Strauss Zelnick is a true power player in the global media landscape. The New York-based businessman is the founder of Zelnick Media Capital (ZMC), which has nearly $20bn in assets under its control.
ZMC is perhaps best known as the firm, that, since 2007, has maintained a highly successful management agreement with Take-Two Interactive – the global interactive entertainment company whose IP includes BioShock, Civilization, Mafia and NBA 2K, and at which Zelnick is CEO and Chairman.
Via its Rockstar Games wholly-owned label, Take-Two also owns and publishes the Grand Theft Auto and Red Dead Redemption series of games which, according to estimates, have turned over more than $5bn between them.
(Last year’s Red Dead Redemption II broke records for the biggest opening weekend in the history of entertainment, with over $725 million in worldwide retail sell-through during its first three days.)
As if all that wasn’t enough to keep Zelnick busy, in October last year he was named interim Chairman of the board at US media and news giant CBS Corp, which generated over $14.5bn in FY2018 alone. And, to cap it off, Zelnick, a fitness enthusiast, is also a published author of the acclaimed self-help book Becoming Ageless: The Four Secrets to Looking and Feeling Younger Than Ever.
Those of you with longer memories, though, may remember Strauss Zelnick in a different capacity: he was hired as President and CEO of BMG Entertainment’s North American operations in 1995, and became its global head in 1998.
Zelnick left BMG in the year 2000, shortly before founding ZMC. (Sidenote: as covered on Music Business Worldwide late last year, Zelnick actually helped start the company that would become Rockstar Games, BMG Interactive, during his time in the music business. His superiors canned it, and sold it for a reported $9m.)
Prior to joining BMG, Zelnick was President & CEO of video games company Crystal Dynamics from 1993-1995, and President and COO of 20th Century Fox from 1989-1993 – a powerful hot seat in Hollywood which he claimed aged just 32.
Here, Zelnick discusses his path in media, his experiences and memories of the music business – and his view on the record industry now that streaming has boosted its commercial credentials…
How did you end up in the music business in 1995?
I was recruited by Michael Dornemann to run BMG North America. I had been president of 20th Century Fox, and I persuaded Silicon Valley to [fund] my first video game start-up, Crystal Dynamics, which is still a successful company today.
BMG hired me, essentially, to do a turnaround, with a focus on RCA: BMG was second to last in terms of its market share, and the North American division was losing a lot of money. It had no presence in rock, with some hip-hop presence and a good Nashville presence, but that was about it.
Who were the biggest artists at the time?
The biggest artists when I joined included Whitney Houston and many country artists. They also had Notorious B.I.G. in hip-hop. The Arista label, which Clive Davis was running very successfully, was the crown jewel of BMG.
What’s your memory of your first year, and how you ingratiated yourself with the A&R ‘lifers’ like Clive?
Obviously, I’m biased because I’m seeing it through my eyes. But I showed up, and I didn’t pretend to have any more knowledge than I had. It was obvious not just to everyone else, but to me, that I had no experience in the music business, so I certainly didn’t present myself as someone who did. Initially, I spent my time listening.
The first action I took was to preserve what was good – which was largely Arista and BMG Direct – and then to restructure the divisions that were not doing as well. So we shut down or sold off a bunch of non-core divisions, reduced the fixed overhead, and then focused on rebuilding RCA by bringing in Bob Jamieson and Jack Rovner to turn it around.
“During the time I was there, I think, five out of six years, we had record profits, market share and Grammy Awards.”
RCA’s primary focus became an unknown artist who hadn’t released his first single for the label yet, which was Dave Matthews. That turned into a huge hit and attracted a bunch of other rock artists like The Verve Pipe and others. Then I turned my attention to building up [D2C brand] BMG Direct, by bringing in Warner and Sony products, and that took us from No.2 in direct marketing to No.1 very quickly, all the while not disturbing the great success that Clive had built at Arista.
[With that] I basically just stayed out of the way, something I’m good at. We were able, in relatively short order, to bring the company from No.5 out of six [in US market share] to No.2 out of five. During the time I was there, I think, five out of six years, we had record profits, market share and Grammy Awards.
When you got the global BMG job in 1998, Doug Morris – then a rival – was quoted as praising the “terrific job” you’d done up to that point. That’s a surprising level of gentlemanly conduct when we look around at the fiercely competitive modern music business!
I pride myself on being a friend to all – I’ve never intentionally burned a bridge in my career. It irritates my wife greatly, but I pretty much like everyone.
We all served on the RIAA board, we knew one another; at CEO level, it’s not like you’re competing for artists [against each other], there’s none of that hand-to-hand competition.
Doug was always a gentleman, and I was always a fan. I see the same thing in the media businesses that I run today, where while we compete with others, we’re friendly. I am not a subscriber to the Hollywood adage, ‘It is not enough that I should succeed; my friends must fail.’
During that period, 1995 to 1999, what was the health of the industry like?
We were still benefiting from the CD boom, although there were storm clouds on the horizon. At BMG, we very publicly embraced, specifically, digital distribution. When I arrived, in late ‘94, [it was clear] we had real problems with conditional access software [i.e. DRM].
“We as an industry lost sight of the fact that we were leaving the consumer behind.”
Because of our failure as an industry to launch legitimate alternatives to digital distribution, a whole piracy industry sprung up, with Napster and others. We as an industry lost sight of the fact that we were leaving the consumer behind. That, however, didn’t bite into BMG’s revenues and profits during my tenure – it really only hit hard after I left.
When you look back now, why couldn’t the music industry get it together?
Because we weren’t software experts, and we probably made bad choices with people we worked with. Also, BMG’s market share, even at its peak, was not enough to change the industry overall. We were pounding the table at the RIAA, about [the importance of] digital distribution and piracy, but I think many of our competitors felt like, ‘Hey this gravy train will never come into the station.’
“today you have a [global recorded music] market that’s probably [worth] $100bn, but it’s modified to the tune of $18bn [annually] – down from a peak of about $35bn.”
Clearly, we as an industry, and I personally, did not handle the shift to digital effectively, and the result is that today you have a [global recorded music] market that’s probably [worth] $100bn, but it’s modified to the tune of $18bn [annually] – down from a peak of about $35bn.
Certainly, as I’ve gone on to build ZMC into the company that it is today, with nearly $20bn in assets, we have succeeded by staying in front of the digital curve, rather than trying to catch up with it.
What, when you look back at your period at BMG, would you count as your personal highlight?
My instinct is more to count my personal failings. But you know, the highlights were that I was able to attract, and retain, and motivate fantastic talent who did great work, which was reflected in the company’s success.
You know, there’s that term, a ‘music man’; I don’t think anyone called me that, although I do love music. I didn’t sign artists, I didn’t produce records, I didn’t market records – but I did have an enormous appreciation for the talented people who did those things.
I’m proud that we were able to retain those who were there, and bring in others, and that was reflected in what became an extraordinary culture. The wind in our sails was created by people like Jack Rovner and Bob Jamieson at RCA, Clive Davis at Arista, L.A Reid and Babyface at LaFace, Clive Calder at Jive, Joe Galante and Tim DuBois at our Nashville labels, and many others.
What are your memories of some of those individuals?
I could go on endlessly! Clive Calder was brilliant from both a business point of view and a creative point of view, as well as being exceedingly tough. I had a great relationship with Clive Davis – press reports to the contrary notwithstanding – and I have enormous regard for him, as does everyone else in the industry.
Bob and Jack did a terrific job turning around RCA. Tim DuBois is an immensely creative guy, super straightforward, honest, and honorable. I really enjoyed the time I had with Joe. These are all A-plus people.
What would you say was your biggest professional lesson of your tenure in the music industry?
I was charged with the responsibility of executing Bertelsmann’s approach to retirement with regard to Clive, and it played out very poorly in the press. [Bertelsmann had a mandatory retirement age which Davis hit, and Zelnick was asked to manage the situation.] That’s probably something I regret handling the way I did.
If I could do one thing differently it would be to leave things as they were at Arista. Clive did great. But I had been charged with creating a succession plan and executing it, so I did, and I tried to do it as sensitively as I could.
“That’s probably something I regret handling the way I did.”
I did it in a way where Clive stayed with BMG, which he did, for a long time, through J Records and otherwise, even after I was long gone. But it created a lot of unnecessary controversy, and it created some pain for other people in the mix.
The better part of valour would’ve been to say to my leadership, ‘Look, I understand your points of view about succession, but this is an unusual and outlying case with a remarkably talented, creative executive, and we need to just stay out of the way.’
What did you learn from that experience?
I’ve learned that when you’re fortunate enough to have talented, creative individuals in your environment, then you move heaven and earth to keep them happy, focused and motivated. And I’ve learned, maybe because I’ve gotten older, that age has no place in the discussion, whatsoever.
“I’ve learned, maybe because I’ve gotten older, that age has no place in the discussion, whatsoever.”
People can be super-talented at any age if they remain excited and motivated, and Clive Davis, I think, is the poster child for that. So that was sort of an obvious mistake. There were a few non-obvious mistakes, too – we all make mistakes every day, so there are a few things I wish I’d handled better than I did. But I’m balanced; BMG was a great experience for me overall, and it served me well.
To ask a blunt question, did BMG and the music business make a mistake selling off BMG Interactive, which became Rockstar Games, so cheaply?
I’d say it much more strenuously. When I joined BMG, we all were aware that recorded music was a mature business, and management said, ‘What do you think of [expanding into] the movie business?’
I said, ‘Look, I really enjoyed my seven years in the movie business, and I’m proud of my track record, but it’s a very challenged asset class. Let’s look at the next big growth business in entertainment – let’s get into video games.’ So we did.
We hired a team, and we started acquiring properties for distribution, and just on the eve of watching our first release [hit the market], Thomas Middelhoff, who was then [head] of Bertelsmann, forced us to divest BMG Interactive – over my noisy objections. I didn’t carry the day and we sold BMG Interactive for a penny, essentially, to what was then a fledgling entertainment company called Take-Two Interactive.
I couldn’t have protested more but, at the end of the day, I had a boss. [Reports following Zelnick’s resignation from BMG in 2000 suggested he had developed a difficult professional relationship with Thomas Middelhoff – a crucial factor in his decision to leave.]
Do you ever miss working in music?
When we started ZMC, the first company that we bought was, believe it or not, a record company – Columbia Music of Japan. It was hard, because it had a tiny market share when we took it over, had been losing money for 20 years, and was thousands of miles away.
We were able to [execute] that turnaround successfully and achieved, I think, the highest return on a recorded music deal in that decade, between 2000 and 2010. We exited in 2009, and by the time I was done, trust me, I’d had enough. We don’t have any exposure of recorded music to this day – although I’m not saying we definitely wouldn’t in the future.
There’s been a lot of M&A activity in music in recent years. With your ZMC hat on, what’s your general perception of the opportunity there?
I think the business has gone through its consolidation; it’s taken the pain and come out the other side. It will be interesting to see what happens with Spotify becoming an exceedingly powerful entity.
“Music’s a growth business again now, but it is burdened by the fact that people still pirate the vast majority of material that they listen to.”
Music publishing is still a good, solid business, but it’s changing, and it will change more as subscription services continue to dominate the industry. We’re seeing that it’s much, much harder to break new artists.
Music’s a growth business again now, but it is burdened by the fact that people still pirate the vast majority of material that they listen to. That will change over time, but it’s a burden that no other entertainment industry faces.
What do you see as the music industry’s biggest vulnerability?
The days of selling lots of albums are over, largely – we’re not seeing the end of it, we’ve seen the end of it. So I think the business has to find new [routes] to nurture and invest in new talent, and break artists in a different way.
“The vulnerability is, if a business can’t afford to invest in new talent, it’s burning the furniture.”
The vulnerability is, if a business can’t afford to invest in new talent, it’s burning the furniture. That’s a fear. As an industry, the minute you start focusing only on the past, not on the future, you’ve written your own obituary.
Is there any particular message that you would like to get across to the music business, particularly those you knew and once worked with?
I’ve had a great experience and miss many of my friends in the space. I still see many of them, and I wish them all well.
