The Los Angeles-based company (with no ties or relations to a previous Priority Records label that was a subsidiary of what was then CBS Records) was formed in 1985 by three former K-tel executives: Bryan Turner, Mark Cerami and Steve Drath.[18][19] Initial funding was provided by R-tek,a company headed by former K-tel board members: Ray and Harold Kives, and their company took an initial 50% ownership in Priority. Priority bought out the R-tek interest in 1987.

Its first success came with novelty act the California Raisins. To support early operations, Priority Records licensed repertoire from others and released compilation albums using archive recordings while developing its own artist roster. Priority Records achieved success as an independent label by developing a precedent-setting "street-based" formula of underground marketing which bypassed mainstream radio.[23][citation needed] This approach allowed Priority to sell millions of records without entering into the fiercely competitive major label battles over radio airplay.[citation needed] Priority's strategic marketing team was developed by Vice President Alyssa Pisano, who led Priority's Marketing and Creative Services Department between 1987 and 1996. Priority's roster featured numerous gold, platinum and multi-platinum artists, including N.W.A, Ice Cube, MC Ren, Eazy-E, Master P, Snoop Dogg, Silkk the Shocker, Jay-Z, Paris, Mack 10, 504 Boyz, C-Murder, Mia X, Westside Connection, No Limit and Ice-T.