Veteran Industry Execs Will Head Start-Up Internet Record Company

Record industry veteran Gary Gersh will reenter the music business today with the launch of an Internet record company called DEN Music Group.

Gersh and his partner, rock manager John Silva, have signed four-year, multimillion-dollar contracts to become co-presidents of the cybermusic start-up, which is a subsidiary of Digital Entertainment Network Inc., a Santa Monica company that creates and streams youth-oriented shows on the Internet.

The move comes just six weeks after Gersh and Silva walked away from a reported $50-million label deal financed by former super-agent Michael Ovitz. Silva--who runs a management company that represents such top rock acts as the Foo Fighters, Beastie Boys, Beck, Rancid and Sonic Youth--and Gersh met with a number of major record corporations and financiers before deciding to close the deal with DEN.

“We spent a lot of time chasing money to start our own label, but the longer the process went on, the farther we got from what we really wanted to do,” Gersh said. “We wanted to be involved with something small and creative, not something giant and corporate. What appealed to us about DEN was the chance to be part of something bigger than a record company--a 21st century, Internet-based media company designed to use music as a part of a larger, more exciting whole.”

Gersh, a former Capitol Records president and talent scout who discovered such rock stars as Nirvana and Hole, has yet to sign any artists to DEN. He says DEN plans to release its first recording within months and is negotiating with several acts to join the company, but denies rumors that the Foo Fighters, who are free agents, will sign.

Gersh and Silva say DEN will offer artists higher royalty rates and shorter-term contracts that will allow acts to retain 50% ownership of their master recordings--a proposal almost unheard of at major record companies. The company plans to promote, sell and eventually distribute recordings from DEN’s current Web site, which features dozens of shows about punk rock, extreme sports and the neighborhoods of East Los Angeles, as well as an Asian-style Hardy Boys series.

Besides signing their own acts to DEN, Gersh and Silva will look to build sales of other major and independent record companies by loading DEN’s original programs with music that viewers can buy while watching the programs. DEN hopes to create new marketing opportunities for its acts and competing bands by creating episodes of original Internet video programming starring rock and hip-hop artists, which Silva said will cost less to produce than most music videos.

“This isn’t like some major label where you have one lone Internet guy off in the corner of this giant machine trying to figure out how to reach the audience on the Internet,” Silva said. “These guys understand what Web users want and how to deliver it.”

DEN was founded by Mark Collins-Rector, an Internet pioneer who eight years ago launched Concentric Network Corp., one of the first Internet service providers. Colins-Rector and several of the company’s other partners funded the start-up of the company, which has grown from two employees to 60 in the last three years. DEN, which has since raised millions of dollars in venture capital from Microsoft and other investors, is expected to announce a public offering soon, sources said.

Gersh got his start 28 years ago as a clerk at a Los Angeles record store called Licorice Pizza. He landed his first record company job in 1975 at Capitol as a customer service representative who put up posters and counted albums at retail accounts.

After working at a series of jobs in sales, distribution and promotion, Gersh was hired in the late 1970s as an artist and repertoire executive at EMI America, where he signed such hit acts as David Bowie, Stray Cats, Kim Carnes and John Waits. By 1985, he had joined Geffen Records, where he went on to sign and work with some of the hottest rock and pop acts in recent history, including Nirvana, Hole and Counting Crows.

Gersh was hired in 1993 to rejuvenate EMI Group’s languishing Capitol Records, where past management had been criticized for relying too heavily on old Frank Sinatra and Beatles catalogs. Gersh succeeded in luring a stream of notable artists to Capitol, including the Foo Fighters, Everclear, Paul Westerberg, Vic Chesnutt and Rosanne Cash.

But none of those acts sold many records, and Gersh was ousted from Capitol last June primarily because of the label’s sluggish performance, sources said. After his dismissal, Gersh teamed up with Silva to form a new management company called GAS Entertainment. The two quickly began shopping a traditional label deal, but got few offers from the major record corporations with whom they met.

In January, Gersh and Silva began negotiating a deal with Ovitz and his new Artist Management Group. The agreement was reported as complete several times in a variety of media outlets. But Gersh and Silva say they decided to pull the plug on it in April--just weeks before the label was set to launch. Ovitz did not return calls.

“The truth is John and I like Mike Ovitz a lot and he made us a very attractive offer,” Gersh said. “But we walked away from the deal because we realized there wasn’t going to be room for us to do things outside of the box like DEN in our relationship with Mike. And the more we proceeded forward, the things outside of the box became much more important and exciting to us. That’s why we’re here today.”