In around 1972, Nesmith started the record label Countryside Records with Jac Holzman, the founder of Elektra Records. Also in 1972, Nesmith and Phyllis were divorced and he moved to Carmel-by-the-Sea, California. In 1974, Nesmith started Pacific Arts Records and released what he called "a book with a soundtrack", titled The Prison, as the company's first release.