folkies' home but Smith turned it into an eclectic avenue populated not only by Joni Mitchell, Linda Ronstadt, Jackson Browne and Tom Waits but also by the Eagles, the Cars, Queen and Mötley Crüe.

Of course, neither company was as troubled as the one Smith now runs, and the music business went through some enormous changes, from music videos to compact discs, while Smith was out of the business. That leaves one important question: Can he work the same magic at Capitol Records?

•

Capitol Records was founded in 1942 by three music fans: Glenn Wallichs, owner of two record shops in Hollywood; Johnny Mercer, a singer who could also write songs; and B. G. "Buddy" De Sylva, a songwriter and movie producer. De Sylva put up $10,000, and Capitol became the first major record company on the West Coast.

The infant Capitol did things none of the established majors—Columbia, RCA and Decca—ever considered. It changed the face of record promotion by sending advance copies of records to disc jockeys. Before Capitol, record companies figured that radio airplay discouraged people from buying records, and most stations had to buy what they broadcast. As Alan Livingston, a GI who walked in off the street looking for a job in 1945 and stuck around long enough to become president, says, "It took a new, small company to break the rules."

In the mid-Fifties, with Sinatra joining Cole, Dean Martin and the Jackie Gleason orchestra, the company was firmly in the majors. "Capitol was probably the number-one record company in the business," says Livingston.

By then, it had become the first American company to sell out to a foreign interest. In 1955, EMI Ltd. bought 96.4 percent of Capitol Records' stock for $8,500,000. And the next year, the revolutionary Capitol Tower was completed.

Still, Capitol wasn't exactly action central. Sure, Livingston shrugs, Frankie, Dino and Nat used the ground-floor studios for cutting records, and they'd visit their producers on the 12th floor. "But we took the stars pretty much for granted," he recalls. "They were close friends, mostly. We'd have lunch with them or deal with them on a one-to-one basis. There was no excitement about it." And when one of them scored a smash hit? "We took them as they came," says Livingston. "You know, there were plenty of failures, too."

Livingston confesses that his company missed out on the greatest explosion in the history of popular music: rock and roll. Why? The top brass simply hated it. "I think if you go way back to the Sixties," says former president Don Zimmermann, "Capitol was probably one of the last companies to recognize rock-and-roll music." The only exception was a kid from the country division, Gene Vincent.

"When rock and roll hit," says Dan Davis, who began at Capitol in 1964 writing liner notes, "we weren't there. We were still selling Kingston Trio records."

Livingston, who left in 1955 for a job in television, returned in 1960 and became president in 1962. He was there when the Beach Boys signed, but he wasn't an active player in the acquisition that dragged Capitol into the world of Top 40 radio. It was Nick Venet, Capitol's token kid—he was 21 in 1962 and had produced hits by the Lettermen and the Kingston Trio—who heard a demo recording of Surfin' Safari and wanted the Beach Boys but had to argue with executives to get them to pay the group a $300 advance for each master recording they could provide. His actions were quickly justified. The Beach Boys were an immediate smash with Surfin' Safari, Surfin' U.S.A., Surfer Girl and all the rest, and Capitol began rushing the group for so much product that by the end of 1964, the band had produced seven albums, and Brian Wilson, declaring himself "so mixed up and so overworked," was on his way to his first nervous breakdown.

By then, the Beatles were on Capitol—even if it was almost by accident. As Livingston tells it, his A&R chief kept rejecting them when EMI, which had signed them in England, offered them to its American partners. "He'd say, 'Aw, they're nothing.' " The band's first records were distributed by several small labels. Shortly after Livingston signed them, the Beatles blossomed and injected life into Capitol; along with the Beach Boys, they made Capitol dominant in the mid-Sixties. The Beatles—who once occupied all ten spots in the Top Ten in 1964—blinded Capitol, made it lazy about pushing its other acts or signing up new ones.

"It was hard to avoid," says Livingston. "There were only so many records your plants could press and so many orders your salesmen could take. They dominated our operation, which made it difficult to break new artists."

When the Beatles fell apart, so did Capitol. Albums by the various solo Beatles kept the cash flowing into the Tower, but by 1971, it was in trouble. The company, as several old-timers now admit, got too fat and lazy on its two meal tickets and didn't bother to sign and develop new acts.

In 1967, Capitol observed its 25th anniversary. In a special issue of Cash Box, a lead story reprised the glory years and then listed the current roster. There were, of course, the Beatles, along with a few other British acts signed by the EMI arm. On its own, Capitol named under "newcomers" the Beach Boys, Nancy Wilson, Lou Rawls, Buck Owens, the Lettermen, Wayne Newton, the Four Preps, the Stone Poneys (with Linda Ronstadt), a flash-in-the-pan group called the Outsiders and a couple of no-hitters. That's a padded list, when you consider that the Four Preps had been with Capitol since 1956 and that the Beach Boys, Wilson, Newton and the Lettermen all dated back to the early Sixties.

That year, Livingston followed a migration of record executives to San Francisco and roped in the Steve Miller Blues Band and Quicksilver Messenger Service, and he signed Bob Dylan's backup group, the Band. Merle Haggard and Bobbie Gentry joined Capitol. But that was about it.

The problem, in Livingston's estimation, was a shortage of good ears. "I think it was a lack of A&R-oriented people," he says. Like talent itself, good talent scouts are hard to find, and while there were plenty of people willing to put their ears up for sale, the good ones were rare. "When you do find them," Livingston complains, "they're usually totally irresponsible fiscally. They'd be off the wall, getting into a studio and spending $200,000 an album."

In the first boom of the record industry, that kind of spending was affordable. By 1967, sales had passed the one-billion-dollar mark, and by 1972, they had doubled. By the early Seventies, artists and managers were boosting royalty rates and triggering bidding wars. Capitol turned conservative. As one interested observer—Joe Smith—points out, the label not only failed to develop acts, it let its bread and butter get away: "They had all these artists under contract. I'm talking about all the Beatles, Linda Ronstadt—a bunch of major artists. All they had to do was give them a little better royalty. They lost them."

Capitol went on a belated signing binge, made deals to distribute smaller labels' artists and built up an A&R staff of some 30 people. The overhead, combined with the breakup of the Beatles, amounted to a $15,000,000 loss for the fiscal year ending in June 1971.

"They were backing up some bad A&R and sales judgments," says Smith. "And shipping records like crazy, saying, 'This is a hit and if we put another 100,000 out on the streets, it'll automatically be a hit.' That was part of a philosophy in the Seventies for many albums: 'Ship platinum!' 'Ship double platinum!'"

The records kept getting shipped back as plain old vinyl. Towers of unsold records. In 1971, a perplexed EMI shipped Bhaskar Menon in from London. "I would be ashamed that I had let my company go down the toilet like that," said one employee, directing his comment at Menon. "Where has he been all these years when all this shit's been going on?"

Menon, now 53, is a 31-year warrior in the ranks of Thorn EMI. He is chairman of Capitol Industries-EMI, Inc., and chairman and chief executive of EMI Music Worldwide. When he arrived at the Tower, he cranked up the executive turntable, ordered a drastic cut in both the employees' and the artists' rosters and moved Capitol back into profit. He even tried to get Joe Smith in 1972, but Smith was tied up with Warner. Regardless, Capitol enjoyed a healthy few years through the mid-Seventies, with loads of thanks to Grand Funk Railroad and a Pink Floyd album that never left the Billboard charts, and began an expansion program, buying up United Artists Records (which gave the company Kenny Rogers), Screen Gems Music and starting up a new label, EMI America. In the early Eighties, Capitol-EMI enjoyed record profits—and then crashed again.

Menon is a cool, philosophical man whose values are deeply rooted in his birthplace. "All organisms face this challenge," he says in a benign way. "There is a general balance in the universe that determines the course of affairs."

Don Zimmermann has an earthier appraisal. "Our artists' base seemed to erode," he says. A number of stars—Kenny Rogers, Kim Carnes, the J. Geils Band, the Motels and the Stray Cats—left the company, lost their power stroke or broke up.

In 1984, Menon began a new assault. He opened a New York base with Manhattan Records; he reactivated the bountiful jazz catalog of Blue Note Records; he put new life into the country operation out of Nashville and into the classical label, Angel. And he reached out, once more, for Joe Smith.

This time, he got him.

•

Smith is at his corner table at Le Dome on Sunset Boulevard, doing his job, seeing people and being seen. He greets friends and talks basketball—about how he has been a junkie for the game for 30 years now, from the Celtics to the Lakers, and how he spends something like $40,000 for sideline seats alongside Jack Nicholson and a galaxy of showbiz stars and star makers. Look, he says, "what do people do with their money? Houses, Rolls, Ferraris, Mercedes. Some buy art; some buy wine. I buy four seats at the Lakers games. And I key my trips to where the Lakers are. You're 11 years old again, and why not?" His office has a framed photo on display, showing himself gesturing with outstretched arms to Magic Johnson. Johnson has inscribed the picture: "Joe, thanks, I needed that advice."

After dinner, Smith aims his red Mercedes 560 SL toward Beverly Hills, where he lives with Donnie, his wife of 30 years. Their house, which they've occupied for 17 years (two kids are raised and gone), is spacious but by no means lavish. In many ways, it feels like your average upper-middle-class home. On a kitchen counter, there's even a booklet of discount coupons from a local chain drug store.

"The fascination," he says, "is that in the top ten a year from now will be three names we never heard of today. And we'll wonder whatever happened to some of the names in the top 20. What's constant is the executives. Ahmet Ertegun is a star. David Geffen's a star. Walter Yetnikoff's a star. Stars burn out, but Red Auerbach's still there in Boston; he's got a new group of guys, but his talents were never subject to the vagaries of the public. He doesn't make the money those guys make, but, as they say, it's steady work."

When he was a kid in Chelsea, Massachusetts, Smith wanted only to be a sportscaster. He did a bit of play-by-play out of Yale, but in Boston, where he wanted to work, he figured his chances at his dream job were slim—"In Boston, you almost had to be an Irish Catholic to do the Red Sox"—and became a Top 40 d.j. instead. Fearful of being a d.j. forever, Smith moved to Los Angeles and got into the record business as a promotion man. He was, of course, a natural, breezing into radio stations and getting hits as easy as Ted Williams. At Warner Bros., then a tiny branch of the film studio, he went from promo man to president by 1972, before moving over to Elektra-Asylum. He left the record business in 1983.

Smith swears he didn't miss the music. He still saw his industry buddies—usually at Lakers games or charity dinners. When Menon called, he was working on a book—an oral history of pop music—and he had just taken on the presidency of N.A.R.A.S. (The National Academy of Recording Arts and Sciences), the folks responsible for the Grammy awards. He was busy and content. He didn't need the pressures or the money that come with running a record company.

But as he started thinking about the Capitol job, something dawned on him. He knew what the company needed and he also knew he was the only executive both able and available for the job. That thought saddens him, because it's further proof that his generation failed to recruit the next group of leaders. "One theory is that drugs were so much a part of our business culture in the Seventies that people didn't work as hard. Those of us who were running the companies were just a shade ahead of that. We grew up in a relatively drug-free culture, so maybe we came from a different ethic, and we were very serious and hard-working. But the people we thought were going to be the leaders—all of them failed in one way or another."

There were other reasons, he admits. Adding a third major record company to his résumé—most of his peers have topped out at two—appealed to his ego. And Capitol, with its history, roster and international connections, held special allure.

Smith has moved quickly, grabbing top-drawer executives from other labels; realigning his label and division heads to give each one autonomy and accountability (a theory he learned at Warner); and, shades of Menon in 1971, trimming the roster from more than 200 to about 150 acts, while on the prowl for new signings.

"It's no quick fix," he concedes. The days when you could force a group to crank 'em out every two months are long gone. The superstars are expensive, call the shots and have long-term contracts. "Even if I signed Bruce Springsteen, he wouldn't have a record for two years," he shrugs. "What you do is build a basis. I wanna build a machine that's gonna be attractive to talent."

As part of that process, he has built a higher profile. "If you foster the perception that you are hot, and you say it enough, your records sound different to the radio stations," he says. That sense of heat carries into the record shops. "Right now, Warner's guy walks into a store, he's got an attitude: 'We're hot, we gave you Madonna, here's Z Z Top. You better give us space right above the cash register.'"

Imagery is equally vital to the process of getting the hot artists onto his labels. "When I walk in to deal with an artist, I'm as well known to him as he is to me. I've dealt with Crosby and Sinatra, so that carries some weight. And it's important to me to establish everybody in the company as a star, so the artists we sign have respect for us, too."

Besides the proven veterans on the roster, Capitol and EMI-Manhattan are rolling dice with recent signings like Robert Palmer, Thomas Dolby, ex-Go-Go Jane Weidlin and Late Night with David Letter-man maestro Paul Shaffer; fresher faces like Meli'sa Morgan and the Kane Gang; instant hit makers like Robbie Nevil, Richard Marx and Glass Tiger; great pop and jazz voices like Angela Bofill, Martha Davis, Bobby McFerrin and Melba Moore; strong new country entries like T. Graham Brown; and contemporary jazzmen like Stanley Jordan and Najee.

True, every record made is a crap shoot. It's good music and lots of luck. Smith cites a handy example: "My company has Heart, whom CBS paid to go away. They had 200,000 on their last album there. We proceeded to sell 4,500,000 Heart albums. That would mean we were 20 times better than CBS—which is nonsense. They made a great record for us."

Capitol was lucky with Heart. But, Smith says, "when you have a good company, you narrow the odds. I narrow the odds immediately, because I will avoid doing some of the stupid things like chasing boozers and making incredible deals with artists just to put a name on the boards."

Late last year, nine months after Smith joined, Capitol was still only a slight presence on the charts, and the rumor mill, while quieted, continued to churn. Nonetheless, Smith was confident. "It's an upbeat, effective operation. They just need some records. It's product flow." He has rebuilt the machine, he says, and it works. "We've shown the ability to break new acts like Crowded House and Poison. In the talent world, we're told that we're a label of choice. People will come to us along with Warner Bros. and CBS. There's a good feeling here."

Smith bounces up from his couch. He has a new record he just has to put on. It's not the latest from Heart or Bowie; it's a doo-wop ditty, clearly out of the doo-wop Fifties.

"We're gonna rock with ... Joe Smith," a group called the Valentines sings with jinglelike repetition. "On his swinging rock-and-roll show!"

It is, of course, the theme song from Smith's old WMEX radio show, and it has just been released in a best-of compilation. "We're gonna rock with ... Joe Smith...."

"The lyrics are brilliant!" he shouts over the close harmony.

Give Joe Smith credit. He has a great ear for music.