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memo 014: hip-hop’s next era

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by Dan Runcie

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Hey! What a weekend. A new POTUS-elect, a vaccine breakthrough, a hip-hop legend inducted in the Rock and Roll Hall of Fame, and a chart-topping sales bump for your boy YG.

This week’s Trapital memo breaks down Live Nation’s struggles, Supreme’s $2.1 billion sale, Spotify’s pay-for-play experiment, and how hip-hop evolves in the Biden presidency.

Live Nation has another rough quarter

(via Tuur Tisseghem)

The global entertainment company lost $3.7 billion in Q3 and $7 billion total since the pandemic restrictions.

Cutting it close. In Q3, the company’s revenue dropped 94% year-over-year. This quarter, it paid more in refunds than it generated in sales. The company now has $1.9 billion available in liquidity and has taken further cost-cutting measures to stay afloat.

CEO Michael Rapino plans to resume to concerts “at scale” by summer 2021. If concerts aren’t at scale by then, Live Nation may have to make tougher business decisions.

There’s no vaccine for fear. Live Nation’s stock is up 22% after today’s vaccine news, but Live Nation and others in the live events sector should remember an important point: Consumer behavior often lags safety precautions.

In Live Nation’s Q3 earnings call, Rapino cited a survey that said “95% of fans” are planning to return to live events when restrictions are lifted. But 2020 has taught us anything, we shouldn’t trust surveys or polls!

It may take years for society to adjust from the cultural norms that have been ingrained since the pandemic started. For instance, I watch movies now and think ridiculous things like “Did that dude just walk up to a stranger and shake hands?! Couldn’t be me.” I would have never thought twice about that in a pre-COVID world.

Vaccines can curb COVID-19 spread and eradicate the virus, but it can’t eradicate fear. Remember, the airline industry didn’t reach its pre-9/11 peak until July 2004.

That said, every locale is different. If any artists plan to tour in 2021, they should prioritize regions that are furthest along in virus containment. Live Nation just held its first arena concert with 20,000+ fans in New Zealand, where COVID-19 has been contained. It will take time to get to that point in North America, where 70% of Live Nation’s business is, and the virus is still a major threat.

Read more about Live Nation’s challenges in Music Business Worldwide.

Supreme acquired by VF Corp for $2.1 billion.

(via brandchannel)

The famed streetwear brand has been acquired by VF Corp—the owner of Vans, Timberland, and The North Face— in a deal worth $2.1 billion.

All about ROI. This deal comes three years after private equity firm The Carlyle Group bought a 50% stake in the streetwear brand for $500 million, which valued Supreme at $1 billion.

Did Carlyle undervalue the brand? Could the brand have achieved more under a luxury house like LVMH? Potentially. But Carlyle is a PE firm, not a legacy couture brand. It just made half a billion dollars in three years and sold the brand at a 4x multiple (annual revenue is $500 million). That’s legit.

The better question to ask is “how will Supreme change under VF Corp?”

Supreme’s future. Here are VF Corp’s most notable acquisitions:

VF’s strength is extending the life of mass-market consumer brands. Under VF, The North Face, Vans, and Timberland have succeeded well beyond their peak popularity. But those brands benefitted from VF’s partnerships with retailers like Macy’s and Kohl’s—stores that Supreme-heads avoid at all costs unless they a) have to walk through the store to get to the mall, or b) got a holiday gift card and have to buy something.

Supreme rose in popularity on the back of hip-hop artists, redefined hype culture, and mastered the economics of limited drops. But if Supreme peaked in 2017 (as some trends indicate), then this was the perfect time for VF to come in.

But will Supreme’s core customers still love the brand when select items are an additional 10% off if they sign up for a Macy’s credit card on President’s Day Weekend??

Read more about Supreme’s story in this article from Complex.


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Hip-hop under Biden’s presidency

Hip-hop culture shifts over time, and the U.S. political landscape is a contributing factor. How will Biden’s presidency impact hip-hop?

How presidencies impact hip-hop. Obama’s presidency was defined by projects like Jay Z and Kanye West’s Watch The Throne, musicals like Hamilton, Run The Jewels, Shonda Rhimes’ ABC shows, and Kendrick Lamar’s To Pimp a Butterfly. They instilled a belief that “we made it,” “anything is possible,” but there’s more work to do.

Meanwhile, the Trump era was defined by projects like Childish Gambino’s “This Is America,” Jay Z’s 4:44, Kendrick Lamar’s DAMN, and films like Get Out and The Last Black Man in San Francisco. They were strong reminders that the system is broken, and offered deep reflections of who we are as a country, and as individuals in a polarized society.

It’s too early to tell what Biden’s presidency will bring. These things are best evaluated in retrospect. That said, most hip-hop artists are more relieved that the Trump era will be over than they are happy to see Biden as President-elect. That alone may change the tonality.

One of Biden’s goals is to restore the country’s polarization. It’s an admirable but near impossible task in today’s media cycle. If he can improve that, it may have an even more profound impact on the art that comes from both hip-hop and Black culture in the 2020s.

Spotify introduces “pay-for-play” promotion tool

Last week, Spotify announced a new program that will give songs an algorithmic boost in exchange for a reduced royalty payment.

A controversial feature. With this new experiment, Spotify will boost these songs in their radio and autoplay format. It would give artists a chance to prioritize the records they most want fans to hear. Spotify chose to take money off royalties so that any artist can opt-in, but critics don’t care. They believe it’s a form of payola—a shunned practice in the music industry.

An ongoing concern. For Spotify’s existence, it has been criticized for embracing tactics that favor those with deep pockets. Spotify may not charge for playlist placement on its in-house playlists, but plenty of independent playlists still do.

Why Spotify is doing this. “Money” is the quick answer, but more specifically, Spotify wants to be the “Google for audio”– a search engine for all things audio. Companies pay Google ads for high placement on search results. Spotify ultimately wants its customers to do the same.

Most signed artists don’t have a say in this—the record labels own their content. But indie artists should be frustrated. While this program doesn’t directly hurt them, the broader sentiment is a reminder that Spotify’s true customer is the major record labels. And if you don’t have the bargaining power of a major record label, you’re a less important customer.

Read more about Spotify’s new program in Quartz.

Trapital Player of the Week: Blue Ivy Carter

The eight-year-old child made her voice acting debut by narrating the audiobook for Hair Love, the book and Oscar-winning short film by director Matthew A. Cherry. This announcement comes a few days after Blue was prominently featured in the Ivy Park Drip 2 drop. It’s quite the resume for the heir to The Carter throne, but we expect nothing less.

Coming soon from Trapital

Ringtone rap essay. I’ll send it out later this week!

Podcast interview with Audiomack CEO and co-founder Dave Macli! Stay tuned!

I hope you’ve recovered from an exhausting week for many of us. Let’s hope the rest of 2020 is chill from here on out.

Dan

Dan Runcie

Dan Runcie

Founder of Trapital

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