Steve Gerstman Interview
Winterland Productions: Merchandising Giants

There's been a revolution in the music business. Sales of T-shirts, headbands, concert programs and other assorted paraphernalia have become big business. And, just as important to a recording artist as sales of their record. Projected sales for New Kids On The Block merchandise, this year — $400 million dollars. Winterland Productions of San Francisco handle the licensing rights and manufacturing of all New Kids merchandise. Winterland also handles the merchandising for Ozzy, Kiss, Ratt, Rush, Joe Satriani, Jimi Hendrix, Led Zeppelin, Yngwie, Cromags, and the list goes on and on.
Steve Gerstman is an executive with Winterland, and we talked with him about the ever growing business of music merchandising.

Q. It's been no secret, that for years now merchandising has been a very profitable business. With that in mind, can you please tell me why Bill Graham (who founded Winterland) sold the company to M.C.A.?
A. I can't answer that. You just have to ask Bill. I can't speculate on that. I just don't know.

Q. Is Winterland the biggest merchandising outfit around?
A. We are. Tour merchandising is kind of like you're as big as your last year's hit. It's just like the music business, who sells more records, MCA. or C.B.S. There is a way of estimating the total volume that you sell, but in 1988, it might be one, in 1989, it depends. I would say, that we're pretty neck-in-neck with Brockum (merchandising). You're asking me to segment it down, and both Brockum and ourselves have a wider business, than just the tour merchandising. Strictly, in terms of tour, their big act was the Rolling Stones. They didn't really have another big act. Guns ‘n’ Roses didn't go out, in 1989. 1990, I don't know what they got that's really big right now. We're going great guns in '90. Any given year, Brockum or Winterland could be doing more tour business in terms of dollar value. In terms of overall music merchandising, it's Winterland. Why I say that is because we have a far wider line of products that are very acceptable at mainstream American retail. New Kids On The Block. Madonna. Janet Jackson. Debbie Gibson. We really have a broad line. It appeals to the children's department. It appeals to the young mens and young women's department.

Q. Are we coming to the day when record stores in malls will outsell the concert merchandise offered at the concert arenas?
A. Right now, the way it looks to me, is that yes, it's eventually going to outstrip it. But then again, it depends on the type of act. You get an act like Guns 'n' Roses, which is a Brockum act, and I think because of their controversial image, the majority in terms of who sells merchandise in this country, your mass merchandisers, your K-Mart, Pennys, and Sears, and Wal-marts, and all of those guys, they're afraid of Guns ‘n’ Roses. But, they're not afraid of New Kids On The Block. So, I think it depends on the particular act, that you're looking at. Kenny G., Michael Bolton, Eric Clapton, Heart, Bonnie Raitt, those kind of middle of the road, older types. I think you're always going to sell more at the venues, than you are at the retail. Well maybe not, that could change.

Q. What accounts for the merchandising success of New Kids On The Block. They've outsold Elvis and the Beatles?
A. Yeah, it's true. I look at it as a combination of factors. The country's different now, than it was even ten years ago, and certainly twenty and thirty years ago. Still, the retail environment for merchandising in the 60's and 70's just wasn't what it is today. We're more consumer oriented. A generation ago, they were talking about us as the T.V. generation. Maybe today, we're the T.V. consumer generation. You got your shopping channels. I think that would have been fairly inconceivable to think of that 20 years ago. MTV is a phenomenon that has made music, the kind of lifestyle, the kind of image, the kind of fashion, that artists who have a younger appeal, communicate music and fashion have kind of come together, so that a New Kids On The Block which is a statement that a kid is making when they wear their New Kids On The Block colors. The kids now have their own thing that they can wear. They can wear Milli Vanilli, Madonna, or Debbie Gibson, and be making a fashion as well as a lifestyle statement, as to who I am. And, there's more disposable income, that's at the disposal of young people. They're spoiled, using the older expression.

Q. It would appear that the artist and the venue where the artist performs, make more money from the sale of merchandise, than the merchandising company.
A. Well, yeah. When you take let's say a $20 shirt; between the artist and the venue, that could account for $15 to $16. We don't make a big margin. We make much smaller margins than record companies do. When record companies have hits, they work on gross margins of over twenty per cent. We typically work on gross margins of around ten per cent, which is not a profit margin, it's a gross margin. It's the difference between all our expenses, our road expenses, our vending expenses, the cost of goods, what we have to pay to the hall, what we have to pay to the artist. You take all of them out, and what's left out of that $20, there's $2 left for Winterland, which comes back into our office and then has to go to pay for my salary, for the phone calls, for the building, for the whole operation, all the overhead.

Q. So you really have to sell a huge amount of merchandise to make this whole operation work.
A. Definitely. It's a volume business. In the record business when you have a big hit, you can start reducing your costs significantly. Start pressing a million where you were pressing a hundred thousand before, and then your per unit costs go down. Our per unit costs don't go down all that much. So, the millionth shirt costs us about the same, as the first shirt. When you have a huge act to merchandise, a lot of your costs will acutally go up. You need more vendors, so that people don't wait in huge lines, 'cause the amount of time you have to sell it doesn't expand. It's the same amount of time. You need to do a more complex product line, which will reduce your profit. Anyway, it stays flat for us, which means yeah we've got to do a lot of work, in order to make some money.

Q. Ozzy, Kiss, even Led Zeppelin must sell a lot of T-shirts for you, but you also handle Voi Vad, Sea Hags, Forbidden. Do these people bring in the money for Winterland?
A. Let's talk about that. There are a couple important points. Who's going to become the big hit of tomorrow? No one knows. So, we need to keep our relationships with bands that we feel have potentially to become larger tomorrow, and sell more. And that means a lot of times we'll do a Forbidden or a Death Angel. Essentially when you look at road costs and the costs of production, we're losing money. So we do take on artists on the hope that they will get bigger.

Q. Some groups get millions of dollars upfront for their merchandising. And this is not an unusual situation is it?
A. Advances in the music business have become very important. Baby bands selling off merchandising rights for $10,000-$30,000 has become very important to their survival. When you get to be a headliner and you've got a proven track record of selling merchandise, then it becomes a bidding war. I understand that the deal Brockum did with The Rolling Stones which included a lot of rights besides merchandising, was in excess of $70 million dollars.

Q. Who approaches who in the merchandising business?
A. It can go either way. I take the calls from bands that I've never heard of. We collect the information. We watch 'em and keep in touch with 'em. I take calls from business teams we have dealt with, attorneys, or booking agents or managers. I call them. It can go either way.

Q. Is the sky the limit when we're talking about merchandising?
A. If what you mean is, is music merchandising looking like a good area, is it looking healthy, is it looking like it's got growth like we've seen, I would have to say it looks very good. It looks very healthy. At the same time we have to be very careful, because a phenomenon like New Kids On The Block which has skewed our numbers all out of proportion, comes along once every ten years, if that. A New Kids is an extraordinary phenomenon. It would be nice to have that every year, but it would be unrealistic to think that. Our business is diversified. We're screenprinters, one of the biggest in the world. We have accounts like Hard Rock Cafe. We do tops for Levis. We do all our work in-house. We do our art work in-house, and that actually differentiates us from the other music merchandisers, who contract all that out.