Scott Borchetta: Behind The Curtain

Big Machine President/CEO Scott Borchetta spoke to an intimate group of business leaders on behalf of Capitol One at Inc Magazine’s Grow Your Company Conference held in Nashville May 20-22 at the Omni Hotel.

Interviewed by Senior Inc. writer Burt Helm, Borchetta offered attendees an inside look at his successful BMLG label and artists, plus some extremely personal insights. Helm arrived prepared and asked the self-made entrepreneur a wide range of questions tracing his career trajectory from MCA in the ’90s to the present day. Borchetta offered inside details about working with his Dad, getting “unceremoniously” fired from MCA, working with Toby Keith, scrambling for funding to start Big Machine, finding Taylor Swift and recognizing her potential, sealing the deals with Clear Channel and Cumulus, why Big Machine holds new music back from Spotify and more.

At the start of the interview Helm asked, “Why form Big Machine in 2005 when sales were falling and it looked like a terrible time to start a new label?” Borchetta’s response reveals his competitive personality as he quietly replied, “It’s easy to say the sky is falling, and if enough leaders say it then everybody starts to believe it. It was absolutely an opportunity. Every time I saw these companies getting smaller and giving up space I thought, great, we’re going to take that space. Keep retreating because we’re going to keep charging.” And that’s just what he’s done…

The following questions and answers have been edited for focus.

Helm: Big Machine began with help from Toby Keith. How did you convince him to put in an equity stake?
Scott Borchetta: From 1991-1997 I was at MCA Nashville which was part of Universal Music Group. I was unceremoniously fired in March 1997. Literally the next day we started making plans for Dreamworks Nashville which started in 1997 and Toby was one of our early signings. He had some prior success, but never really went all the way. We got him at Dreamworks and reimagined what he was doing and what he should be doing. It was really us shutting up and listening to him, going out to his shows. We realized this guy is a redneck, badass, raucous, beer drinking guy, not a crooner like the prior label tried to image him. I remember my very first meeting with Toby. He didn’t trust anyone because the previous label wouldn’t let him put out the music he wanted. So I said, “Pal, we can continue like this or you can trust me. You lead, I will follow, I have your back. Run like hell.” We started putting out these raucous songs like “How Do You Like Me Now?” and “Who’s Your Daddy?” and Toby went from a B player to one of the biggest artists in country music. It was just us doing what we are supposed to do. Provide an arena for our artists to do their best work. We were having massive success at Dreamworks Nashville which was a joint venture with Universal, but in January of 2004 Universal picked up its option and Dreamworks became a wholly owned company of Universal Music Group. I literally was pulled back into the place that had fired me and ironically it was also the place where Toby had been unhappy. So we both returned with trepidation. Soon afterwards, Toby dropped the bomb on everybody and made a famous announcement at Radio Seminar in March 2005 that he was leaving Universal. I made it clear I didn’t want to stay. So Toby called me and said, “Why don’t we do this together?” I said, “You have more money than I do and I’ve got the staff building experience. Maybe it could work.” It was never designed to be a long term thing, just a great way for us to use each other’s leverage to get in the game.

Helm: What was your plan for the first year?
Borchetta: Just to stay alive. There were a lot of hurdles and broken promises. I had an investor who said he would fund the label with $10 million. On that handshake Toby and I started. Then I got a call in June 2005, (we were planning to open in Sept. 05), and he says, “Wanted to let you know I’ve invested your $10 million in Morocco.” “Does that mean you aren’t in?” I asked. “Yes,” he said. That guy is still around and unfortunately he lost everything on that Morocco deal.

Helm: How did you recognize that Taylor was star material?
Borchetta: My Dad has been a promotion guy from the late ‘50s to today. In the ‘60s he worked for Mercury, RCA and Capitol; then in 1969 he started his own independent business. I was always around him. I never realized until later in life how much I had learned from his successes and his failures. I got the most valuable education possible and didn’t even realize it. The answer is it’s a gut feeling. I can’t put it into words or tell you that a multiple of this number and this letter equals Taylor Swift. But when I met her, I knew.
Helm: No doubts at all?
Borchetta: Our world doesn’t allow for doubt. The minute you doubt is the minute you start to lose. Taylor is an absolute world class rock star, my Mick Jagger. I look at the crazy things I wrote down Nov. 2, 2004 like ‘Taylor takes Japan.’ It was kind of an odd Nostradamus moment. I knew this artist could be on the cover of Rolling Stone or host Saturday Night Live. I’ve been around big stars my whole life so whatever that chemistry is, whatever kind of juice they have more of than us mere mortals, I’ve been able to recognize it.

Helm: Has technology changed your ideas about artist marketing?
Borchetta: There’s one thing we really can’t afford to do—what I call hope marketing. That’s where you say, “I hope they saw it.” So more and more we are investing in one-to-one engagement from band-to-fan. Justin Moore did almost 100k units first week earlier this year because his fans knew the record was coming out. Brantley Gilbert is going to sell well over a 100k units this week because his fan base knows. Brantley is going blow for blow against Coldplay for first week sales. ColdPlay will probably win, but they didn’t even see us coming. It’s our job to continue to build those individual data bases.

Helm: You decided not to put Taylor’s album Red on Spotify for six months. How do you feel about that decision now?
Borchetta: Rascal Flatts came out last week, Brantley this week and neither of them will be on Spotify for the first 60 days. The people that want to use the music for free, that used to steal it, I don’t need them. That doesn’t mean I don’t want them to enjoy it, but it’s the superfan who appreciates that the music represents a couple of years of the artist’s life and we want to make sure to serve them first. We will win some battles, but I know we will lose this war because it’s going to become a streaming world.

Helm: How did you convince Clear Channel to approve your groundbreaking sound performance royalty deal?
Borchetta: Bob Pittman is a visionary cultural icon who understands where the future is going. This is the guy who helped start MTV and went to AOL and changed the course of its business. Bob understands we are all going to be using music predominantly in a digital way in the near future. But the Digital Millennium act and other digital rights are written in a way that makes it adverse for radio stations to broadcast digitally because they have to pay per person for streaming. So in talking with Bob we decided why don’t I lower my digital rate and in return you pay me a terrestrial fee and let’s get way ahead of this. We came to an agreement that more people like than don’t. We are on the eve of announcing another major broadcast company that is joining our platform.

Helm: And just recently you completed a radio partnership with Cumulus. How does that work?
Borchetta: Big Machine Label Group entered into a joint venture record company with Cumulus called NASH Icon. The new brand will replace many of their classic country stations, plus extend to syndicated shows, secondary station markets, touring and print. I met with John and Lew Dickey back in February and they said we’ve got these Nash assets and we keep coming back to you as a way to add something if you have the right idea. So we found an open lane, a way for artists like Reba McEntire, Martina McBride, Alan Jackson and others to make new music and get it on the radio and tour. We’re going to feature their new music next to the classic songs. So if those are your favorite artists—news flash—they didn’t die! The business just didn’t take care of them. Artists I talk to about this are thrilled to get their music back on the radio and we hope the fans will engage the same way. We have a saying at the label, you are either young or young at heart!

Helm: Why do these deals keep happening?
Borchetta: We’ve been blessed to get these opportunities, but you don’t keep getting them unless your team can execute. If we had failed in the performance rights deal with Clear Channel we would have been a laughingstock. Instead my executive team and the Clear Channel team took the time to do it right. I’ll give you one example. I spoke to Neil Portnow who is the head of NARAS and has been on the front lines of performance rights for years. I said, “Neil, confidentially what don’t I see coming? What bullet is heading right for me?” He asks, “Are you going to recoup against artists with this income?” This was important because digital payments handled by Sound Exchange go right to the artist they don’t flow through the label. Had we used the money to recoup there would have been an uproar and we might not have gotten these other opportunities. Another example is Lew Dickey. He has Wall St. watching his every move at Cumulus and is putting a lot of trust in the Big Machine Label group and showing us a huge amount of respect. Also I have a huge advantage because we don’t have to check with LA, New York or London to make a decision. If we say “yes” in my office, we go.

Helm: What’s your biggest challenge?
Borchetta: Time. There’s not enough of it. I’m really good at categorization of projects, that’s how my brain works. Like OK, now we’re talking about Taylor, now this or that. But I’m also very singular in that I like to start with one, fix it and get it right before moving to the next one. The business is changing dramatically and the next few years are going to be bumpy. Our No. 1 account, itunes, is down 24% YTD. We are in trouble and have to be really smart right now by continuing to invest in partnerships with our artists and our managers, and be aggressive in our corporate thinking. We have to keep building value and monetizing that value.