Hip-hop economy: from New York to Nepal, hip-hop has become America's leading cultural export. Across the globe, it's changing how businesses are marketing their products. (Special Report Part 1 of a Series).

ON A RAIN-SOAKED MARCH AFTERNOON, RAP ARTIST Jay-Z and his partner. Damon Dash are taking care of business. They cruise down the slick Manhattan streets--Jay-Z in his sleek. black Mercedes and Dash in a huge Land Rover with entourage in tow--to their next appointment. This time, they're preparing for what will turn out to be a two-hour photo shoot. Jay-Z inspects more than 15 styles of shoes before selecting the right footwear (he never wears the same pair twice), while Dash, an amateur boxer still pumped up from 12 rounds of sparring, uses his weapons of choice--a two-way pager and cell phone--to keep track of pending business deals.

This is how they roll. In any given hour of any day, the duo could be found in the studio producing the next hottest CD, shooting a music video, reviewing the latest gear from their successful line of urban apparel, or screening one of their "thug life" movies, chock-full of rap acts from their music label. To manipulate these complementary activities, they pay attention to the smallest of details--even shoes for a photo session--and seek out the next lucrative opportunity. It's all part of a strategic plan to effectively use one project to cross-promote their image and cluster of brands.

That's how Jay-Z, Dash and Kareem "Biggs" Burke created Roc-A-Fella, Enterprises, a $300 million empire that used hip-hop to emerge as a major business force. Roc-A-Fella's music and films may depict the hard knock life, but its operation is top flight. And, in the process, it's generating paper--loads of it. "We didn't like the way the music biz was treating us," says Dash, CEO of Roc-A-Fella Records, the label he formed with Jay-Z (a.k.a. Shawn Carter), 10 years ago. "I'm not going to let me anyone tell what to do. It's our music and we're going to do it our way."

Over the years, Roc-A-Fella expanded on that philosophy. Today, visit their Website and you can find--and purchase--an array of products through "Roc-A-Fella Center." Such efforts have generated $100 million for their record label, another $150 million for Roc-A-Wear apparel, and $50 million for projects such as films. And coming soon: Roc-A-Fella Sports.

The products and images created by Roc-A-Fella's Dash and Jay-Z, as well as their brethren Snoop Dogg, Busta Rhymes, and Master P have created the Hip-Hop Economy, an economic force transforming commerce across the globe. Think that's hype? Well, think again. Every hip-hop CD sold, every dollar made from urban gear, every buck generated from television shows, radio programs, films, and even video games with a bit of "flava" contribute to this $5 billion burgeoning sector.

Over the next four issues, BE will explore hip-hop's impact on the music, fashion, sports, and film industries. In this part, we reveal its power in shaping advertising campaigns and directing consumer purchases.

Hip-hop is the culture of America's urban youth. It's a way of dressing, speaking, and behaving, all with an in-your-face attitude. It evolved from rap music, a sound born in the inner city, characterized by syncopated beats and dynamic lyrics. In some cases, the music portrays the darker side of urban life, glorifying violence, materialism, illegal activities, and misogyny. On the flip side, it's also a form of expression embraced by youth culture.

The origins of hip-hop music can be traced to DJ Kool Herc's turntable wizardry in the mid-1970s, but the culture formed as break dancing, graffiti art, and deejaying converged. Popular in urban America, hip-hop remained an underground phenomenon until the Sugarhill Gang's "Rapper's Delight" became the first song in this genre to hit the pop charts in 1979, peaking at No. 36 on the Billboard charts. Despite its popularity and the success of Old School acts such as Grandmaster Flash & the Furious Five, Kurtis Blow, and Run-DMC, critics argued hip-hop music would be just another fad. Roughly 25 years later, it has become more than a music genre. It's a culture that is embraced by youth worldwide. It's no longer a black thing; whites purchase roughly 60% of hip-hop records.

In fact, hip-hop music sales made up 89.2 million, or 11.7%, of the 762.8 million albums sold in the U.S. in 2001--ranking it the third bestseller behind rhythm &blues and alternative music, according to SoundScan, a White Plains, New York-based firm that monitors U.S. album sales. At an average of $12 per CD, that's more than a billion dollars in hip-hop music sales alone. The Hip-Hop Economy slumped in 2001 when the U.S. slid into recession, but sales were more robust in 2000, totaling 101.5 million of the 785.1 million albums sold in 2000 for a total of $1.2 billion. When these revenues are combined with clothing, film, and television revenues, the market grows exponentially.

This sector goes beyond American shores. Its influences can be found in clubs, clothing, and the attitude of youth from Germany to Japan. "It's always been big overseas," says Kim Osorio, music editor for The Source, a publication that's considered hip-hop's bible. "If you go to Japan, the influence hip-hop has on the culture is crazy. It's different, though. They're still break dancing."

After years of being shunned by corporate America, big business has become more aggressive in its use of the medium to appeal to young people. Music videos have become a venue for manufacturers to showcase their wears to a market eager to spend cash. Just open a magazine and you're likely to see rapper Wyclef Jean at a soundboard with a bottle of Pepsi. Busta Rhymes, on the other hand, prefers Mountain Dew, which he hawks on television using the same pulsating beats and outrageous attitude that characterizes his music. And, on billboards throughout New York City, Foxy Brown strikes a pose in her Calvin Kleins.

The sheer power of the Hip-Hop Economy is that a product can become a top seller simply by being mentioned in a tune. It started with Run-DMC's "My Adidas." In 1987, Russell Simmons, the undisputed "Godfather of hip-hop" convinced executives from the athletic shoemaker to sponsor the rap group's tour, asserting that Adidas could gain market share from Nike and Reebok in the sneaker wars. Simmons boasted that Run-DMC would have more "street credibility" than any jock. Since then, hip-hop has been known to drive sales for everything from two-way pagers and cellular phones to Timberland boots, as young consumers see their favorite hip-hop artists sporting such gear.

The success of the Run-DMC/Adidas partnership led to rappers, officially and unofficially, endorsing products. In 1994, when Snoop Dogg's "Gin and Juice" hit the charts, sales for Tanquery Gin went up 10%. Riding that wave, Absolut Spirits Co. executive Carl Horton successfully introduced Seagram's Gin & Juice product. Other liquors mentioned in rap songs include "Henny" (a.k.a. Hennessy), "Dom P." (a.k.a. Dom Perignon), and Cristal Champagne. Earlier this year, Sean "P. Diddy" Combs and Busta Rhymes released a song titled "Pass the Courvoisier," celebrating an upscale brand of cognac.

Witnessing the power of the culture, major companies increased advertising to reach young consumers. Some $150 billion was spent in advertising in 2001, according to Wilkofsky Gruen Associates, a media, entertainment, and telecommunications research firm. Most of that money--$53.5 billion worth--was spent on network television spots, with the remainder split between cable TV, radio, newspapers, magazines, and the Internet. "Advertising tends to follow popular culture, and clearly rap has built a popular following," says Jeffrey Logsdon, an analyst at Gerald Klauer Mattison & Co. "And to utilize that, either from a talent standpoint or a music standpoint, furthers the hope of an advertiser identifying with an important segment of the population."

In the `80s, the Motown Sound dominated television ads and soundtracks before the trend ran its course (Remember the animated Motown-singing California Raisins?). In the `90s, rap was the leading theme music. But the key, a decade ago as well as today, is for advertisers to come up with a message that connects with young people.

Reginald Jolley (a.k.a. ReggieKnow), formerly creative director at Burrell Communications Group Inc. (No. 3 on the 2001 BE ADVERTISING AGENCIES list with $179.4 million in billings), won praises for his inventive "Obey Your Thirst" campaign for Sprite soft drink. Introduced in 1994, the campaign has featured pitchmen such as Old School rapper Afrika Bambaataa of Soul Sonic Force, as well as popular performers such as Fat Joe and Mack 10. The campaign established Sprite as one of the leading brands for Coca-Cola Co. in the `90s, and, at one point the fastest growing carbonated drink in the U.S. According to Beverage Digest, Sprite is still the leader in the lemon-lime category, holding 68% of the market and outpacing its rival, 7 Up. "[Jolley's] campaigns were successful because he really understands the culture. He lives it and knows what the audience is looking for," says Anslem Samuel, culture editor for The Source. "Now when you have some lamebrain campaign where there's someone attempting to rap or do a jingle that mimics a style of rap, it comes off corny because it's obvious that someone didn't do their homework."

As much as using the hip-hop culture can make an advertiser's product appear cool, it's not without risk. The advertiser has to gain street cred with the hip-hop community without offending African Americans in general. One faux pas came courtesy of Toyota Motor Co., which ran an ad in spring 2001 featuring a close-up of a smiling black man with a gold Toyota BAV4 imbedded in his front tooth. Many African Americans found this highly insulting, and the company pulled the ad and initiated a $7.8 billion diversity and job-training program after the Rev. Jesse Jackson threatened to launch a boycott of the automaker. "This is a very smart consumer and you have to be real with him. There [are] some people who can do it and some people who can't," says Carol H. Williams, president of Carol H. Williams Advertising in Oakland, California (No. 5 on the 2001 BE ADVERTISING AGENCY list with $91 million in total billings). "It's about knowing who you are and who your target market is and how far in their door you are welcome at any given point."

Entrepreneurial hip-hop artists such as Sean "P. Diddy" Combs and behind-the-scenes moguls such as Simmons and Dash employ a different strategy to market their products and artists. All three have created a series of complementary ventures. In fact, some like Simmons decided to join Madison Avenue as a means of controlling hip-hop's image and accessibility. Two years ago, Simmons' start-up advertising firm, Rush Media, joined forces with Deutsch Inc., a billion-dollar ad agency with high-profile clients such as IKEA, Pfizer Pharmaceuticals, and fashion designer Tommy Hilfiger, to create dRush L.L.C. The venture, co-owned by Simmons and CEO Tommy Deutsch, is seeking to be the leader in "youth-culture advertising."

Percy "Master P" Miller has taken a different tack with his No Limit Enterprises. With $249 million in sales for 2000, the business includes music, clothing, film, television programming, electronic devices such as pagers and cellular phones, real estate, and fashion. "Most guys get into this business to be hard-core. I'm in this to show people that we could come from nothing and still be able to deal with corporate America," Master P told BE. "I don't have to go to Harvard, and still I'm able to get into a boardroom and show people how to make hundreds of millions of dollars."

A strategy Master P employs is learning how big business works and emulating it. "I look at white corporate America, the way they make their dollar work for them down to the last penny," he says. "We [African Americans] just don't do that. We throw so much away worrying about the wrong thing." Some of Master P's success may be attributed to his ability to attract African American M.B.A.s to help manage his business ventures.

One of hip-hop's more diverse entrepreneurs is the Dean family. Brothers Joaquin and Darren, along with sister Chivon, head up Ruff Ryders Entertainment, which produces everything from hip-hop music--with names such as DMX, Jadakiss, and Eve--to videos, film, apparel, and even dog food (pit bulls have long been associated with hip-hop culture). Other products in the works include Ruff Ryder Thug Workout exercise apparel. Gross sales for 2001: More than $35 million.

As for Roc-A-Fella, the entity will continue to follow its tried-and-true formula: using one high-profile vehicle to market another. In fact, the company's latest film, State Property, features acting performances and music from rappers Jay-Z and Cam'ron, and, of course, the characters will wear Roc-A-Wear outfits. The movie cost $600,000 to make--an investment Dash, who also appears in the film, expects to recoup a few weeks after it completes its national release and hits video stores. "With films, as long as you make triple what it cost, you come out ahead," says Dash, citing a formula that is both a strength and limitation for black filmmaking: small budget, huge profits.

Roc-A-Fella is branching out with its product placement efforts as well. For example, viewers of the popular cable television show Soul Food can find some of the cast members wearing Roc-A-Wear apparel. So as the Hip-Hop Economy continues to grow and the culture makes its mark throughout many industries, Dash, Jay-Z & Co. plan on their company setting new trends and defining how the business mainstream markets its products.

Madison Avenue Takes On The Streets: Hits & Disses

HITS

Nike's "Freestyle." This TV spot was hip-hop's answer to the off-Broadway show Stomp. An artistic display of dribbling and dancing provided by bouncing balls and squeaking sneakers. It made this commercial look like a music video.

Budweiser's "Whassup?" Launched in December 1999, these advertisements showed the greeting exchanged by four African American friends who drink Budweiser beer. This campaign ranks right up there with "Where's the Beef?" in terms of popular catchphrases.

Sprite's "Obey Your Thirst." This long-running campaign, targeted to teens and young adults, featured numerous hip-hop stars, including Grand Puba, CL Smooth, and rap pioneer Afrika Bambaataa. Sprite's even relaunched some of the older commercials in this campaign, introducing them to a new generation of hip-hop fans.

BE talked to advertising agencies, marketing experts, and industry analysts about creative advertising campaigns that have succeeded and failed to capture the flavor of hip-hop culture in recent years.

DISSES

KFC's animated Colonel Sanders. About two years ago, KFC's Colonel could be seen rapping and doing the "cabbage patch" dance years after the move was in vogue. Some found the animated elderly southern white man, who strutted amid chants of "Go Colonel, Go Colonel" somewhat offensive.

Toyota's "Gold Tooth" ad. In spring 2001, Toyota Motor Co. ran a TV spot that featured a smiling black man with a gold Toyota RAV4 imbedded in his front tooth. Though some within the hip-hop community have been known to embed symbols or letters in their teeth, African Americans found this highly insulting, and the company pulled the ad after the Rev. Jesse Jackson threatened to boycott the automaker.