Blasting the System : Time Bomb’s Guerinot Has Radical Ideas

Punk rock band Offspring taught the $12-billion music industry a lesson in underground etiquette last year.

The Orange County act’s “Smash” album, released 18 months ago by tiny Epitaph Records, sold 8 million copies without the aid of a major record company distribution unit--proving that an upstart quartet can storm the pop charts without following a traditional path.

“Smash,” which still ranks in the top 200, has generated an estimated $100 million at mainstream retail outlets across the nation--more than twice as much as recent releases by superstars such as Madonna and the Rolling Stones, whose albums cost millions of dollars each to record, promote and distribute.

Offspring’s meteoric rise is even more remarkable when you consider that the band’s manager, Jim Guerinot, helped keep the total marketing and promotion budget for “Smash” below $220,000--less than half what the average top 10 act sinks into a single hit video.

The band’s success triggered an instant multimillion-dollar, industrywide bidding war for Guerinot’s services.

But the 36-year-old marketing whiz, who is also credited with helping mastermind commercial breakthroughs for Sheryl Crow, Soundgarden and Rancid, turned his back on an array of corporate job offers to launch Time Bomb Recordings in Laguna Beach.

In a drastic departure from industry financial models, the fledgling label, which is financed by the German conglomerate Bertelsmann, pledges to pay superstar royalty rates to unknown artists and to charge retailers nearly 20% less for albums than competitors do.

“What I intend to do is pull the rip cord on the existing system,” said Guerinot, watching the sun set over the ocean outside his office window. “I want to radically restructure the architectural paradigm of what a record company can be.”

Splitting profits with unknown artists is nothing new for small independent labels such as Epitaph, but the idea is revolutionary in major record label circles.

Recent advances in digital technology, however, allow artists to record state-of-the-art albums cheaply and monitor sales and radio airplay data without the assistance of a giant staff. Some analysts believe the established retail distribution system will ultimately crumble as artists and tiny boutique labels design more efficient ways to deliver music to consumers, including direct transmission through interactive computer services.

The future of the music business, says Offspring singer Dexter Holland, lies in the hands of rogue entrepreneurs such as Guerinot and his pal, Epitaph Records founder Bret Gurewitz.

“It’s all over for these big out-of-touch corporations who hoard the money and waste it on ridiculous overhead,” Holland said. “Only guys like Jim and Bret, who remain connected to what’s going on artistically in the underground, with labels that stay small and focused and treat artists fair, are going to be big winners in the future.”

Unlike most of his competitors, Guerinot is not out shopping for superstars to spruce up his roster. Nor has he participated in the recent flurry of industry bidding wars for hot young acts, which are regularly being wooed by competitors with lucrative offers of $500,000 advances to sign long-term contracts.

Like the independents he patterns his company after, Guerinot is adamant about keeping overhead down and discovering young acts unafraid to record cheaply and tour relentlessly. Guerinot’s first two signings, San Diego-based No Knife and Boston-based Elevator Drops, will have albums in the store by early next year.

Time Bomb’s seven employees work out of cramped second-story office space above the abandoned quarters of a psychic reader in downtown Laguna Beach, just a stone’s throw from the water.

Guerinot, a body surfer, often conducts business meetings with prospective clients on the sand, and has been known to negotiate deals at the local taco stand or just down the street at nearby UnderDog Records, Orange County’s premier punk record store.

Despite its ties to a giant corporation, Time Bomb operates as a free-standing entity with its own marketing, promotion, sales, publicity, business affairs and talent acquisition divisions.

Time Bomb’s total rent and payroll expenditures in 1995 will be about $250,000. That’s less than what it costs to underwrite the typical annual salary of one major label general manager.

In addition, Guerinot--whose marketing savvy helped turn Offspring’s “Come Out and Play” single into a hit on radio and MTV--plans to invest only a fraction of what his major league counterparts do in promotion costs. Time Bomb also hopes to reduce costs by releasing only six albums a year, compared to the hundreds of new projects released annually by each major label.

By keeping his overhead down, Guerinot is able to offer unknown acts a royalty rate twice that of the standard industry commission. In No Knife’s case, the San Diego quartet will be paid a 24% royalty rate on every album it sells--a blue-chip commission paid elsewhere only to superstars such as Madonna, Janet Jackson and the Rolling Stones.

“The big companies give bands a new car and a bunch of money upfront--and next to nothing for the rest of their careers,” Guerinot said. “But the artists I’ve worked with over the years are much more sophisticated than that. They’re not afraid to bet on themselves. They realize that if they work hard and sell some records, they’re going to make a hell of a lot more money over the long run with me.”

Time Bomb’s lower overhead costs also allow Guerinot to offer No Knife’s compact disc to retailers at a wholesale price of $8.50--almost $2 less than the standard wholesale price for CDs.

Reaction among profit-squeezed record retailers to Time Bomb’s lower price is positive. Guerinot also has many fans in the artistic community, as well as in the executive ranks of competing firms.

“Jim Guerinot is not one of those shortcut thinkers who is always trying to take the easy way out,” said Susan Silver, manager of the Seattle rock band Alice in Chains, whose album ranks No. 1 this week on the nation’s pop chart. “He is a career builder and an astute businessman who understands the big picture. If I was a competitor, I would keep my eye on this guy’s company.”

Michele Anthony, senior vice president of competing Sony Music, agreed.

“This is a guy with vision,” Anthony said. “Artists love Jim Guerinot. He’s a man of his word.”

Guerinot, a Rochester, N.Y., native, broke into the music business in 1982 booking concerts as a student at Fullerton Junior College. Within a year, he was managing rock band Social Distortion and promoting punk shows throughout Orange County.

After a string of concert-booking gigs at Goldenvoice, Avalon Attractions and Universal Amphitheatre, Guerinot joined the marketing division of A&M; Records in 1988 and soon took over the reins as general manager. During his tenure there, he was instrumental in helping A&M; Chairman Al Cafaro turn artists such as Sheryl Crow and Soundgarden into chart-topping acts.

Fed up with the corporate rat race, Guerinot quit A&M; last year and retreated to Laguna Beach to run Rebel Waltz, an artist management firm that represents Offspring, Rancid and Social Distortion.

After rejecting job offers from several major conglomerates last fall, Guerinot was approached by Arista Records founder Clive Davis with a proposal to start a joint venture label at Bertelsmann Music Group, the fourth-largest record conglomerate in the United States.

Two months later, BMG and Guerinot signed a five-year, $30-million deal, which was hammered out and negotiated by Strauss Zelnick, chairman of the domestic music division.

Guerinot and his staff are preparing to move in January into a 3,800-square-foot building on the beach in Laguna that he purchased this summer out of his personal savings.

“A lot of executives I know are so fed up with corporate games that they’d love to walk in tomorrow morning and blow their company up and start over from scratch,” Guerinot said. “But because they are all so caught up in competing with each other to be the biggest, no one is willing to step out of the pack and try something new. Me, I can’t wait. I’m not afraid to be the guinea pig.”