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Trapital by Dan Runcie

hip-hop business + strategy


“You tell the true stories. Not just the end product, but how you get to the end product. Your point of view on it is dope.”

Steve Stoute, CEO of UnitedMasters and Translation

 

Why Adidas’ Hip-Hop Partnerships are (Finally) Paying Off

Adidas has tried to regain its relevancy in hip-hop for years, but has now finally made considerable strides.

Beyoncé’s Ivy Park-Adidas collection

Adidas and Beyoncé are coming up on their one-year anniversary. Last April, the “Formation” singer agreed to become an Adidas creative partner, develop signature apparel, and relaunch her Ivy Park clothing line. She called it “the partnership of a lifetime.” Mrs. Carter had just reclaimed full ownership of Ivy Park in 2018 and wasn’t gonna join forces with just anyone. The Beyoncé-Adidas expectations were sky-high.

A few days before Ivy Park’s January 18 relaunch, Beyoncé sent 20 celebrity friends massive gifts which they unboxed and shared with their millions of social media followers. See, your favorite influencer uses influencer marketing too! When the brand relaunched, it sold out on adidas.com in minutes. The success led to an even bigger social media event. Even Popeye’s, a social media champion in its own right, joined in on the fun with its own Ivy Park-inspired clothing line.

We knew that Beyoncé was the master of rollouts, but Adidas has been on its game too. From the UltraBOOST to Kanye West’s Yeezys to athlete partnerships to Ivy Park, the brand is now synonymous with the culture.

But it took time to get here. The German apparel titan was after hip-hop for a long, long time. Despite its historical roots, dating back to Run DMC, nostalgia has its limits. Companies still need focus to become culturally relevant and reap the rewards that come with it.

Great concepts still need execution

In 2006, Adidas acquired Reebok. On paper, it made perfect sense. The Three Stripes had a strong global footprint but lacked North American presence. Adidas had a deal in place with Missy Elliott, whose music videos were great promo for the retro 1980s Adidas hip-hop look. But she was all Adidas had.

Reebok was an ideal complement. The ‘Rbk’ lifestyle brand had teamed up with A-List rappers 50 Cent, Nelly, and Jay Z, and NBA MVPs Allen Iverson and Shaquille O’Neal. Even Reebok’s athletes had hip-hop albums under their belt. Reebok knew its customers and knew them well.

The acquisition still raised concerns though. Steve Stoute, who partnered with Reebok to launch Rbk and brokered the deals with Jay Z and 50 Cent, expressed caution after the deal.

From The New York Times:

“Treat the Adidas and Reebok brands separately… There’s a potential problem if consumers see the lines as being blurred, so you have to treat them as standalones.”

There’s a paradox when companies make acquisitions for cultural gains. Integration challenges are inevitable and can easily diminish that desired culture, both internally and externally. Adidas’ rigid systems were bound to clash with Reebok’s agency-inspired approach, which impacts the brand’s perception.

A memorable Rbk commercial from that era.

Under the Adidas umbrella, Reebok lost that ‘Rbk’ edge. The athletes and rappers it signed had moved on or were past their primes. It missed out on the next generation of hip-hop artists. In the process, Reebok’s sneaker market share fell from 8% in 2006 to 2% in 2015.

“From the moment we started looking at the numbers, we knew it was a screwed-up business and that we’d paid too much,” a former Adidas exec told the Wall Street Journal.

This statement highlights a critical disconnect. Yes, Adidas paid a lot for Reebok—a 34% premium. And Reebok’s hip-hop era wasn’t perfect. It oversaturated the market with S. Dots and G-Unit sneakers, which ended up on the racks at Marshall’s. The cool factor disappeared. But that doesn’t mean that these deals don’t work. There were plenty of lessons learned.

But at the time, Adidas was likely jaded on endorsements altogether. It had a stretch of bad luck. In that era, its signature roster included Kevin Garnett, Tracy McGrady, Gilbert Arenas, Derrick Rose, Reggie Bush, and Robert Griffin III. Each of them had career-threatening injuries during their prime. The “Adidas curse” was a thing. I used to joke with my older brother, who loved McGrady’s sneakers, that I wasn’t trying to go out like T-Mac. I bought the LeBron James Nikes instead.

It’s understandable why Adidas’ experience with injury-prone stars and Reebok’s past-their-prime rappers may have led to skepticism, but it still wasn’t wise. For better or worse, luck plays a tremendous role.

A Much Needed UltraBOOST

Adidas’ fate didn’t change until it introduced BOOST in 2013. The new technology was a landmark achievement for Adidas in both running and athleisure. That same year, Adidas’ signed Kanye West to a deal. The Chicago artist was unhappy with Nike, his former partner. Before Kanye’s released his Yeezys, he rocked the UltraBOOSTs in public. The UltraBOOST-Yeezy tandem was the spark Adidas needed.

From HypeBeast:

The adidas UltraBOOST set an entirely new benchmark for how a performance sneaker should feel and perform, but it was world-class tastemakers like Kanye West who brought the perfectly-simple yet complex design into the world of style. It became the most talked about shoe of 2015, even in a year when Kanye released his BOOST-equipped YEEZY 350. Thanks to this tandem of shoes, the Three Stripes gained market share, increased revenue, sold more product and most importantly, found itself back on the heels of Nike. If it wasn’t for the UltraBOOST serving as a proper intro to the YEEZY BOOST, there’s no telling where Adidas would be today.

Adidas’ market share in U.S. athletic footwear jumped from 6% in 2016 to 12% in 2017.

This deal was the perfect balance of execution and luck—two things that Adidas lacked in the 2000s. BOOST was the well-executed product that changed the game. It got an exposure bump from Kanye luckily ending his relationship with Nike, where his Yeezy line had already gained a cult following. Adidas got one of hip-hop’s most popular entertainers to wear the UltraBOOST, leverage his own brand, and become one of Adidas’ strongest ambassadors. Ye praised Adidas and chastised Nike any chance he could. In the competty-tive social media era, Adidas couldn’t ask for much more.

Kanye performing in the Adidas UltraBOOSTs at the 2015 Billboard Music Awards (via Talia Azadian)

Master the economics of hype

In 2015, Kanye sold just 9,000 pair of Yeezys in his first drop. He knew that scarcity was important, but he assured fans that the product would soon be available for all.

Here’s Kanye in a 2015 interview On Air With Ryan Seacrest:

“Eventually, everybody who wants to get Yeezys will get Yeezys; Adidas has promised me that, because there’s so many kids that have wanted them that couldn’t get them. I talked to the heads at Adidas, and they said we can make them.”

It was an ambitious claim, but it rose internal alarms. Would Yeezys repeat the same mistake and flood the market? Can an artist-led sneaker become a mass-market product and maintain its cool factor? Three years later, Kanye kept his word. In 2018, the Yeezy 350 Triple Whites released a rumored one million pairs. Most anyone who wanted them got them.

Adidas successfully executed the tricky economics of hype. Scarcity drives hype, but the limited supply can make it hard to generate revenue from volume. Companies love building hype, but they also love cashing in on that hype. In 2018, Yeezy became the ninth-highest selling sneaker in the U.S.

Adidas’ current CEO Kasper Rørsted sees the success, but still won’t go all in and mass-produce the shoes.

From Forbes:

“We are continuing to manage volumes in a very disciplined manner so that for 2019 Yeezy sales will not make up a significant share of Adidas’ overall expected sales growth. Not because brand heat is decreasing, but because we have a disciplined approach to managing volumes and product life cycles.”

This mentality likely gave Beyoncé the confidence that Adidas can do the same with Ivy Park. Even if “everyone” can get their hands on Ivy Park by 2023, Adidas can manage inventory and demand appropriately. Hip-hop has also become much more global, so Adidas has the infrastructure to ensure that the product can reach every corner of the Beyhive.

But despite Adidas’ growth and potential, Reebok is still in an awkward position. The brand is a hybrid of its downmarket fitness positioning and hip-hop. It has partnerships in place with Cardi B, Lil’ Baby, Future, Lil’ Yachty, and Rae Sremmurd. These artists can help revitalize Reebok’s nostalgia, similar to what FILA and Champion have done in recent years.

In an ironic way, Adidas and Reebok have switched roles. Adidas focuses on the biggest stars, while Reebok taps into its old school hip-hop vibes.

The so-called “Adidas curse” is also gone. Its flagship athletes are James Harden who has been a top-NBA player for several years, Kansas City Chiefs QB Patrick Mahomes who just won the Super Bowl, and fellow Super Bowl MVP of the Denver Broncos Von Miller.

Adidas’ cultural assets are operating on all cylinders. It might not last forever, but 2020 is off to a hot start.

 

P.S. – Donald Glover recently parted ways with Adidas after one year. No details were shared, but if anyone knows more, let me know!

Hannibal Buress on How Netflix Changed Comedy, His Investing Strategy, and Why Isola Fest is One of His Favorite Career Moments

The hilarious comedian Hannibal Buress came on the Trapital Podcast to talk about how he’s adjusted to quarantine life, how he prioritizes his multiple business interests (touring, comedy specials, acting, investing), Netflix’s impact on comedy specials, planning a festival on three weeks notice (!!!), why he wishes he got into the toilet paper business, and what’s in store for 2020.

Listen: Apple Podcasts | Spotify | SoundCloud | Stitcher | YouTube | Overcast | RSS

Host: Dan Runcie, @RuncieDan, trapital.co
Guest: Hannibal Buress, @hannibalburess, hannibalburess.com

Links: 

How The Weeknd Mastered his Brand

The Toronto artist maintained his mystery and still became a superstar.

The Weeknd in his After Hours attire (via Nabil Elderkin)

The Weeknd’s career has played out like an Emmy award-winning drama with plot twists each season. Every few years, fans think they finally got their boy Abel Tesfaye figured out. But that’s the exact moment when he takes them for a turn. He was an “unknown underground indie group” until he unveiled his true identity. He was “Drake’s protege,” then turned down OVO Sound. He was “the guy with the wild, Basquiat-looking dreadlocks,” then he cut them.

Here’s a quote from his 2015 Rolling Stone interview:

“We live in an era when everything is so excessive, I think it’s refreshing for everybody to be like, ‘Who the f**k is this guy?’ I think that’s why my career is going to be so long: Because I haven’t given people everything.”

Five years later, this is still true. The 30-year-old limits his accessibility but still maximizes his reach. His peers tend to follow the same playbook, but the Starboy has stayed true to his path. Fans may never get closure on his identity, and that’s exactly how he wants it.

Brands without brands still need branding

The Weeknd’s come up has become a classic story in mystery marketing.

From The New York Times:

[La Mar Taylor, The Weeknd’s best friend] uploaded Tesfaye’s first three songs — ‘‘The Morning,’’ ‘‘What You Need’’ and ‘‘Loft Music’’ — to YouTube in the fall of 2010, posting the links to their friends’ Facebook walls and hoping for the best. The clips were audio only, accompanied by black-and-white photographs of not-quite-dressed women. Tesfaye’s likeness was nowhere to be found; you had to dig to find his name. He had wanted to call himself the Weekend, but there was already a rock band in Ontario called that, so he dropped a letter. His anonymity was so complete, he says, that his co-workers at American Apparel would listen to his music while he was working without realizing it was his.”

“I didn’t want to put a face to it,” he told Forbes. “I wanted to create a fan base that loved me for my art.”

People often say that his early mixtapes lacked a brand, but this isn’t true. The music and artwork was the brand. Those songs had dark, genre-bending themes full of lust, drugs, and despair. That brand gained traction. His unknown identity drove the intrigue further. To call his mixtapes “brandless” makes them sound like NOW That’s What I Call Music! Vol. 35.

It takes focus to do this well. Companies have tried similar strategies and failed. Brandless—ironically named— was an ecommerce company that sold household essentials for low prices and minimal branding. It raised a whopping $240 million from SoftBank on the notion that consumers prioritized value over marketing. But last month, the venture-backed startup shut its doors. As The Drum put it, Brandless failed because it was “a brand that pretended not to be a brand…After all, it is impossible to distinguish yourself if your goal is to be indistinguishable.”

The Weeknd and his team understood this critical nuance. “Not having a brand” still requires the curation and focus of having a brand. It actually requires more work since its a nonstandard approach with less how-to guides and fewer advisors who can share quick tips. It’s an ambitious goal that can’t be met with money alone. Not even $240 million.

The cover for The Weeknd’s first mixtape, House of Balloons. See that American Apparel-inspired font!

The value prop needs to strong

In late 2010, The Weeknd’s music got featured on the OVO Sound blog. It boosted his exposure and sparked a friendship with fellow Toronto artist Drake. Once they collaborated on each other’s projects, it seemed inevitable that The Weeknd would join Team OVO.

But Abel told Drake, “I don’t want to sign under another artist because I feel I can be just as big or bigger.” The Weeknd’s manager Sal Slaiby said that they didn’t want a label that got involved with the creative process. In 2012, The Weeknd launched XO Records as a joint venture with Republic Records, where the “Hotline Bling” artist was also signed.

When an artist signs under another artist, it’s like a startup getting acquired. Even though the Instagram founders succeeded under Facebook, they would never have outshined Facebook’s leadership. Similarly, it’s unlikely that anyone on TDE will surpass Kendrick Lamar. Same with J. Cole on Dreamville. Same with Drake on OVO.

To be fair, those three rappers, unlike Mark Zuckerberg, would love to pass the torch in-house. But it’s unlikely to happen in today’s hip-hop landscape. There’s some irony since both Drake and Nicki Minaj came up under Lil’ Wayne’s Young Money militia. But a lot’s changed since then, and OVO Sound is not Young Money.

The Weeknd made the right call for two more reasons. First, OVO’s main value prop is the Drake “stimulus package”—the proverbial career bump that artists get from collaborating with the Toronto rapper. But The Weeknd had already got those benefits. He got the co-sign from that 2010 blog post, placement on Take Care, and features on his own projects. What else was there to gain? If he wanted to level up, it was time to move on.

Second, and most importantly, The Weeknd’s brand is not aligned with OVO. Drake has never been a mystery. To anyone. His only career surprise was that he was **in my Pusha T voice** hiding a child. The 6 God’s brand thrives on overexposure and omnipresence. Those core competencies don’t help The Weeknd. Team OVO may have tried to turn him into something he wasn’t.

This behind the scenes on The Weeknd’s “Blinding Lights” music video is the closest thing fans may get to a true documentary.

The necessary tradeoffs for a mystery superstar

Turning down OVO raised his ceiling, but it lowered the floor too. His first misstep came in 2013 when Kiss Land, his debut studio album, didn’t sell as well as he hoped. Abel went back to the drawing board.

From The New York Times:

“Stymied, [The Weeknd] turned to Wendy Goldstein, the head of urban A&R at Republic, for advice. ‘‘The underperforming of that record in his own expectations of what it was supposed to do shook him to his core,’’ she says. ‘‘I said, ‘You wanna be the biggest in the world?’ He said, ‘I absolutely wanna be the biggest in the world.’ ’’ She and the newly malleable Tesfaye got to work. First, she arranged for him to record the duet he would perform with Ariana Grande at the A.M.A.s, ‘‘Love Me Harder.’’… ‘If I’m gonna be the biggest in the world,’’ he told her, ‘‘I need a handful of songs like that.’’

It’s the inevitable point that every star hits to get to the next level. The product has to evolve to attract new fans. Some of his day-ones will inevitably leave when that happens, but when it’s done right, the loss is minimal and the growth is strong.

Tyler Perry balanced this well. His Madea movies had taken off, but he still stayed true to his roots with the theater circuit and kept his email list active. So did J. Cole and Future. After going too commercial with earlier albums, both artists returned to their mixtape roots and have kept that same energy since.

Perry and Future’s prolific output wouldn’t work for The Weeknd though. That much exposure may ruin the mystique. The Weeknd’s path to superstardom had to be more selective and aware of the tradeoffs.

“Love Me Harder” led to “Earned It” on the 50 Shades of Grey soundtrack, which led to his blockbuster hits, “The Hills” and “Can’t Feel My Face.” These songs, and the 2015 album Beauty Behind the Madness, became the dividing line between his early fans and the masses. He lost some fans from the Trilogy mixtape days, but he gained a whole lot more in the process.

His interview and promo runs have expanded too. He now sits down with more major outlets to promote his albums. But he won’t sit down with anyone. He has never been on The Breakfast Club. Several years ago he met Charlamagne Tha God, who told him that he should called himself “Tuesday” first and work up to being called “The Weeknd.” No wonder he rarely does video interviews!

Luckily, he found the balance that made the most sense.

The Weeknd’s latest album, After Hours, is like a visual concept album that’s consistent with most of his work. Each music video and live performance has introduces us to the same character who just survived a wild night out. It feels connected to Abel’s recent role in the Uncut Gems movie. The consistency is a reminder of this quote from his 2015 Fast Company interview:

“I feel like everything we do comes down to how it looks. Even no branding is branding. For example, you had no face or image to put to my music at first. That was branding. I spend just as much time on how people hear my music as I do the actual music, no matter how long it takes. I’m such a visual artist as well that it always goes hand-in-hand.”

That commitment has been there from the jump and will continue to be. As his career continues, we may never fully know what Abel Tesfaye is all about. Just like he planned it.

How Hip-Hop Helped Cash App Grow Faster

Square’s mobile payment service teamed up with rappers to grow fast, use their influence, and acquire the right customers.

Cardi B is the only person that Cash App follows on Twitter! (via YouTube)

Last week’s “Cash App Friday” came at the perfect time. The COVID-19 pandemic has been costly, scary, and uncertain, especially for those living paycheck-to-paycheck. On Cash App Fridays, the mobile payment app users can log on Twitter and reply to @CashApp with their $cashtag for a chance to win prizes that range from $100 to $500. Later that weekend, Cash App matched some of the giveaways from Shea Serrano –The Ringer staff writer and Trapital Podcast guest— who had already made it habit to give money to those in need.

These philanthropic measures are gracious, but it’s essential to Cash App’s growth model. In 2019, the company spent an estimated $60,000 on Cash App Fridays. In return, it earned much more in heightened brand awareness and earned media. This strategy translated well to hip-hop, where rappers use the app to give money to fans. Cash App has now been name-dropped by over 200 hip-hop artists.

Cash App achieved the modern brand’s dream: to become part of the culture. No appropriation. No cringe-worthy attempts to sound like a 23-year-old hypebeast. All genuine. It’s easier said than done, and it’s a model others can learn from.

Make it easy for the customer

When Cash App launched in 2013, it was much more buttoned-up. Users needed phone numbers or email addresses to transfer money. A year and a half later, the service eased up, followed Venmo’s lead with usernames, and introduced the $cashtag. These handles made the app more social and reduced friction to transfer money.

Square continued this trend when it offered debit cards. From Motley Fool:

Square introduced a virtual debit card at the end of 2016, which allowed users to spend their Cash App balance online or through a mobile wallet. So, if you were ordering a pizza online, for example, your friends could send you money on Cash App, then you could pay for the pie with the debit card number.

Square followed it up in April with a physical debit card and allowed users to add a personalized signature or drawing to the front of the card. The card has proved extremely popular, with users spending over $90 million using their Cash Cards during the month of December. That’s a run rate of over $1 billion.

It dropped a full year before Venmo’s debit card, which also helped!

Cash App took its efforts to another level in November 2017 when it introduced the ability to trade Bitcoin. This was one month before Bitcoin’s peak valuation (and peak public interest). The timing was perfect. It would be like buying Nicki Minaj stock the month before “Monster” came out.

Square CFO Amrita Ahuja said that Cash App’s Bitcoin and Investing customers generate up to two-to-three times more revenue than the rest. Since Bitcoin accounts for about half of Cash App’s revenue and Cash App has 24 million monthly active users, that means less than 7 million (28%) use those features.

Most companies would use this as a reason to solely focus on acquiring more Bitcoin investors. They would run ads in fintech newsletters, sponsor emerging tech meetups, find Libertarian groups on Reddit, and so on.

But Cash App expanded its reach. Cash App giveaway recipients aren’t exactly the demo for Bitcoin investing. But they might be someday and may spread the word to someone who is in that cryptocurrency demo. That’s what Cash App is banking on (literally). This is the long game.

This is a Spotify screenshot of songs named “Cash App.” That list keeps going… it’s clearly an SEO play.

Influencer marketing done right

Square is still not entirely sure how Cash App first became popular with hip-hop. Here’s Square CEO Jack Dorsey at a 2019 investor conference via Wall Street Journal:

“This is also something we weren’t expecting, but I think Cash App has touched in the culture. We’ve just benefited from people loving it and wanting to sing about it, and putting it in their music videos, and it’s amazing how much that spreads.”

But once Square noticed the trend, it locked in. In 2018 it teamed up with Travis Scott and Lil’ B. In December, it got together with Snoop Dogg. Each of them used the app to give away money. The company acquired customers through the rappers’ social media followings at an extremely low cost. Free money is an easy sell, and it doesn’t take that many customers to justify the cost.

Here’s a great breakdown from Ark Invest on the low-cost customer acquisition:

While banks can pay from $350 to $1500 to acquire users, Cash App acquired a new customer through Burger King in five minutes without any direct mail or bank branch visit.

Square has run similar [$100,000] campaigns with rappers like Travis Scott and Lil B and other influencers, triggering a network effect for the Cash App… If only 129 of the 120,000 who commented on [Travis Scott’s] tweet were new to Cash App, then Square’s cost of customer acquisition would have been less than the $925 per user that banks pay on average, according to our research, and 6,000 comments, only 5% of the total, would have dropped it to $20. Moreover, as the converted users appear to spread the word on social media, the Cash App can acquire additional users from just one.

That’s well worth $100,000 for both La Flame and Cash App. It’s even more worthwhile considering the influence that hip-hop fans have on their peers. According to REVOLT’s Gen Hip Hop study, hip-hop fans are 2x more likely to be culturally influential. It’s the right audience to acquire.

Cash App’s user base is strongest in the South and the Midwest of the US, which aligns with the regions where many hip-hop fans are at. It’s the opposite of most founders who focus first on their “early adopter” personal networks in the coastal metro hubs in New York and San Francisco. This strategy made more sense years ago when broadband internet access was noticeably stronger in tech hubs and universities, but that’s no longer the case. It’s 2020. Smartphones are now ubiquitous. It’s time to think beyond Mark Zuckerberg’s Ivy League expansion plan that worked for Facebook in 2004.

Venmo’s growth strategy was more aligned with the traditional tech growth model. The founders are UPenn alums who hit up Princeton Hackathons and other similar events. It had its own “Million Dollar Money Tree” cash giveaway and $5 referral sign-up bonuses to attract customers. But those offers were also centered around Ivy League users and their friends who live on the coasts.

Cash App’s monthly active users have grown from 7 million in 2017, 15 million in 2018, to 24 million in 2019. It still trails Venmo in users, but Cash App is growing faster.

I drew this chart to highlight the difference:

An effective flywheel

Cash App’s strategy is a true flywheel that drives more peer-to-peer transactions. The hip-hop influencers and their fans grew the user base and brand awareness further, which gained the attention of those who seek higher-end services like Bitcoin and Investing.

The flywheel looks like this:

It’s similar to Jay Z’s flywheel with his 4:44 release. Here’s what I wrote last year:

Jay Z made a sale that valued the company at more than 10x his purchase price just two years earlier. That’s impressive especially with all the turmoil and controversy that surrounded Tidal during that stretch.

But the real kicker is that $75 million was budgeted for exclusive content for Sprint. Five months after the deal was publicized, Jay Z dropped 4:44 as a Sprint-Tidal exclusive. This connected the streaming service with Sprint, which now had a vested interest in Tidal’s success (not too different from Live Nation’s interest in Roc Nation). And by partnering with a cellular carrier instead of a manufacturer like Nokia or Samsung, Jay increased his flexibility and integration capabilities.

Jay Z distributed his album through Sprint because it has an active customer base and a means to deliver his product. Sprint was now a co-owner of Tidal, Jay’s streaming service. The cellular carrier had a vested interest in both the delivery and implementation. And Sprint customers got the album for free. Everybody won.

In this next decade, Cash App’s customer acquisition tactics will be replicated by many. Products that are built to serve the mass consumer will waste time if they religiously follow Silicon Valley’s age-old mantra to “start in San Francisco and New York” and expand from there. That traditional plan still makes sense for a product like Superhuman, the $30 / month email service that’s specifically targeted at that who will pay for that. It’s less ideal for an app that relies on network effects and massive scale.

Mass-market products need branding. In consumer tech, hip-hop has been the backbone. TikTok had Lil’ Nas X. Snapchat had DJ Khaled. YouTube had Soulja Boy. The list goes on. Hip-hop culture influence continues to grow, and more companies will find their own way to engage fans.

What Megan Thee Stallion’s Lawsuit Won’t Solve

Both Megan Thee Stallion and her record label would have benefited from increased transparency that the industry needs.

Megan Thee Stallion (Getty Images)

Megan Thee Stallion won an age-old battle that’s plagued musicians for decades. Last Friday, a judge granted the Houston rapper permission to drop new music despite her ongoing lawsuit with her record label, 1501 Certified Entertainment. She had her day in court, rallied public support, did her promo run, dropped her latest mixtape Suga, and still had time to stop by ESPN’s First Take and defend her friend James Harden. What a week.

But her case is far from over. She’s suing 1501 for $1 million in damages. The Houston-based label is owned by former MLB player Carl Crawford. The 38-year-old contracted his business operations to T. Farris, the A&R from Swishahouse, who apparently had his own agenda for Hot Girl Meg’s career.

This situation follows a textbook process: Artist signs early contract. Artist gets hot and wants a new (or revised) deal. Artist and label start to dispute. Artist vents to fans. Legal action is taken to resolve. Rinse and repeat. This is often seen as a rite of passage, which is part of a bigger problem.

There’s blame on all sides, but the infrastructure needs to be fixed. Otherwise, this problem will continue.

Blame on both sides

Meg made the dispute public in her Instagram Live video:

“1501 don’t want me to put out no music. All I did was ask to renegotiate my contract, then it became a whole big thing. When I signed, I didn’t really know what was in my contract. I was young. I think I was like 20, and I ain’t know everything that was in my contract. So when I got with Roc Nation. I got management, real management. I got real lawyers. They was like, ‘Do you know that this is in your contract?’ And I was like, ‘Oh, damn, that’s crazy — no, I didn’t know.’”

Meg’s referring to the 360 deal she signed with 1501 in February 2018. She got a $10,000 signing bonus, 40% royalty split, 50% of her publishing, and 70% of her live performance money over $1,000, feature payments, endorsements, sponsorship, merchandise, and other ancillary revenue. The label gets the rest and part of her masters.

Record labels have always, and will always, be heavy underdogs in the court of public opinion. If a 360 deal is involved, all bets are off. 360s were designed to mitigate the decline in album sales, but labels gained control over parts of the business they had little involvement in. These deals are compared to modern-day sharecropping. It’s clickbait for the outrage culture that dominates social media.

But let’s backtrack to February 2018 when this deal was signed. What were the hypothetical Vegas odds that “hot girl summer” would takeover 2019? 10 to 1? 30 to 1?? Even if the 360 deal is out the picture, 1501 deserves compensation for the risk taken on.

Here’s Crawford in an interview with Billboard:

Where was Roc Nation at when we was grinding and riding around on them backstreets? Roc Nation was nowhere to be found.

Soon as we spent our money, blow it up, now all of a sudden, these strangers and people you just met — they introduce you to Beyoncé and now we the devil?

Carl said you wasn’t with me shootin in the gym, and he’s not wrong. Still, both he and Meg bear some responsibility. Here’s more from Crawford:

She got the dude [T. Farris] right up under her. He’s the snake. He did the contract. They had the lawyers. How didn’t you read your contract? She signed two contracts. You signed one with me and 300 [Entertainment]. You mean to tell me, you, your mama and your lawyer didn’t read over that stuff every time?

Remember, 1501 is still Crawford’s company! He may have contracted someone he no longer trusts, but he is still CEO. He’s humble and honest about his learning curve (as is Meg), so it shouldn’t be a surprise if there are certain aspects of the contract worth revisiting. In an interview with Genius, entertainment lawyer Tiffany Ballard said that 1501’s 30% ancillary revenue share is higher than the standard 10-20% in similar deals. The communication breakdown between Meg and Carl makes this difficult to sort through. It’s human nature for 1501 to stand ground if Roc Nation tries to strong-arm the smaller label, but the merits behind the revisitation are still valid.

This is where the situation feels like countless others: Taylor Swift and Scooter Braun. Juicy J and Columbia. Kanye West and Def Jam. The specifics differ, but the underlying problem is similar.

Here’s a short clip from a recent interview with Carl Crawford giving his take on the situation.

Who has the power?

If 300 Entertainment and Roc Nation are the mid-stage investors in Meg’s career, then 1501 is the seed round. Crawford got in at a “lower valuation” and will reap the rewards when she goes “public” with her debut albums.

But the comparisons between venture capital and record labels stop there. Signing to a label is much more like an M&A deal. It’s an agreement to split proceeds moving forward. Each contract signed leaves less room for additional parties. The tech funding model is more comparable to the itemized releases with companies like EMPIRE or distribution deals with services like Stem or UnitedMasters.

Moreover, the court of public opinion in tech is flipped. There’s less sympathy for venture-backed founders, especially in the wake of Uber, WeWork, and Facebook’s scandals. Can you imagine a unicorn founder going on IG Live to blast his investors for unfair treatment? The response would be wild. That same celebrity-fan dynamic doesn’t exist. If anything, the investors and board members are the most-respected celebrities in the mix.

More transparency. Shorter contracts

Labels and production companies deserve terms that are commensurate with the risk taken on with new artists, but the outcomes are all over the place. “Get an attorney,” is wise advice, but lawyers should offer guidance and counsel, not fill the entire knowledge gap.

If similar deals were more public, it would help future Carl Crawfords and Megan Thee Stallions have a baseline understanding of what’s fair to aide their meetings with lawyers and other experts. In a recent episode of the Trapital Podcast, entertainment lawyer Karl Fowlkes said that he hopes there are less music lawyers in the future. It’s in hope that these types of situations can be addressed with more information.

Remember the infamous Google company spreadsheet with over 12,000 self-reported salaries? Artists can do the same with past and present deals. It would make waves, but anger even more people than that Google Sheet did.

The industry is hell-bent on the perceived power in its limited transparency. Jay Z’s attorneys once said that his Live Nation deal terms are as secretive as the Coca-Cola formula. First of all, what a ridiculous statement. Second of all, those terms were publicized and guess what? Jay never lost his competitive advantage. Cardi B team quickly deleted last year’s post about her festival guarantees, probably because her team wasn’t happy about it. But contrary to the age-old belief, transparency doesn’t hurt Jay or Cardi. Their leverage isn’t lost, especially at their level. Shared knowledge reduces friction and improves the result for the rest of the industry.

The other challenge is contract length. Meg is on a five-album deal with 1501, but she has yet to drop a 45-minute project that would qualify as an album, per the contract. Drake has technically only dropped five albums. Nicki Minaj has four. Kendrick Lamar has four. They’ve all outlasted most of their peers. Will the Hotties still wanna drive the boat with Meg by the time that fifth album drops in 2028? Or will they all be washed and staying at home by then?

Shorter contracts saved the NBA from the seven- and eight-year deals that stifled franchises with aging, expensive superstars. It hurt the on-court product. Today’s two- and three-year deals with player options are healthier for the league. It has fueled the player empowerment era that drives some fans crazy with the number of team changes. But the “I used to walk 5 miles to school” crowd should still agree that the pros outweigh the cons.

If artist deals were shorter and more transparent, renegotiations would happen naturally. The more-perfect the market, the less likely these issues are. Disputes will still happen, but less of them will stem from this underlying problem.

Meg may win this lawsuit and improve her personal situation, but the real problem still needs to be fixed. We are in an era where individuals have more power than ever, but the knowledge gap restricts that power. It would help record labels too. Upstarts like 1501 and majors like Columbia Records have all faced these issues. The less of them, the better.

Labels aren’t the enemy. Neither are artists who “need to read contracts,” despite what the Twitter lawyers say. There’s a better way. Let’s hope the industry gets there before hot girl summer is over.

How ‘Watch The Throne’ Still Impacts Hip-Hop

Rappers have tried to recreate Jay Z and Kanye West’s moment, but the streaming era has lowered the stakes for success.

The “Otis” music video (via YouTube)

Watch the Throne was a moment. A classic album? I wouldn’t go that far. But its influence is unmatched. Jay Z and Kanye West’s 2011 joint album sent hip-hop on a quest to recreate that iconic project. We now see lists of the 12 best hip-hop collabs of 2019 to cover the sheer volume of content. But unsurprisingly, no duo has come close to the throne. Even Jay and Ye themselves have fallen short with Everything is Love with Beyonce and Kids See Ghosts with Kid Cudi, respectively.

It’s easier than ever for rappers to team up, knock out joint projects, and reap the benefits with a fraction of the effort and cost that Jay and Kanye put in. The pragmatic shift is understandable. Hip-hop has always been bout its business. But will moments like Watch the Throne happen again? Or is this a casualty of the digital streaming era?

The album that became a moment

When Kanye first announced Watch the Throne, I wasn’t THAT excited. I enjoyed both rappers, but joint albums were rarely impactful. The Jay Z-R. Kelly albums were forgettable. Lil’ Wayne and Birdman’s Like Father, Like Son is an afterthought of Wayne’s prime. Jay and Kanye eventually dropped “H.A.M.,” which was fine, but your boy wasn’t ready for all that dubstep.

Then “Otis” dropped. It was a three-minute sprint through the world of luxury rap, best friends one-upping each other, and clear chemistry. Their energy was a callback to Method Man and Redman’s “Da Rockwilder.” In a few months, lines from “No Church in the Wild” and “Niggas in Paris” were quoted in conversation like they were skits Chappelle’s Show. A lot of rappers say that they are “the culture,” but most are lying. In 2011 though, The Throne was the culture.

It had the right elements: superstar rappers with a strong relationship, a bold claim that was backed up, on-brand material, relatable themes, and perfect timing. The timing is especially critical. It’s one of the hip-hop albums that best represents the Obama era of America (along with Kendrick Lamar’s To Pimp a Butterfly). Watch the Throne said ‘we made it’ more confidently than anything else at the time. Even more than Soulja Boy or Drake on the actual song, “We Made It.”

An attainable throne

Watch the Throne benefited from the rappers’ decade-long friendship. Their relationship had been a discussion staple in barbershops, dorm rooms, and house parties. Most collabs– even the good ones like Blackstar or Run the Jewels– lacked the star power.

The lofty ambitions for joint projects came back down to earth in 2015 when Drake and Future dropped the surprise mixtape What a Time to Be Alive. We had heard these two together on a few tracks like the “Tony Montana” remix and “Where Ya At.” They were tight, but their careers weren’t intertwined like Jay and Kanye. “Big Rings” and “Jumpman” got regular radio play though. The joint tape had its own spin on overindulgent decadence. The album cover looked like an homage to the iconic collab that came before it.

Watch the Throne on the left, What a Time to Be Alive on the right.

While Watch the Throne took months to create, What a Time to Be Alive came from an impromptu six-day recording session. It didn’t have Watch The Throne impact, wasn’t nearly as good, but didn’t need to be. It was a landmark project for the recently-launched Apple Music. It led to a joint Summer Sixteen Tour that outgrossed Watch The Throne Tour per show (even after adjusting for inflation). Ironically, I spent more on my Watch the Throne ticket than Summer Sixteen, but that’s just me!

What a Time to Be Alive proudly became the poor man’s Watch The Throne. The U.S. Polo Assn to Polo Ralph Lauren. The Luka Doncic-Kristaps Porzingis alley-oop to LeBron and Dwayne Wade’s iconic photo. It’s what hip-hop needed as a realistic aspiration.

It paved the way for projects like Travis Scott and Quavo’s Huncho Jack, Jack Huncho in 2017. When judged on a Watch the Throne-scale, it falls flat. What’s the relationship between these two? Were these guys tight before “pick up the phone”? Can we picture them and their significant others hanging out? What would they bring out of each other? The moment came and went.

But when judged on a What a Time to Be Alive scale, it works. Their musical styles were complementary. They did enough tracks together and rose to stardom around the same time. It kept fans hungry till their respective studio albums dropped.

Drake and Future from the “Life is Good” music video

“Consistently good” over “occasionally great”

Drake and Future were built for the just-in-time inventory approach to music creation. In 2017, nearly half of Future’s $23 million bag came from music streaming. That’s an unusually high ratio since most of his peers earn a majority of their money on tour. But it reflects the trap king’s prolific output. He drops multiple albums and projects each year. The only hip-hop artist who earned more from streaming that year was Drake. They were on the same wavelength.

Here’s what Drake said about Future after What a Time to Be Alive:

“That guy could probably outwork anybody right now… It’s tough to see somebody make four, five songs a night and not want to match it.”

Both rappers prioritize being consistently good over occasionally great. Here’s what I wrote about Drake in Nothing Was The Same After Nothing Was The Same:

Once Drake embraced his core competency (achieving commercial success with mediocre albums), his success rose. More Life (2017) was Drake’s “playlist” between albums that still set numerous streaming records. Scorpion went platinum in a day and has already gotten mixed reviews—exactly as intended. Drake has become even more bankable, leveraged his scalable fanbase, and built partnerships to increase his accessibility. The well-oiled machine shows no signs of slowing down…

The opportunity cost to attempt a classic album is high. Even if the quality’s there, the cultural relevance of a Watch The Throne-level moment takes years to build. What a Time to Be Alive became the standard for projects like Future and Young Thug’s Super Slimey, 2 Chainz and Lil’ Wayne ColleGrove, Lil’ Baby and Gunna’s Drip Harder, and dozens more.

OG Maco explains how What a Time to Be Alive‘s “mixtape” classification helped its positioning. The distinction is borderline meaningless, but it aligns with the lesser expectations.

The future of collaborations

Hip-hop artists follow the leader. Jay Z is rap’s marquee businessman. His partnership mentality is the popular model that others follow. Similarly, Drake’s consistency is de facto in the streaming era. The industry dynamics in both business and music are aligned with their strategies too. It’s no coincidence. But who’s next?

For years, J. Cole and Kendrick Lamar have hinted at a rumored album. Their relationship isn’t as public, but if it drops, folks will pay attention. Don’t be surprised if Megan Thee Stallion and Nicki Minaj come together either. “Hot Girl Summer” was popular, and Nicki wants to prove that she still belongs in the superstar conversation. Cardi B and Ozuna could drop some music too. They’ll both be on set together for the upcoming Fast & Furious movie, have collaborated on songs before, and see the market opportunity for collaboration.

It’s bittersweet. Fans have begged artists to wisen up about their money, time, and assets. Now they have. The desire for low-cost, high return projects will put higher-cost, similar return projects on the chopping block–especially if it requires two busy rappers to sync up.

What a Time to Be Alive 2 will drop this year and will push this current trend further. Songs like “Life is Good” and “Desires” are already out. Drake and Future likely have enough unreleased music for What a Time to Be Alive 3 and 4 at this point.

The economics work in their favor. But while they stack their bread and break streaming records, there’s a subset of fans who will continue to watch that throne, waiting for the next duo to claim their stake.