A new recording studio stakes it pitch on service, but will its customers care?
SOMEHOW I HAD EXPECTED TO BE dazzled by the activity at Sanctuary Recording Inc. For days, I had been tuning in the latest sounds, looking forward to seeing how recording artists -- straight out of People magazine -- put their ideas on tape. During the taxi ride from my hotel in midtown Manhattan down to Lower Broadway, I was envisioning rooms full of exotic equipment -- electronic gizmos that could produce the effects of 60-piece orchestras. Turns out I was a little early.
From the sound of power drills echoing down the 100-foot hall, it was clear that the opening of New York City's newest recording studio had been put off. In many ways, it was still a construction site. The electricians were running cables through walls. The finish carpentry was yet to be completed. Aside from the newly installed gray carpeting on most of the floors, the space was empty. Not a keyboard to be found. Not even a chair. But in a matter of weeks, Tom Silverman insisted, it would all come together. Sanctuary, located on the ninth floor of an old garment warehouse, would soon throb with activity. And what used to be 6,000 square feet of open loft area, he told me in mid-April, would have a whole new identity.
For about two years, Silverman, 34, had been working day and night toward that moment -- pinning down details, studying the marketplace. There were dozens of other recording studios within a 10-minute cab ride -- and hundreds of them within a half hour. But in spite of all the competition, Silverman was amazingly confident. While most studios put their resources into the latest equipment, Sanctuary, he explained, was going to offer something different. His model wasn't another drab studio with "battery acid for coffee," but a service-minded hotel, maybe even an inn.
Silverman had already spent more than $380,000 on the construction -- much of it behind the walls in extensive sound-proofing and electrical work. And in May, he needed to begin generating income. A few weeks before the target, there were already signs that word of Sanctuary was beginning to spread. The studio's full-time manager, Howard Kessler, had recently booked 80 hours of time in the studio's most expensive room for The Washington Squares, a folk-rock group recording a new album. It's not the kind of group that Silverman expects the studio to draw -- he anticipates more business from dance-music, R&B, and pop types -- but he's not picky. He's happy to cater to anyone who will play.
WHEN MUSICIANS USE A RECORDING studio, they pay an hourly rate for the privilege of using a room and some of the owner's equipment. If they need other equipment, clients either bring their own or rent it. Depending on what they're working on, they'll spend from two hours to several months doing and redoing their work. Oftentimes, they end up working all night putting down a few tracks, breaking only for meals or a few hours of sleep. But despite all the time and energy that goes into recording, mixing, and editing sound, most studios don't do much of anything to make the lives of their clients less frazzled. Among other things, most studios are seedy or sterile, with crummy bathrooms, no showers, and nowhere to take a nap.
Sanctuary is aimed specifically at professional musicians and engineers who are tired of the drudgery of such a studio life. Sure, it's going to have a lot of snazzy equipment ($700,000 worth). But at least half of the thinking, it seems, has gone into making it -- in Silverman's words -- "very un-studiolike." It has a full kitchen, a private bath with shower, a guest room, four private lounges, and a full-time staff of at least four people who'll be on hand 24 hours a day. To give it some style, Sanctuary will be furnished with sofas and whimsical artifacts from the 1950s that Silverman has been collecting from all over the country. And despite its investments in comfort and image, Sanctuary will charge the same kinds of rates as its midpriced competitors.
Silverman didn't pull his idea out of the blue. Among other things, he is the founder of an independent record company in New York City called Tommy Boy Music Inc. (now half-owned by Warner Bros. Records), which has specialized in dance and rap music since its inception. Over the past decade, Silverman has spent many a long night behind control panels of studios all over the city. (He likes the business so much that he built a studio in his uptown apartment.) But none of the studios he used -- none of the midpriced ones, anyhow -- provided the overall service he was looking for. He'd book time in them, paying an average of $75 for a studio hour in the Times Square area, but he wasn't happy. And neither, he sensed, were a lot of other people.
Silverman says he got serious about building his own commercial studio only a year or so ago, when his studio at home was being converted into a baby's room. But listening to him talk, it seems he's been thinking about it for years. "I knew what all the scams were," he says. In fact, the section of his business plan called "The Competition" reads like the memoirs of a disgruntled record producer who's had his fill of studio experience:
Competitor 1: Small studios, relatively claustrophobic. Dirty old bathrooms. "Two-elevator building, with one usually out of service . . . In the sleazy Times Square area." Booked 80% of time.
Competitor 2: "One elevator which, when not broken down, features the nauseating smell of dead rats . . . Its look could be best described as 'fraternity house.' Near Times Square." Booked 80%.
Competitor 3: "Features an even lower grade of the 'fraternity house' style . . . One small bathroom on premises. Also near Times Square." Around 60% booked.
Competitor 4: "Clean and sparse but no discernible style . . . No real lounge areas . . . On the fourth floor of a one-elevator building." Lower Broadway." Booked 60%.
It would have been one thing, says Silverman, if these studios were cheap. But they were all charging around $125 an hour (mostly without a sound engineer) and the elevators were still breaking down. Initially, Silverman considered building a small studio around the corner from his record company on First Avenue between East 90th and 91st, filling it with own equipment.
But when his plan fell through, he began thinking about doing something in a lower-rent area of the city -- and on much bigger scale. Instead of one or two income-generating rooms, he considered four or five. The loft on Broadway had many selling points -- 12-foot ceilings, four elevators, natural light -- and the neighborhood, known as NoHo, was coming up fast. So last August, Silverman signed a 10-year lease at $11 a square foot and began pulling his ideas together.
MARKETING: LIKE A NEW HOTEL or restaurant, the challenge for a new recording studio is getting people to try it. But you won't see a lot of advertising for Sanctuary in Recording Engineer/Producer or Mix magazines. Nor, says Kessler, will there be a grand opening of any kind. (Sanctuary's promotion budget: $1,542 a month.) He and Silverman believe that in the recording business, word of mouth is everything. And the best way to get people talking, they say -- next to being the site of a few big hits -- is to show them what you have and how you can meet their needs.
Since February, Silverman and Kessler have been meeting privately with record producers and engineers and walking them through the newly renovated space. ("Years ago," Silverman says, "the best contacts were the record companies. But now, the engineers and producers make most the decisions about where the work is done.") They spend part of the time going over the four-page list of equipment. But they're quick to point out that they'll gladly rent anything customers want.
Sanctuary is spending hundreds of thousands of dollars on hardware. That may be less than many of its competitors are spending, Silverman explains, and the company's won't go after "all the latest geegaws." ("I want to maintain cash flow," he says.) But he's confident that the things it will have will make technical types drool. Among them: A Synclavier synthesizer, an API console board with moving fader automation, and a Studer 24-track tape recorder. In contrast to the more ephemeral gear many studios are purchasing, he says, "a lot of our stuff is classic -- it gets better with age."
Although Silverman and Kessler think Sanctuary's equipment list will be a lure, they're wagering that some of their best selling points will come under the heading of "feel and vibes." Sanctuary's studio A, for example, the highest-priced studio, has a spacious control room (30 feet by 22 feet) and a south-facing window. It has an adjoining guest room, and down the hall is the private bath. Having a place to rest or to grab a hot shower, argues Silverman, can make the difference between a so-so recording session and a truly great one. "A producer might be able to work 20% longer without fatigue."
But you don't have to spend $120 an hour to have pleasant surroundings, either. Each of the other sound or editing rooms (ranging from $55 to $70 an hour) is attached to its own lounge and close to the four elevators. To keep work areas totally private, there are combination keypad locks outside of every door. Everything Sanctuary does, Kessler says -- from the quality of coffee to the fresh fruit and flowers to the attitude of employees -- will be geared to making clients feel welcome. "If somebody wants 10 pounds of beluga caviar," he says, "it will be here."
Silverman and Kessler plan to spend the early months pitching Sanctuary to engineers and producers they know -- primarily people who specialize in dance music. They're offering 20% discounts during the first year to selected customers who pay cash. Some business -- maybe 10% -- could come from Tommy Boy Music's own rap and dance-music groups, Silverman says, although they won't get better rates than other clients. At some point, Silverman may do a mailing to advertising agencies and jingle houses in hopes of diversifying the clientele; because ad agencies book shorter periods, they'll pay substantially higher rates.
This month, during the New Music Seminar, a music-industry convention with which Silverman has been associated for many years, Sanctuary will become a lot more visible. For several nights, Silverman says, "we'll be holding technical classes in the studios." The hope, of course, is that this exposure will lead to future business.
According to the company plan, the business will start out slow, with utilization of 20% during May. But by the end of the first year, Silverman thinks the facilities will be booked an average of 50% of the time. If they are, Sanctuary will have revenues of about $1 million -- and profits of $146,000.
OPERATIONS: SANCTUARY WAS DEsigned for maximum flexibility. The six studios and editing rooms can be rented out at the same time to different clients. Or they can be used in conjunction with each other, since they are all wired together. While Silverman thinks the flexibility is important, the key to Sanctuary's success, he says, will be the extent to which it runs differently from other studios.
The main ingredient in making the business work, Silverman expects, will be a staff of service-minded people. He's confident that Kessler, who ran a successful studio in New Jersey, has the ability to run the business on a day-to-day basis and to find and motivate good people. Kessler will initially be paid $30,000 per year, plus 8% of aftertax profits.
Unlike a lot of studios, Sanctuary has chosen to operate without staff engineers (although it will have assistant engineers working around the clock). The main reason, Silverman says, is to give clients the freedom to use the people they want -- and to save on overhead. Good engineers, he says, earn $600 to $700 a week on staff whether they're busy or not. Free-lancers, on the other hand, can make two or three times that rate on their own. As a service to clients, Sanctuary will maintain a book of freelance engineers and make referrals at no extra charge. Silverman hopes the system will become a spin-off benefit by encouraging free-lancers to channel work to Sanctuary.
In other areas, Sanctuary will be extremely well staffed. Kessler says he'll have six full-time employees right off the bat to provide basic coverage 24 hours a day, seven days a week; as things get busier, he'll add more. He has already hired three assistant engineers, who have agreed to work 60-hour weeks at $300. (During slow periods, he wants them to learn how to operate and maintain equipment.) He has also hired six receptionists at $7.50 an hour, and a maintenance technician ($650 a week) who will be at Sanctuary Monday through Friday and will be available all other times, reachable by beeper.
Over and above the paid staff, Kessler is planning to make use of unpaid interns. To keep the facility clean and operating smoothly, he expects to pay a cleaning crew $200 a week and a part-time bookkeeper $160 a week.
Recognizing that employee turnover is one of the industry's big problems, Sanctuary is hoping to generate some loyalty by offering free health insurance after three months on the job. But turnover notwithstanding, Kessler says, Sanctuary's one inflexible requirement of staffers is a positive attitude. People who aren't interested in making things pleasant for clients will be replaced.
FINANCE: ABOUT A YEAR AGO, when Silverman first approached his Chemical Bank lending officer about a $400,000 loan, the response was promising. His record company and other ventures were making money, and he had 12 separate accounts with the bank. Overall, he expected the space renovations at Sanctuary to cost about $250,000, and the remainder of the money would be earmarked for recording equipment, furnishings, and working capital to cover two months of negative cash flow. He was also planning to contribute nearly $500,000 worth of equipment he already owned.
Before Christmas, the bank extended him a loan for $100,000 at one and a half points over prime, and Silverman was expecting to get approval for the other $300,000 within a matter of weeks. But in mid-May, he was still waiting. Silverman thinks last October's Wall Street crash spooked the bank's credit people; he now has "major-league doubts" about whether Chemical will provide any more money.
Fortunately, he was able to tap other sources to keep things moving. Last January, he arranged to borrow $100,000 from his father at 10% on a short-term basis. (He plans to repay half of it in August and the other half next January.) And he pulled together another $90,000 of his own from savings.
After spending about $325,000, Silverman was about $225,000 to $250,000 shy of the amount he needed to open Sanctuary. The reason: the construction costs exceeded the original estimates by $150,000. He has pitched the plan to another New York City bank -- and he had also discussed selling 20% of Sanctuary to an industry contact from Miami for $300,000. The second bank offered to lend him $95,000 for two years at one point over prime, Silverman says. The amount was too low, and the bank wanted him to shift some of his other accounts, which he was not eager to do. The potential investor is no longer in the picture.
To minimize his financing needs, Silverman has moved about $50,000 of the new equipment he intended to buy to phase two of his business plan. To cover the resulting equipment shortfall, he has contracted with a leasing company for a five-year lease. He is paying a fixed rate of 12% on $103,000, which he and his wife have personally guaranteed.
SILVERMAN RECKONS HE HAS SPENT 60 or 70 hours huddled in front of his computer, fine-tuning his plan. Having been involved in other businesses -- and being so familiar with other studios -- he thinks he has a huge advantage over his competitors. So he's confident that Sanctuary will be a winner. By the third year, his projections show, the company will generate aftertax profits of $511,197 on revenues of $1,764,740. And that is if it's booked only 72% of the time. At higher utilization rates, which he says are entirely possible, profits would be even greater.
But even Silverman concedes that there are at least two areas in which Sanctuary could be on shaky ground. The first has to do with how his costs will be affected by technology -- or, to be more specific, by his clients' demand for it. And the other has to do with whether or not he can execute the service idea he's bet his success on.
For the past few years, new sound equipment has been sweeping through recording studios in New York and elsewhere like wildfire. Every few months, industry people say, there's a hot new toy. And it's hard not to buy it. Many of Sanctuary's direct competitors, for instance, have recently gone way into debt to buy state-of-the-art SSL (Solid State Logic) boards, which cost up to $300,000. Despite all the publicity, Silverman doesn't think he needs to have one in order to be competitive. "We're trying to see through the fad stage," he says. Whether prospective customers will buy this philosophy remains to be seen.
The execution question is more straightforward, if also more difficult to resolve. "The key word around here is going to be service," Silverman says. "We're not in the recording-studio business, we're in the hospitality business." But it's not certain whether Sanctuary can deliver what it says it will. No matter how important service is to the people in charge, getting employees to care about it is something else.
And finally there's a more fundamental question, the answer to which Silverman and Kessler take for granted. Will customers really care about the comforts they think are so important? Or is the niche too narrow? True, the hottest studios in New York -- including the place where Springsteen and Madonna record -- may not offer fruit baskets as standard policy, Kessler observes. But he and Silverman think that in the future clients will expect more.
"Once people try us," Kessler says, "they won't want to work anywhere else. We're going to put fun back into the recording studio."
* THE COMPANY: Sanctuary Recording Inc., New York City
* CONCEPT: Midpriced recording and music production studio emphasizing service and comfort
* PROJECTIONS: Third-year pretax profits of $890,660 on revenues of $1,764,740 (net margin: 51%). Profitable from third month of operation
* HURDLES: Convincing artists that comfort can help them perform better, that it's worthwhile to forgo some state-of-the-art equipment for ambience; achieving positive cash flow quickly enough so that thin capitalization won't hurt
Sanctuary Recording Inc. projected operating statement, monthly
Year one Year three
Utilization rate 51% 72%
Rentals: studios A and B (average $ 95/hour) $ 58,529 $ 83,568
Rentals: editing rooms (average $ 55/hour) 30,012 48,382
Other rooms 10,241 23,192
Equipment rentals and tape sales 5,329 7,314
Discount 19,557 15,394
GROSS REVENUES 84,554 147,062
Manager's salary and bonus 3,422 5,766
Other payroll 14,576 16,546
Rent 4,465 5,308
Payroll and rent taxes 3,067 3,446
Utilities and telephone 3,415 3,265
Supplies, contingencies, and decorating 3,091 3,320
Promotion 1,542 1,500
Maintenance 500 1,000
Legal and accounting fees 1,750 1,000
Bad debt (5% prediscount revenues) 5,206 7,757
Miscellaneous 2,058 3,855
Total expenses 43,092 52,763
NET OPERATING INCOME 41,462 94,299
Depreciation/amortization 12,917 13,217
Interest and principal 16,384 6,360
NET PRETAX PROFIT 12,161 74,222
Tom Silverman, 34 Founder and owner
Chairman and founder, Tommy Boy Music Inc., which since 1980 has become one of the top 10 independent record companies in the United States and is half owned by Warner Bros. Records . . . partner in New Music Seminar, a music-industry convention . . . owner and publisher, Dance Music Report, a trade publication, since 1978 . . . B.A., Colby College, Waterville, Maine
Howard Kessler, 28 General manager
At Sanctuary since January . . . studio manager of Eastern Artists Recording Studio, East Orange, N.J., 1986 to '88 . . . assistant to music director, radio station WXRK, New York City, 1985 . . . manager, Mr. G's nightclub, Fairmont, W. Va., 1981 to '82 . . . B.A., Salem College, Salem, W. Va.
Sanctuary, Sanctuary Industry
annual projection annual projection average *
1989 1991 1987
Age of company (years) 1 3 13
Revenues (in $ 000) 1,015 1,765 418
Net profit margins 14% 51% NA
Employees 6 18 10
Control rooms 2 2 1
Room utilization rate 51% 72% NA
Prices ($ /hour) $ 30 to $ 120 $ 30 to $ 120 $ 96 to $ 160
* For New York City studios
Source: Pro Sound News