Hip-Hop Fridays: How Hip-Hop Artists Could Marry the Internet

My column last week on the MP3/Napster situation got quite a bit of attention from a cross-section of viewers. Most were intrigued by the possibility of the amount of money that artists could potentially make from selling their creative works over the Internet. Others were surprised that artists were not already taking advantage of the new medium. A few readers questioned whether the profit margins on the sale of a product would be as high as I claimed.

It would help to come back to the subject once more, initially in more macro terms. The major point to first understand is that the issue really must first be thought of in terms of the shifts that are happening in the world economy today and in America specifically. Think of the economy as having two sections, One, we will call the Old Economy that thrives off of manual labor, manufacturing, transportation and the provision of services. Think of the other section as the New Economy, made up of much smaller enterprises that rely upon cutting-edge technologies and are primarily information and communication-oriented.

Now apply this model to the music industry and the Hip-Hop genre in particular. The music industry as it currently operates, is in the Old Economy. It takes an artist's creative work, mass duplicates it, packages it, markets and distributes it via "planes, trains and automobiles" (for lack of a better description) in order to get the packaged creative work to Best Buys or a local independent mom and pop record store. This process involves many people and employs the services of many from a variety of industries. Of course all of these industries tack their expenses on to the CD by the time you purchase it.

Think of what the MP3 and even Napster represents as the New Economy. In the New Economy an artist is able to take their creative work right from the recording studio (sometimes right in their own home) and offer it for sale over the Internet, theoretically within a matter of minutes, hours or days. This also could take place right in their own homes. No extensive packaging or "planes, trains and automobiles" needed to take the product all over the country. Even record chain stores are not involved in this process.

Can you see the natural reaction that the Old Economy forces would have to this emerging New Economy and the technology that drives it? A declaration of war would be made immediately. And that is what has happened with Metallica and Dr. Dre and Napster. The Old Economy is driving these artists to get in front of them and fight the New Economy for them. They do so under the guise that Dre and Metallica are losing sales from the free offering of their music. And this is true. But how much more will they lose from not engaging the new technology?

The record labels could care less about the personal wealth of Dre and Metallica. They care about the preservation of the Old Economy or at least want a stay of execution. They want enough time so that they can absorb and incorporate the technologies of the New Economy into their own operations. There are tremendous forces behind what Dre and Metallica are doing that the general public cannot see. These forces offer their lawyers, financial support and make impassioned pleas to the artist in order to get them riled up in order to fight the paradigm shift.

What we are suggesting is that the artists not do the bidding of their Old Economy bosses and that they engage the New Economy. They have to stay neutral, at first, look at the technology, study it and have their advisers help them consider the options for profiting from the MP3 and Internet. They will see the enormous opportunity to make more money in the New Economy than they have been in the Old. And they do have the power to do it- right now- through their potential unity.

If two or three platinum artists on a label were to negotiate a deal together whereby they would be able to periodically release some of their creative works exclusively over the Internet the labels would almost be forced to agree to it. Record labels are like any other business; they forecast their profits for an entire year. And they rely upon certain artists to generate huge revenues at different times of the year. They hope to make money each of the year's four quarters.

If artists that are revenue generators in various quarters for one record label united and demanded the right, on a selected basis, to sell their own materials once a year or once every 18 months over the Net, they would be in a very powerful bargaining position. And if they stated that they would not deliver their contracted albums according to schedule, they could totally disrupt a label's forecasts and profit and loss statements.

I have sat in meetings with corporate music executives who have begged me and the artists I represented to deliver an album at a certain time of the year in order to help the corporation out of a financial bind. I have even had music chain store representatives inform me that if my artists released an album in a certain quarter it would help them survive. Hip-Hop artists' greatest power lies in their control over the delivery of their creative works to the record labels.

If the platinum 3rd quarter artist were to unite with the multi-platinum fourth quarter artist and demand some concessions be made to allow them to sell more of their work online, a record label would be caught in quite a quandary. But they just may give in, under the right circumstances. Not all record labels but a few would, in order to stay afloat.

And who cares that the artist will sell less units than they do through the Old Economy. They will make so much more. Imagine Artist A who currently sells 4,000,000 million records in the Old Economy and earns 70 cents on each record. Then imagine that same artist selling only 350,000 units over the Internet but earning $12-$14 per recording - you do the math. They make much more though they sell much less. Like Nice-N-Smooth once said it's time to move from the "Old to the New".

Cedric Muhammad

Friday, April 28, 2000