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HIP-HOP MOGULS: BEYOND THE HYPE.

AS RAP MUSIC HAS EXPLODED, SO TOO HAVE THE FORTUNES AND BUSINESSES OF SOME OF TODAY'S HOTTEST YOUNG MUSIC EXECUTIVES

I DON'T MEAN TO BRAG, I DON'T MEAN TO BOAST, BUT WE'RE LIKE HOT BUTTER ON YOUR BREAKFAST TOAST."

--Wonder Mike

IN THE 20 YEARS SINCE RAP MUSIC SWAGGERED FORTH from the block parties and basement jams of the Bronx, it has made the transition from fad to cultural phenomenon. In fact, hip-hop culture has become hip-pop culture, its influence felt from Madison Avenue to Hollywood.

Look no further than Long Island's exclusive Hamptons for evidence of rap's mainstream appeal. Last summer, this tony suburb hosted parties thrown by Jay-Z and Sean "Puffy" Combs that attracted a motley crew of attendees ranging from raunchy rapper Lit' Kim to the doyenne of home-making Martha Stewart. Calvin Klein and Mountain Dew recognize the role of rappers as tastemakers, nabbing the likes of Foxy Brown and Busta Rhymes, respectively, to endorse their products. But none of this would've been possible if hip-hop hadn't conquered the charts and captured the minds of the record-buying public.

Last year, rap surpassed country to become the third-best-selling music genre behind rhythm and blues and rock. According to SoundScan, which tracks retail music sales, by October this year's rap sales had increased 17%--putting the genre on track to surpass 1998's total sales of 81 million records and over $1 billion. The most telling moment of 1999 was Lauryn Hill's five-award domination of the Grammys. In one of her many acceptance speeches, she summed it up best with the statement: "Wow, this is hip-hop!" Oh, you don't know?!

Somewhat obscured by the gangsterism and materialism that dominate today's rap scene is an emerging aesthetic of entrepreneurship. "It's become part of the hip-hop culture now to become a business mogul," says L. Londell McMillan a New York-based entertainment attorney. "Rappers are talking about everything from recoupment status to publishing percentages and ownership of their music."

Perhaps most responsible for rap's mogul mantra is Russell Simmons, co-founder of Def Jam and the original b-boy executive. "We were the guinea pigs for the corporate music business to build a new kind of relationship with entrepreneurs who wanted to fight for a bigger share of the profits," says Simmons. These deals are not fundamentally much different from the mainstream rock-and-roll deals, adds McMillan, who negotiated The Artist's release from Warner Brothers Records in 1996 and represents rap label Ruff Ryders--home to multiplatinum-selling rapper DMX. Whether it's money or a proven track record, rap labels are beginning to bring more to the table and have more leverage than ever before. "I sold 10 million albums before I had a joint venture," says Simmons.

Today's successful rap music entrepreneurs have indeed been able to wrestle more favorable deals from the Big Five record companies and distributors (Sony, BMG, Universal, WEA and Cema). In turn, they've followed Simmons' lead (see sidebar, "The Blueprint of Hip-Hop") and expanded into other businesses that leverage the marketing muscle of their music.

"The biggest difference between today's label executives and the first generation is that they come into the game seeing the whole picture--records, movies, clothes, magazines, the Internet--and start making inroads into those businesses earlier," says Andre Harrell, former CEO of Uptown and Motown Records and now president of Bad Boy Records. Like medieval lords, these princes of the ghetto are establishing fiefdoms they hope will endure beyond their reign at the top of the charts.

But the ability to diversify is predicated on building a profitable record company, and there are still only two paths to power in the music biz: by keeping it real for consumers or by capturing the attention of the music industry's idol makers. Or, in the words of Niccolo Machiavelli, "One attains [power] either by popular favor or by favor of the aristocracy."

"I'M THE GHETTO BILL GATES, BUT I'M LEGIT."

--Master P

"One of the main reasons I'm so successful is because I didn't go to a record label looking for any money," says 29-year-old Percy Miller (better known as Master P or, simply, P). Instead, in 1994, they came looking for him. "He'd been selling a lot of our records in his [Richmond, California-based] No Limit Record Store and had also gotten his self-produced No Limit records distributed in stores throughout the Bay Area," says Bryan Turner, president and CEO of Los Angeles-based Priority Records. After hearing of Miller's success, Turner offered him a typical boutique-label deal that heavily favored Priority, the exec says. It was promptly declined.

"P never coveted the short money. He knew there was much more upside if he made the right deal," says Turner. After Miller had independently sold over 350,000 copies of his first two albums, 99 Ways to Die and The Ghetto's Tryin' to Kill Me, Turner sweetened the pot. The fight deal was one in which Priority receives about 15% of the profits in return for pressing and distribution. The rest goes to No Limit, as does 100% ownership of the master recordings, which allows No Limit to profit from future sales such as catalogs and reissues.

Over the past two years, Master P, along with fellow hard-core acts Snoop Dogg, Mia X, Mystikal, Silkk the Shocker and C-Murder, have pushed No Limit's sales to over 28 million records, with gross receipts of nearly $250 million. No Limit's heralded cross-marketing strategies, in which each release is used to promote other No Limit artists and products, keep expenses low and profit margins high. "A lot of companies are trying to figure out how we keep our costs down," says No Limit Records COO Tevester Scott. "We just learned the game quickly and understand where to put our money."

Rather than pay top dollar for sought after hip-hop producers who charge as much as $20,000 per track No Limit uses mostly in-house producers and records in its own studios. As for big-budget videos, "save that for Britney Spears and the Backstreet Boys," laughs Scott, who runs the record company's day-to-day operations. Such frugality has afforded Miller the capital to pursue other ventures. "I let this rap thing open up other avenues because you can't just depend on the music business," says Miller through a top row of gleaming gold teeth, each set with a diamond big enough for any would-be bride to covet.

The No Limit empire now spans music, film, clothing, sports management, real estate and toy merchandising (Master P dolls and No Limit bicycles). Combined revenues of No Limit Records and No Limit Film for 1998 are estimated at over $160 million. No Limit Gear--for which Miller purchased Los Angeles-based clothing manufacturer Nexis rather than rely on licensing--is expected to bring in $10 million this year. Each company is a separate entity, with Miller serving as CEO and owner. His real estate concern, New Orleans-based PM Properties, owns over 100 properties across the U.S., including the homes of several No Limit rappers and executives.

Ironically, Miller has divested himself of ownership of No Limit Sports, the most embattled of his ventures, due to his desire to play in the NBA. Players aren't permitted to own sports agencies and, at press time, Miller was in training camp with the Toronto Raptors. No Limit Sports, which represents nearly two dozen pro football and basketball players, came under intense scrutiny for its negotiation of 1999 Heisman Trophy-winning running back Ricky Williams' contract. The contract, worth between $11 million and $68 million, stipulates that Williams perform at an All-Pro level to reach the top salary. Such incentives are not new to football. However, they are typically reserved for players without the bargaining leverage of a Heisman Trophy. So far, the deal has not panned out for Williams. The running back has been hampered by injuries in the first quarter of the season.

"As an agency, their work will be judged by how effectively they negotiate contracts over the long run, not by a single contract," says sports agent Bill Strickland of Washington, D.C.-based Stickland and Ash. However, others in the industry believe that No Limit Sports can't afford many more questionable contracts for high-profile players. The Williams contract negotiations underscore the need for Miller to identify seasoned and talented executives to run his various enterprises. "I'm just trying to build a great team," says Miller.

No Limit Films, officially launched in 1998, has had a significantly better profile than the sports arm. In its first year, No Limit Films grossed $41 million from its two theatrical releases, I Got the Hook Up and Foolish, and several straight-to-video releases. "Our films may not be on the radar screen by Hollywood standards, but all of them make money," says Jeff Clanagan, president of L.A.-based No Limit Films. "I have the luxury of not needing to go to Hollywood begging people to produce our films."

Clanagan just inked a deal with Trimark Pictures to produce five $2 million films for straight-to-video and broadcast release. In addition, USA Networks recently purchased the television rights to No Tomorrow--which stars Master P and Pam Grier and cost $850,000 to make--for $1 million. No Limit's latest project for theatrical release, Lockdown, a prison drama, is expected to hit theaters next spring. But don't expect Miller's assault on popular culture to end with the silver screen. "This ain't no ghetto business," he says. "I'm trying to extend the No Limit brand in as many areas as possible because this rocket ship to stardom can fall as fast as it went up."

"THE CASH MONEY MOTTO: MILLIONAIRES-PLUS."

--B.G.

As it turns out. the Louisiana bayou is an especially fertile ground for self-starting music entrepreneurs. "What Russell did in 15 years, I want to do in three," says Brian "Baby" Williams, co-CEO of New Orleans-based Cash Money Records. By all accounts, Williams, 25, and his older brother, Ron, are well on their way, riding the rising popularity of rappers B.G., Juvenile, Lil' Wayne and Turk In February, the Williams brothers signed a pressing and distribution (P&D) deal with Universal Records much like the arrangement No Limit has with Priority. The difference? They took the up-front money, $30 million, for a three-year deal.

"The fact that Universal financed Cash Money Records just so they could press and distribute them is unbelievable," says Simmons. By the time Universal got wind of Cash Money in 1998, the label was six years old and moving between 50,000 and 150,000 albums per release. "Everybody wanted to give us $5 million or $10 million for a 50-50 joint venture, but we already had money and we wanted 100% of our masters," says Ron, 28, who expressed the Williamses' desire to retain control to Dino Delvaille, senior director of artists and repertoire (A&R) at Universal.

"It's very hard to convince a major label to let someone keep full ownership of their masters, but when we looked at the units they were moving without any promotions or videos, it was a no-brainer," says Delvaille, who "discovered" Cash Money while on vacation in New Orleans. What's more remarkable is that just eight months into the three-year deal, and having released only two albums (Juvenile's 400 Degreez has sold nearly 3 million copies), Cash Money is already in the black Says Delvaille, "We're paying them a check every month."

Companies like Cash Money and No Limit are building their own empires outside of the major label system and coming to the table with enough leverage to demand autonomy and complete ownership. But not everyone can build an independent empire. For many, joint ventures, rather than P&D deals, are the more likely route to success.

"I'M LIKE RUSSELL PLUS, I GOT THE RIGHT HUSTLE."

--Puffy

Sean "Puffy" Combs first graced the pages of the December 1994 issue of BLACK ENTERPRISE, our inaugural entertainment issue. He was so obviously full of potential that we named him to our list of Top 50 Entertainment Power Brokers. Flush from his success as vice president of A&R at Uptown Records (where he worked for Bad Boy Records president Harrell), Combs had just inked a $1 million deal with Arista to form Bad Boy Records. While we can claim some prescience, no one would've guessed that the "bad boy" would turn out to be such a bad man so soon.

In five short years, Combs, 29, has gone from a "hot producer of the moment" to one of the most successful and recognizable rapper-executives in the industry. His million-dollar production deal has morphed into a 50-50 joint venture with a share of the masters reportedly worth over $50 million. Joint ventures usually include more latitude in decision-making and a split of the profits, though not necessarily 50-50. The most successful joint ventures typically enable entrepreneurs to negotiate for shared ownership of the masters. Of his newly renegotiated deal, Combs says, "Part of my ultimate plan was to have ownership in my masters and the other part was to get a whole lot of money so I could do other things that will give me economic stability."

This stability has come in the form of investments in Justin's restaurants, the Sean John clothing line, Notorious magazine, Daddy's House Recording studio and Bad Boy Television and Film. "The overall concept of my brand is entertainment," explains Combs. "It's the music you listen to, the concert you go to, the clothes you wear to the concert, the food you eat after the concert, the magazine you read the next day."

Although Combs has moved beyond just the music business, many believe the viability of his outside ventures is contingent on the success of Bad Boy Records, which has averaged sales of $80 million in the past two years. Among other things, slow sales of his solo follow-up album, Forever, and the high-profile departures of Bad Boy artists The Lox, have naysayers predicting the fall of the house of Puff.

Spurred by what they believed to be the mishandling of their careers and their money, The Lox mounted a public "Let the Lox Go" campaign during an interview on Hot 97, New York's No. 1 rap station. Combs downplays the incident as the natural friction between artists and labels. At press time, Ruff Ryder/Interscope Records was negotiating with Bad Boy to buy out the The Lox contract for a reported $2.5 million.

"None of my companies are based on the success of the record company," says Combs. "People are still going to read magazines and good food is still good food." In fact, Combs is planning to expand his Justin's soul food restaurants (currently there are Atlanta and New York locations) across the nation. "The restaurant business is one of the riskiest businesses you can get into, but both of our restaurants are profitable," says Combs, though he won't release sales figures.

"They're doing quite well," says Milford Prewitt, senior editor at Nation Restaurant News, a restaurant industry trade journal. "Justin's [NYC] typically turns its tables twice or three times a night, on par with other profitable restaurants." The New York location has just passed the three-year threshold that typically separates the wannabe restaurateurs from the ones that have a shot at long-term success. However, "Atlanta has plenty of soul food restaurants and Sylvia's has had trouble in that market," says Prewitt, who believes a successful nationwide rollout of Justin's units will be heavily dependent on the nation's economy. "If the economy turns soft, dining out is one of the first things to go."

Though widely recognized as one of the hardest working young execs in the business, Combs couldn't possibly oversee the day-to-day aspects of all of his companies. "To manage our growth, I hire people I believe in and trust that they can run the companies," he says. Much of the fiscal responsibility falls to Derek Ferguson, 34, a former management consultant who is now chief financial officer for Combs' various enterprises. "My primary interest was to become part of a team that had a chance to become a wildly successful entertainment company," says Ferguson, who, in addition to keeping the books straight, helps Combs find seasoned executives to run the various operations.

To that end, Combs recruited Jeffrey Tweedy, the former vice president of Karl Kani Inc., to head up Sean John, his newly launched sportswear line. The line is produced by Christian Casey L.L.C., a joint venture between Combs and CGS, a New York-based apparel manufacturer and distributor. "We expect to reach $30 million in sales and this is our first year," says Tweedy, Sean John's executive vice president. His relationships have helped Sean John get space in department stores such as Bloomingdale's and Macy's, in addition to national specialty stores that are more likely to carry hiphop-inspired clothing lines.

Combs' next venture, Bad Boy Technologies, aims to extend the brand into cyberspace. Though mum on the details of the venture, Combs says he'll invest whatever it takes to make it work "Scared money don't make none."

"A 9 TO 5 IS THE WAY TO SURVIVE, BUT I AIN'T TRYING TO SURVIVE. I'M TRYING TO LIVE IT TO THE LIMIT."

--Jay-Z

"I'm a millionaire after taxes," says Roc-A-Fella Records CEO Damon Dash from behind the wheel of his new Bentley, de rigueur for the hiphop mogul set. (Puffy and Master P also own Bentleys.) Judging from the gawking onlookers, Dash paints an intriguing scene cutting through New York's midday traffic, alternately yelling into his miniscule cell phone and pumping up the volume on his crystal-dear sound system. The Bentley was likely a gift to himself for a good year. According to Dash, 28, Roc-A-Fella Records netted $11 million in 1998. And he is sure to point out that the figure is after all of the expenses of his joint venture with Def Jam were recouped.

The rise of Roc-A-Fella Records to profitability coincided with the rise of the label's marquee talent, Jay-Z, who, to date, has sold more than 7 million copies of his 1999 release, Hard Knock Life ... Volume 2, worldwide. Dash, Jay-Z (Shawn Carter) and Kareem "Biggs" Burke launched the company in 1996 when Dash, who also manages Jay-Z, couldn't get his artist signed to a deal. "We put our money together and pressed up some copies and eventually we signed a deal with Priority to press and distribute our cuts," says Dash.

Once the album went gold (500,000 copies), the same companies that had denied Jay-Z a deal were now trying to lure Dash and Roc-A-Fella into the fold. "When record companies were first courting us, they came to me with the nigga deal where they make you think you own a label and you really don't," says Dash. "I wanted a joint venture because I knew I was going to be successful and the equity would be worth something down the line." Eventually he struck a 50-50 joint venture with Def Jam in which Roc-A-Fella owns half of the masters.

Dash took the same tact when negotiating with a manufacturer to create and distribute his Roc-A-Wear line of clothing. "I came in with the same concept I had when I did my joint venture. I'm not licensing to you. I want to own half of the company." He put up no initial capital for the Roc-A-Wear co-venture with New York City-based manufacturer Comet. "I may not know how to manufacture and design clothing but I have a brand that I can bring to it," says Dash.

It's the same brand he brought to 1999's Hard Knock Life Tour. "I researched it, got the booking agency and put the whole thing together," says Dash, who encountered resistance because of the perceived threat of violence. The 50-city tour, headlined by Jay-Z (and featuring Redman, DMX and Method Man), went off without a hitch. According to Pollstar, a Fresno, California-based research firm that tracks concert sales, the tour was definitely a record breaker for the rap genre, selling out most of the shows in large arenas. "The company says the tour grossed over $13.7 million, making it No. 10 in sales for concerts for the first half of this year.

"HE WHO BECOMES PRINCE BY HELP OF THE NOBILITY HAS GREATER DIFFICULTY N MAINTAINING HIS POWER."

--Niccolo Machiavelli

Despite the success of Combs, Dash and the like, major labels retain the upper hand in most joint-venture arrangements. "Joint ventures aren't necessarily the best arrangements because the overhead puts you in debt before you put out a record," says Lance "Un" Rivera, CEO of Undeas Entertainment and Untertainment Records in New York whose marquee act is Lil' Kim. "I came into this business with a production deal and I'm learning the business side," he says. Rivera was one of the first young CEOs to have joint ventures at two different major labels. Undeas is a joint venture with Atlantic Records and, until recently, Untertainment was a co-venture with Epic Records.

Epic recently dropped the venture after creative control issues slowed the release of Cam'ron's second album. The album, tentatively titled Sports, Drugs and Entertainment, was the subject of a lawsuit by the NBA for misappropriation of its logo, which Untertainment initially used to promote the album. "The record label backed us, but Sony corporate wouldn't," says Rivera, 33. While savvy young executives exercise more control than their predecessors, they are far from autonomous. Even No Limit, while it retains autonomy, must still rely on a major label for distribution. "when are we going to get to the point where we're manufacturing and distributing our own records?" asks No Limit's Scott. "That way we don't have to share the money with anyone."

Although these young moguls have been able to swing the balance of power somewhat in their direction, they are still far from having complete dominion. "I consider those capable of maintaining themselves alone who can, through abundance of men or money, put together a sufficient army and hold the field against anyone who assails them," wrote Machiavelli. In the music business distribution is the final battleground.

RELATED ARTICLE: THE BLUEPRINT OF HIP HOP

Simmons expanded his success in rap to movies, television, clothing and even advertising ventures.

"Sometimes Russell [Simmons] is so humble that you wanna say, `Get real,'" explains Anne Simmons, no relation, the former president of multimedia at RUSH Communications (No. 36 on the BE INDUSTRIAL/SERVICE 100 list). This is one of those times. When asked to comment on hip-hop's new moguls, the pioneering rap impresario replies in a rapid-fire cadence. "That story is not about me. These young guys have way more power, control and access than lever had," says Russell from his Manhattan headquarters.

That may be true, but much like Berry Gordy and Clarence Avant before him, Russell paved the way for today's young black music executives to get paid. Even more important, he showed us that rap was about more than music. "Russell was the first to really understand that hip-hop was a culture and as such could be translated into a number of different venues," says Andre Harrell, who worked for Def Jam before starting Uptown Records. Today's moguls have learned his lesson well and have imitated, with great success, Russell's ability to leverage the marketing muscle of music across fashion, film, television and artist management. Every RUSH Communications venture, from Phat fashions to RUSH Media, has built on the power of the Def Jam brand and the youth culture it represents.

To a person, every young CEO featured in "Hip Hop's New Moguls"--Puffy, Master P, Damon Dash, et al--cited Russell as the one who set the bar for success in this industry. And their stories read like case studies in the Russell Simmons School of Mogul Making. "He established the paradigm of how to make it in the business of hip-hop," says Anne Simmons, who now heads dRUSH, a joint venture between RUSH Media and the Deutsch Inc. advertising agency. "There are two types of people in this world--the ones like Berry Gordy and Russell, who can take something from nothing and create something--and then there are people that are great executors."

"I was successful in attracting the financial community to what I was doing in hip-hop because I was bringing them something they couldn't understand and showing them how to make money from it," says Russell. He recently sold his remaining 40% ownership stake (along with current Def Jam CEO Lyor Cohen) to Universal for $130 million. Now Russell can turn his attention to other ventures, such as getting a better time slot for his One WorldTV show and an as-yet-unnamed Internet venture. Russell seems energized by the possibility. "Now I can be creative again. I haven't had the chance to be really creative in years."

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COPYRIGHT 1999 Earl G. Graves Publishing Co., Inc.
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Article Details
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Title Annotation:management behind rap music
Author:MUHAMMAD, TARIQ K.
Publication:Black Enterprise
Geographic Code:1USA
Date:Dec 1, 1999
Words:4140
Previous Article:ON THE MOVE.
Next Article:RAISING A SUPERSTAR BRANDY ARJAY RAEVEN.
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