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Hip-Hop Fridays: E-Letter To: Tamara E. Holmes and Black Enterprise Re: "Do Record Labels Have the Golden Ticket?"

Your article, "Do Record Labels Have The Golden Ticket?" handles a very complicated subject in succinct fashion. I am impressed with how many factors you were able to consider in very short space.

If you have not already I hope that you will take the time to consider the stream of thought that we have tried to advance at regarding the issue of declining record sales, file-sharing and Hip-Hop. As a political and business economist with a focus on the global Black economy; and as a former manager of a multi-platinum Hip-Hop group – Wu Tang Clan – you will see, as you get familiar with what has been written, that I don’t quite have the same view of the problem and phenomenon as others. We are exploring this issue in great detail, this semester at Black Electorate Economics University (BEEU), including two guest lectures from "Hip-Hopreneurs," Damon Dash and Russell Simmons. Although we are in mid-stream, you and others can still enroll and get the benefit of past lessons. On Wednesday, January 14, 2003, we are presenting Russell Simmons' guest lecture, "Branding, Brokering And The Art Of Deal-Making."

In working with independent record stores, I have been watching two of the three promotional campaigns you mention rather closely - that of Jay-Z's The Black Album and the G-Unit's Beg For Mercy. And I do have to tell you, anecdotally, that the promotions have had what I would call a small "lotto effect." Customers did actually come into stores to buy The Black Album and Beg For Mercy with great awareness of the promotional campaigns and great hopes of winning either the Mercedes Benz or the G-Unit diamond studded necklace. And I think, like with playing the lottery, there is the entertainment value of participating in a "game," that does have some lure on customers.

Many people participate in lotteries because it is fun, and not because they are really intellectually expecting or consciously hoping for a financial windfall. The Black community’s historic "numbers" market was part financial investment, and part cultural "game" and social activity. (This is part of what Rev. Jesse Jackson does not seem to understand when he asks his famous rhetorical question, "Why do people prefer a bear lotto to a bull market?" To me, he does not understand that the gambling phenomenon is broader than a question of financial literacy and access to capital markets.)

Right now, however, as I look at the record sales for both albums, I don't believe that these two campaigns have actually increased record sales on their own merits. Rather, I think they have succeeded in gaining headlines; generating talk in the "streets"; and in influencing potential consumers to "remember" these offerings. So in that sense, especially in the case of the last point, these campaigns, I believe have helped the record sales of Jay-Z and G-Unit - but only through the circuitous (and hard to quantify) route of advertising, marketing and promotion. What I am saying is that the contests are promotional vehicles more than they are actual selling points. And, the contests make the shopping experience "fun" and an event in and of itself. People in record stores openly joked with one another about whether or not they had the winning CD; and it made for good small talk at the register counter as they purchased the CD.

A portion of your article reads: "Part of the reason why the hip-hop artists are being targeted by the industry [is] because for that particular audience, you have to work harder to get them to buy CDs because they're going to get their music in other ways. If you're talking about a jazz or classical music audience, you don't have to work as hard. They're going to buy the CDs."

This is a similar point to the one made by Damon Dash in his guest lecture at BEEU. Dame told us that he believes that the record labels and the record stores have to "incentivize" the customers to come into the record stores. So again, taking Dame's insight and analysis, I think that you should consider the contests as incentives to shop.

John Chambers, of a premier independent record store, The Music Factory, told me this week, "It is clear that the record labels have to give the consumers more reasons to buy an album." And Mr. Chambers believes that the "reasons" can be anything telling me, "They don't just have to be cash prizes or luxury cars or anything dramatic. The fans and customers want more value in terms of music and entertainment, not just high-profile contests alone. When we sold 50 Cent albums that included a limited edition DVD in them, people clearly bought them for that reason alone, and they actually became disappointed when they only had the opportunity to go back to buying the 'normal' album. Albums also do well that include special remixes, bonus tracks and 'hidden' tracks. The customer just needs something special or to feel that they are getting something extra from the record label that they can't get on the street or Internet. So in that way the contests are a step in the right direction of product differentiation because you can't duplicate those prizes unless you have the scale and operations of a major record company."

While I believe that the Hip-Hop genre's declining record sales are caused, to some degree, by piracy and Internet file-sharing, I have written consistently that the industry’s problems were created largely because the record labels did not satisfy the consumers' desire for better albums, being released at a faster rate of speed, with more of them being special compilations with more than one artists featured. Not satisfying this demand, and not figuring out how to sell albums online within days of their completion (and thereby eliminating "bootlegging" and internal piracy that can occur because the CDs are often manufactured in far-away plants over a 4-week period), the labels actually encouraged and enabled the piracy and file-sharing, in my view; and accelerated the popularity of mixtapes put out by Street DJs.

In my view the record labels have made strategic fatal mistake after fatal mistake and have used the file-sharing and piracy rationale as a cover.

People are not just file-sharing and purchasing $5 mix Cds because they want free or cheap music. They are doing so because they want new and better music, at a faster rate, and the ability to "make" their own albums. By not properly satisfying their demand as consumers; the record labels encouraged average and even casual music consumers to become distributors. Yes, they and the technology turned consumers into distributors. The poor business model of the music industry and the computer and Internet allows any fan to become a mini-version of Universal or Sony, in their own home, office or university.

Promotional campaigns that accompany album releases – especially in the competitive fourth quarter and holiday shopping season - can help to differentiate products and allow prospective customers to better "remember" these products; but I also think they continue a drift away from the true bread-and-butter of the music industry : good music; and toward the rapidly accelerating use of music as a marketing tool or loss leader – as is the case with Best Buys who lure you into the store with music so that you will buy an Xbox; or Apple, whose music download service is designed to hook you on the company's more expensive, and higher profit margin iPods and computers.

I look forward to your analysis of the effect of these promotional campaigns on the sales of both Jay-Z’s Black Album and the G-Unit’s Beg For Mercy.

I doubt you will find a significant increase in sales attributable to the "lotto effect" of high-profile contests and prizes.


Cedric Muhammad

Friday, January 9, 2004

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