Dan Charnas http://www.ft.com 2/03/15
Rappers’ facility with commerce can teach us about the value of human capital, writes Dan Charnas
Back in 2007 it seemed that rappers had peaked as entrepreneurs. In that year, Jay-Z sold his clothing company, Rocawear, for more than $200m and 50 Cent had a reported $40m personal stake in the $4bn sale of Glacéau, makers of Vitaminwater, to Coca-Cola. But in the past year we have seen bigger and important milestones. In May 2014 Dr Dre sold Beats Electronics to Apple for $3bn. And a few days ago Jay-Z offered $56m for Aspiro, a Swedish music streaming company.
The cliché of the music business is that of the exploited artist. The legendary figures of jazz, R&B, rock and soul often seemed to be on the wrong end of the deal. So why is it that hip hop artists seem to have such facility with commerce, even when many of their contemporaries in other genres still do not?
The answer lies in hip hop’s DNA. The artists developed a sense of entrepreneurship because they had to. Hardly anyone wanted to do business with hip hop. The first rap records were released into the most hostile environment for black music since the 1950s. In the midst of the early 1980s backlash against disco, big music companies viewed rap as an even less palatable offshoot. And so for half a decade independent operators built a scene on their own — until Rick Rubin and Russell Simmons signed a distribution deal for their indie label Def Jam with CBS Records in 1985, when the major could no longer ignore the beats in the streets.
A closed market is also a captive market. Hip hop built a wholly separate and lucrative ecosystem with its own institutions, tastemakers and power brokers. When clothing companies rebuffed rappers’ attentions and balked at endorsement deals, artists started their own brands. By the time the biggest corporations woke up in the 1990s it was too late; they simply did not have the knowledge or credibility in the market. Most often, they did deals with established or budding entrepreneurs such as Sean “Diddy” Combs.
Combs was reviled in some corners of the hip hop world as a crass profiteer. But he was only the latest in a line of hustlers who went back to the beginning of the culture. They were the early club promoters, tape and record slingers, and artist managers whose class and race often limited their options for advancement and focused them, laser-like, on hip hop. These were folks for whom the separation of art and commerce was an artificial, unaffordable and frivolous bourgeois conceit.
Over the decades hip hop spawned a paradoxical consciousness that allowed it to be hypercapitalist and the voice of the underclass at the same time. Add to that the success and global adaptability of the culture — which provides its entrepreneurs with not only enormous influence but also an ideal focus group — and you will understand why rappers make better businesspeople than indie rockers.
Now that the corporate world has largely opened its doors to hip hop, the entrepreneurial impulse that arose from necessity has dwindled somewhat among younger artists. Superficially, this decline seems to be part of the normal life cycle of untapped cultural markets, the side effect of corporatisation.
But the real lesson of hip hop is what it can teach us about the value of human capital. Many of the great hip hop entrepreneurs were kids who had been given the worst of everything: housing, schools and expectations. When they became successful, we were surprised. We still are, obviously. Why? Hip hop, after all, has been calmly telling us where the gold is for about four decades. And it is not the music, not the products. The untapped treasure is what it always was. It is that smart kid you never saw coming.
The writer is author of ‘The Big Payback: The History of the Business of Hip-Hop,’ and an associate professor at New York University