Why the music industry is throwing money into hip-hop at a speed and scale that could spell danger
This is the first in a Rolling Stone series exploring the new business models of music’s rap- and streaming-dominated era.
Record deals rarely let slip concrete numbers, but the rough figures reported around the most buzzed-about deals of the last year go something like this: Warner dishing out $8 million to teenage rapper Lil Pump, who’s only had one major hit on the charts so far; RCA handing over an immense $15 million to Brockhampton; Juice WRLD, SahBabil, Shoreline Mafia and Lil Xan jumping out of obscurity to the tune of $1 million or more; XXXTentacion, weeks before his death, signing a deal for $10 million.
While the U.S. music market is finally bouncing back from its miserable two-decade slide caused by the death of physical albums at the hands of digital, those deal numbers for young rappers are, by all accounts, outsized. It’s true that streaming services have reinvigorated the record industry’s finances, but the industry is still 40 percent below what it was at its peak – and nowhere near in a position for lavish spending.
Yet a confluence of factors, from labels’ overeagerness for a revival of power to the abundance of data available in the streaming era to the changing status quo for artists and the hustle-driven ethos of hip-hop itself, is causing the music business to pour money into new rap talent at breakneck speed – and begging a question, for many, of whether the champagne bottles might have been popped too early.
The biggest record deals of all time go to acts like Whitney Houston ($100 million) and Robbie Williams ($125 million), but they were made two decades ago when the industry had plenty of money to spare and for artists who were already household names. In 2018, shelling out millions for unknowns carries a certain peril.
Still, nearly every record label wants to take that risk because the reward is too good to pass up: Rap has proven its staying power as America’s most popular genre, especially among younger listeners, so striking gold with one rapper is worth a handful of failed bets on others.
That doesn’t mean labels are inherently good at finding those superstars, however. “A lot of people thought rap was a passing fad. But it wasn’t, and now people realize they have to invest more into urban music to stay competitive,” Joie Manda, EVP of Interscope Records, which has long had more interest in rappers than its peers, tells Rolling Stone. “Major labels who don’t have executives in the company who grew up understanding the culture – I think they do just throw themselves at whatever shiny object or whatever they think is the entry point.”
“Labels are shooting themselves in the foot, because all they do is wake up and look at Shazam” – dancehall manager Julian Jones-Griffith
Julian Jones-Griffith, who manages several dancehall artists, echoes that sentiment: “Labels are shooting themselves in the foot, because all they do is wake up and look at Shazam,” he says. “New York is the Number One market, so if you’re Shazaming top three in New York, they’re all blowing up your phone. Atlantic wants to give [dancehall singer Hoodcelebrityy] 300 [thousand dollars], so she can go to Sony like, give me five. Republic, give me five. They’re like, look at Shazam, we need to get this girl! I think she got 600 grand. But that record [“Walking Trophy”] is not going Top Ten Billboard nationally. They’re just working off analytics. They don’t realize this record is not actually that great. It’s Shazaming Number One in the biggest music market, so they’re all coming in their pants. But what else does she have behind it? How are you gonna make 600 grand back?”
“The money’s back,” says DJ Drama, a veteran producer-artist who signed Lil Uzi Vert and also has a label deal with Atlantic. “Labels are making an extreme amount of money again based on the new landscape. Because of that, they’re willing to offer more money up front.” But, he adds: “Any time a label gives out an enormous amount of money, you best believe they plan on recouping it all. They’re banks. They’re not friends.”
Whereas signing new artists used to be scouring grimy underground venues and clicking around niche corners of the internet, industry executives say it’s now mostly about one thing: numbers. Billboard’s new artist charts. Nielsen’s radio play reports. Spotify’s weekly streaming figures. YouTube’s most fast-rising videos list.
Data is abundant – and also evenly distributed, turning the game into a mad rush far earlier on. “All the labels have become very research-focused, and in general, a lot of them are looking at the exact same data,” Jeff Vaughn, vice president of A&R at APG, tells Rolling Stone. “So when something pops on one person’s radar, it’ll pop on two or three people’s radars – and because people are looking at artists so early, once there is evidence of traction, it becomes even more valuable than before.”
“Everyone’s catching things at a similar time, so there may be bidding wars more often” – label executive Jeff Vaughn
At SoundCloud, a platform where some amateur rappers have built an organic and massive community over the last few years, labels are swarming. After Chance the Rapper made music history last year by being the first Grammy winner to not sell physical copies of his music, the platform, and other community-oriented music realms, became sources of serious power. Labels use Soundcloud as “fountain of research for A&R,” Megan West, the company’s vice president of content and community, tells Rolling Stone.
“Everyone’s catching things at a similar time,” Vaughn says. “So there may be bidding wars more often, or they’re more likely to try and be aggressive and take something off the table fast.”
But unless the music industry keeps getting exponential influxes of cash, it won’t last forever. “I think we’ll hit a tipping point,” Manda says. “A lot of labels that don’t have backgrounds or aren’t very skilled in rap will realize they’ve signed a bunch of rappers and have to go break those rappers. They’ll have to slow – because people will have to focus on breaking the ones they sign.”
But the rap-era gold rush doesn’t necessarily represent labels’ confidence in the future of the genre. It’s more telling of their belief in the longevity of streaming services.
Labels, after all, get to double dip with streaming. Spotify pays them once to license their catalog, and then a second time for whatever percentage their artists earned in royalties. That business model is beneficial enough on the rights-holder side of things that Spotify hasn’t even been able to turn a profit yet. Record labels have also demonstrated clear vested interest in the future of streaming by taking stakes in streaming services themselves. Translation: Streaming isn’t guaranteed to stay popular among music fans.
A manager with several rising artists on his roster who wished to remain anonymous tells Rolling Stone that many labels treat streaming’s business model as a more long-term profit stream than, say, CD sales or iTunes downloads. “If this artist has enough buzz, people are behind it,” he says. “If it’s already generating 50,000 to 100,000 [streams] on Spotify and Apple Music, [they say] ‘fuck it, we’ll take the bet’ and put a million and a half down. If an artist does break in the streaming era, the long tail can be so good.”
“The labels are just now figuring out a way to eat again, too. it’s just feeling like it’s getting back to normal for them” – 21 Savage manager Justin Williams
That “long tail” refers to the idea of streaming as everlasting revenue: One fan buys an album once, but might come back to stream it once a week for a year. Or five years. Each of those streams trickles a bit more money into artists’ (and labels’) pockets, even if the per-unit rate seems puny. Drake’s recent LP Scorpion, for example, made more than $1 million in its first 24 hours, which is laughable by 1999 standards – he’s the biggest artist of the decade and $1 million only amounts to 100,000 CDs – but respectable enough when factoring in the fans who go back to listen just as fervently in the second 24 hours, and the third, and the fourth.
Big checks written for rap, then, calculate in some pretty big hopes for music distribution in the future. And those hopes aren’t necessarily substantiated: As Midia Research’s Mark Mulligan has pointed out, the streaming music market in Sweden already seems to be slowing, and trends in that longtime indicator market could have knock-on effects for other countries. If streaming doesn’t pan out to be the industry savior that everyone wants it to be, labels will be taking a keen loss.
“Labels are like, let’s take a bet. At the end of the day it’s about market share to them and they gotta win,” the manager says. “If they’re going to bet on seven or nine guys that all get $1 or $2 million deals, they’re just hoping that one of them turns into Juice WRLD.”
It’s not just music’s big companies obsessively combing over data. Artists are doing the exact same thing, and it’s flipping the once-cemented status quo.
“Technology changes things and really is enabling this shift in power in the music industry very much in favor of the artist,” West, the SoundCloud executive, says. “They have a lot more data at their fingertips, enabling them to negotiate better deals.” Rappers who rise up on SoundCloud, for instance, have access to tools that show metrics like how many people are commenting on their music, what cities they’re most popular in and how quickly velocity is building on a particular track. Spotify also offers analytics for artists; even social media platforms like Instagram allow music stars (or so-called “influencers”) to closely track how they’re doing with fans. “It’s a complete game-changer, because artists are going out there and saying, ‘Look, I know how popular I am, so here’s my expectation of this deal,'” West says.
In every genre, artists are getting the unprecedented chance to determine their own worth. “Artists can go directly to Spotify and Apple Music and really put points on the board,” DJ Drama says. “Artists used to put [out] mixtapes, build a buzz and go to the label like, ‘Look what I’ve created.’ But it wasn’t cut and dried on paper the way it is now. If a song’s getting 5 million streams a week independently, and a label offers an artist x amount of dollars, they say, ‘I can make that in four or five shows.’ It’s gonna be a tougher negotiation.”
Couple that with the particular self-driven, self-made nature of hip-hop – a genre that openly talks about money, raps about money, brags about money, which has blown all the taboo out of musicians championing their own wealth – and you end up with everybody also knowing what their friends and enemies are being paid.
As Justin “Meezy” Williams, who manages 21 Savage, puts it: “The labels are just now figuring out a way to eat again, too. Their money was fucked up for a decade. Now it’s just feeling like it’s getting back to normal for them. It’s two different games. I feel like we makin’ more money than any rapper, period, ever did.”
Additional reporting by Elias Leight
© 2019 PMC. All rights reserved.