It was a balmy California evening as Dr Dre and Jimmy Iovine strolled along the Los Angeles beachfront. The rap music producer was keen to cash in on his Dr Dre brand and told his business partner about the huge sums fellow rapper 50 Cent was making from selling branded trainers.
Contemporaries such as Jay Z and P. Diddy (Puff Daddy), were also raking in vast amounts from ventures outside music.
Iovine, a recording industry veteran and chairman of Universal Music Group’s Interscope Geffen A&M Records, listened attentively, then said: “Dre man, we need to do something. But this is not us. Nobody cares what sneakers you wear. Screw sneakers, let’s make speakers; let’s get into sound.”
Within a few months of their walk in 2006, the pair formally established Beats Electronics – the speaker and headphones maker that has since made Dr Dre the first rap billionaire and cemented his position as the brightest star in the “hip-hopreneur” firmament.
Since the launch of the first headphones in 2008, Beats by Dre’s audio equipment has swept all before it, aided by a string of celebrity endorsements. Last May, it secured its biggest endorsement yet when Apple agreed to stump up a mammoth $3.2bn (£2bn) for the electronics business. Tim Cook, Apple chief executive, said at the time: “We have known these guys forever; we’ve dated, we’ve gone steady and now we’re getting married.”
The 49-year-old rap producer is now just as well known on Wall Street for his business savvy as he is in the housing projects of LA and New York for his music.
The Apple deal set a new highwater mark for the growing tribe of rap moguls who are keen to marry commerce with art and Dr Dre was top of the pile with estimated pre-tax earnings of $620m in 2014, according to the latest Forbes annual Hip Hop Cash Kings list of rap music’s richest, released in September.
That was the largest sum earned in a single year by any entertainer ever measured by Forbes and was easily more than the other 24 members of the Cash Kings list combined.
The producer was streets ahead of his closest contenders – Jay Z and P. Diddy, both with $60m. The top 10 artists raked in a combined $922m in the year.
Despite dominating the Forbes list, Dr Dre, otherwise known as Andre Young, is by no means the only hip-hopreneur on the block. So why do some rap artists take so readily to the boardroom?
Dan Charnas, a former hip-hop producer and author of The Big Payback: The History of the Business of Hip-Hop, reckons the entrepreneurial spirit shown by the likes of Dr Dre and Jay Z was already embedded in the culture, because “hip-hop was always aspirational”.
Some leading rappers credit their business success to their formative experiences – wheeling and dealing in drugs and stolen goods to make a living.
Jay Z, aka Shawn Carter, started out as a drug dealer in New York and soon realised he could expand operations to areas such as Maryland and Virginia, where, one of his biographers observed, “the competition was lighter and the clientele less sophisticated”.
He now sits atop a burgeoning business empire that includes the Rocaware clothing range, 9IX fragrances, Roc Nation sports agency, Armand de Brignac Champagne, and a stake in NBA basketball team the Brooklyn Nets.
Not all of Jay Z’s ventures have succeeded. He famously trademarked a specific shade of blue – Jay Z Blue – which he hoped to exploit, starting with making it the paintwork on a branded Chrysler luxury SUV. That did not work out, but such mis-steps don’t seem to have tarnished the rapper’s brand.
P. Diddy, aka Sean Combs, also owns a clothing range, called Sean John, as well as Ciroc liqueur, Blue Flame marketing agency and Revolt TV network.
Other notable hip-hopreneurs include Curtis “50 Cent”’ Jackson who was asked to be a brand ambassador for the soft drink Vitaminwater. Jackson shrewdly negotiated a 5% equity stake in the business that was eventually sold for $4bn.
As rap has moved over the years into the musical mainstream, the shift in public perception coincided with huge changes in the music industry. Between 2004 and 2010, the value of the global recorded music industry fell by around 31%, according to trade body IFPI, as illegal copying and distribution were made easier by the internet.
Artists realised they needed additional sources of income to match the jet-set lifestyle of their forbears. In order to increase their cashflow acts began ramping up their concert tours, taking in more cities and making the shows even more spectacular.
The music trade publication Pollstar found that the average cost of a ticket for one of America’s top 100 concert tours has mushroomed from $25.81 in 1996 to $62.57 in 2009.
To grab the biggest slice of the profits from concerts, artists must play stadium gigs that can accommodate 50,000 to 80,000 people, rather than an arena tour in front of 10,000 to 20,000.
For artists that can’t yet attract the crowds to fill a stadium it makes sense for them to co-headline and share the spoils. The rap world has been quick to spot the potential of a blockbuster tour with other big name hip-hop artists.
Jay Z’s sold out Hard Knock Life show, along with DMX, Method Man and Redman, and the recent Drake v Lil Wayne tour have demonstrated the rap world’s shrewd acceptance of the potential financial benefits of collaboration.
In musical terms, British rappers, such as Dizzee Rascal and The Streets, have had huge success that thrust them into the limelight and headline big UK festivals.
But there is no evidence yet that Britain’s finest have quite the same entrepreneurial zeal as their American counterparts.
Dizzee Rascal has a few low-profile business interests, including a record label, Dirtee Stank, and Dirtee TV production company.
But the east London rapper’s commercial moves pale into insignificance when compared with some of the titans of Britain’s pop industry. One Direction and Little Mix, managed by Simon Cowell’s Syco organisation, have an extensive portfolio of money-spinning activities from perfume to clothing ranges, make up and look-alike dolls.
Even Liam Gallagher, former Oasis front man, aims to keep the tills ringing with his clothing business Pretty Green.
Hip-hop’s transformation from outlaw block parties in the South Bronx into a global cultural powerhouse has been phenomenal. Corporations, once keen to distance themselves from the foul-mouthed street gangster image of the music, are clambering on the bandwagon as they try to woo a younger generation of consumers.
Attaching the name of the latest hot street artist to a new line of Nike clothing may make both sides lots of money. To make the really big bucks requires something more – a bit of vision.
For Apple, the real prize was Beats Music, its music-streaming subsidiary. It will help the iPhone maker combat the growing popularity of rival streaming services such as Spotify and Pandora.
Apple has dominated the digital music download market through its iTunes service for the past decade, but upstart streaming operators threaten to usurp it.
Revenues from music subscription services ballooned by 51.3% in 2013, exceeding $1bn for the first time. Streaming is the fastest-growing part of the music sales market - the number of paying subscribers jumped to 28m in 2013 from just 8m in 2010 (source: IFPI).
As the Beats impresario once rapped: “Dr Dre is the name, I’m ahead of my game.”
