3 Kings

by Zack O'Malley Greenburg

  By that point, Dunn had heard of both Lee and Iovine, and when the former reached out to discuss Beats, he listened eagerly. Dunn remembers going to Lee’s Bay Area office, replete with curtains and couches reminiscent of a Moroccan casbah, and wrapping a Beats prototype around his ears. It took one session to hook Dunn. Shortly thereafter, Lee brought him into a meeting with Dre and Iovine. Dunn had been involved in his share of celebrity meet and greets by this point. But as Iovine articulated his vision for marketing the headphones while Dre obsessed over sound and fashion, Dunn realized that he’d stumbled upon something different.

  “Dre talked about what it was going to mean, how the industry would get behind it,” Dunn recalls. “Talked about, ‘People pay a lot of money for Nikes; they’re going to pay money for great headphones that have a great sound, that have some cachet to them.’”

  Best Buy became the first big retailer to stock Beats, but before the headphones could really take off, sales associates had to learn just what they were selling. Lee and his team went in to explain that they needed to know their competition for consumer dollars—and, as Dre had advised Dunn, it wasn’t Sennheiser or Bose.10

  “Do I buy the Beats or the Air Jordans?” says Dunn. “That’s the consideration set.”11

  Much like Dre, Jay-Z chased a period of musical dormancy—and, some would say, decline—with one of the most lucrative deals of his career. His three-year “retirement” from life as a rapper hadn’t gone as planned, nor had his comeback: in 2006, Jay-Z returned with Kingdom Come, his lowest-selling album in nearly a decade. His follow-up, American Gangster, inspired by the Denzel Washington movie, fared even worse. Both records did claim number one spots on the Billboard charts, and Jay-Z shrugged off his critics, saying that his music had become too “sophisticated” for many to appreciate.12

  He announced on Christmas Eve of 2007 that he was stepping down from his role as president of Def Jam. His contract, worth some $10 million, had expired; he reportedly wanted more money to stay, and Universal, the corporate parent of his label, declined to give it to him. It seemed that he longed for more than a raise: his position had confined him to music, at least in his day job, at a time when he felt compelled to flex his entrepreneurial muscles even more broadly.

  “At Def Jam I wanted to bring the entire culture into it,” he later said. “I wanted a fund so I could do other things aside from signing artists, like buying a television station or a club where we can develop these artists, or putting out some headphones… I don’t think at that time they could really get their mind around that.”13

  Within days of his Def Jam departure, the rumor mill had Jay-Z and Beyoncé teaming up to form a new superlabel at Apple. It was a fascinating possibility, but ultimately, one of his fellow kings would sign an industry-altering deal with Steve Jobs’s company first. Jay-Z and Beyoncé had a different sort of union in the works: on April 4, 2008, the duo finally tied the knot at their Tribeca penthouse amidst friends, family, and fifty thousand orchid blooms imported from Thailand.14 The marriage legally solidified a relationship that had already paid dividends for both, giving Beyoncé some of Jay-Z’s street cred while bringing him to her broader pop audience.

  That same month, Jay-Z took his next step professionally, agreeing to a ten-year, $150 million deal with concert giant Live Nation that would encompass music, touring, and his thirst for outside business ventures. The pact included $50 million up front plus $10 million for each of at least three albums, $20 million for certain licensing rights, $25 million meant to finance Jay-Z’s investments, and $5 million per year for five years to cover the creation of Roc Nation, a multipurpose entertainment company whose profits would be shared with Live Nation.15 As part of the deal, Jay-Z received 775,434 Live Nation shares (worth more than $30 million today), plus an option to purchase 500,000 more at $13.73 per share (a discount of more than 60 percent at recent prices).16

  At the time, record labels wracked by the piracy-induced decline in music sales were beginning to claw back revenue by insisting that new “360” deals include a provision giving them a cut of artists’ touring dollars. Jay-Z wasn’t interested in that sort of arrangement, so he turned the template inside out and went directly to a concert promoter. “The record company is not in the touring business,” Jay-Z later said. “So why would an artist sign with you when that’s not your area of expertise? [Live Nation] is the biggest concert promoter there is, and there’s just so many different aspects we’re into to make ourselves successful: touring, producing, publishing, clothing, movies.”17

  Jay-Z and Live Nation would share ownership of Roc Nation evenly.18 He’d found a partner who would let him do exactly what he couldn’t at Def Jam—while paying him handsomely and letting him retain ownership. All the more remarkable was Live Nation’s decision to give a rapper a deal on par with those of its two biggest legacy pop and rock acts: Madonna (ten years, $120 million) and U2 (terms weren’t disclosed, but Live Nation’s chief said that the Irish rockers’ twelve-year pact resembled Madonna’s).19

  “[Hip-hop] just hadn’t translated into the live arena very well,” says Gary Bongiovanni, chief of touring data outfit Pollstar. “Part of it is that you have to do something of a dynamic stage show [to make it more than just] a guy talking into a microphone.”20

  Randy Phillips, then chief of Live Nation’s main rival, AEG, had similar thoughts when the Jay-Z deal went down. When Rolling Stone writer Steve Knopper called him for a quote, he offered an honest appraisal. “I said I would never have made the Jay-Z deal,” Phillips recalls. “Part of it was I was jealous that I was never asked to even bid on the deal, but I said Jay-Z is no U2, in terms of what I thought the potential was [for] the earnings and the touring… That’s what got printed.”21

  Not long after the story came out, Phillips was taking in a concert from a luxury box when a tall figure in a hooded sweatshirt materialized between Phillips and the door. “So,” a familiar voice said. “You don’t think I’m as good as U2?”

  “I looked up and I could barely see him, but I could tell in the voice it was Jay,” recalls Phillips. “My exit was blocked, so I had to engage. And so I said, ‘Look, it was taken out of context, as you know. Frankly, I would never have made that deal. Not that you ever asked me.’”

  The two parted ways, and Jay-Z spent the next several years trying to prove critics like Phillips wrong, usually boosting himself by teaming with artists who had fan bases different from his. He got help from his 2009 album, The Blueprint 3, which included “Empire State of Mind,” the New York anthem he recorded with Alicia Keys, which became one of his biggest hits. The song quickly reignited Jay-Z’s touring career, and he hit the road for a sixty-two-date excursion, his average gross soaring past $1 million per night.22

  In addition to launching solo tours following his own album releases, he teamed up with Kanye West for the Watch the Throne tour, which ran from October 2011 to June 2012, grossing roughly $75 million on fifty-eight shows, and then with Justin Timberlake for the Legends of the Summer tour the following year, pulling in $69 million across fourteen sold-out concerts. In 2014, Jay-Z and Beyoncé sold out all twenty-one dates on their On the Run tour from Pasadena to Paris, doing $110 million in ticket sales. The total was more than that of any hip-hop tour to that point; Live Nation shared in the spoils at every step.23

  “That’s one of the best deals they’ve ever done, because of the type of business and how Jay keeps reinventing himself,” says Kevin Morrow, who promoted Dre and Snoop’s Up in Smoke tour. “This guy’s a genius. [He says] ‘Oh boy, if my sales are diminishing, even by ten percent, I’m going to go grab Eminem or Kanye West or Beyoncé.’… He is so smart when it comes down to, ‘How am I packaged? What is my brand? Where am I going to play?’”24

  Years after the Rolling Stone story came out, Phillips ran into Jay-Z once again—this time at a Who show at the Barclays Center in Brooklyn. The AEG executive walked over to Jay-Z and shook his hand.

  “I apologized
for being wrong,” Phillips recalls. “I was totally wrong. His deal turned out to be a home run for both him and for them.”25

  It makes sense that, of all three kings, Dre launched a headphone line that truly resonated with people. Diddy was the flashy impresario and Jay-Z the brainy lyricist. Dre, on the other hand, had carved a niche for himself as the quiet perfectionist so obsessed with sound quality that he’d released only two solo studio albums by that point in what was already a quarter-century career.

  Dre’s stamp of approval helped Beats headphones get off the ground despite continued lukewarm reviews from audiophiles unenthused by the product’s sometimes-overwhelming bass and hefty price tag. But the audiophiles weren’t his target. Beats aimed to attract young music fans who’d never bought fancy headphones before, serving up the product with a side of sex appeal. In 2008, Beats adorned the ears of LeBron James and his U.S. teammates at the Beijing Olympics and started popping up in every Interscope music video—hundreds of them—on or around the bodies of artists including Lady Gaga, Justin Bieber, Britney Spears, Will.i.am, Miley Cyrus, and Nicki Minaj. Some musicians got their own headphone lines (most notably Bieber’s JustBeats and Gaga’s HeartBeats). According to Noel Lee, acts allowed the headphones to be placed in their videos without receiving additional compensation, let alone equity. “You did a video with Interscope, you got the headphones,” he says. “[Artists] would say, ‘What are these?’” The response: “Don’t ask. Just put them in the video.”26

  The broader headphone business soon came to reflect the success of its newest entrant. From 2008 to 2009, industry-wide sales surged from 59 million units at $490 million to 68.7 million units at $648 million, marking a 32 percent jump in revenues. The average unit price also increased by 14 percent, from $8.30 to $9.43. That might not seem like a lot, but it was quite a feat year over year, especially given that it occurred during the depths of the great recession.27 Boosted by all the free product placement, Beats suddenly accounted for nearly one-third of the market, racking up revenues of $180 million in 2009.28

  Dre’s success spurred other hip-hop acts to create headphone lines of their own: Soul by Ludacris, 50 Cent’s SMS Audio (Timbaland was among its investors),29 and Roc Nation Aviator, a collaboration between Jay-Z’s new company and Skullcandy. In the meantime, Iovine plotted to maintain Beats’ marketplace dominance, sometimes checking with dozens of people before making decisions. Dre obsessed over keeping Beats cool, weighing in on everything from commercials to font styles, generally relying on his gut and vetoing anything “corny” or “cheesy.” His dismissals would come in short, simple bursts: “I’m not feeling that.” But Iovine recognized the value of the company’s “cultural barometer,” as one colleague called Dre. “Once you try to describe cool, you run the risk of going perpetually to noncool hell,” said Iovine. “The whole premise is not to talk about it.”30

  Just as Nikes were as much a fashion statement as an athletic necessity, Beats—with its flagship Studio line available in a rainbow of colors—soon became equal parts accessory and audio device. “We changed the way headphones are a part of lifestyle,” says Lee. “It established headphones, where it’s cool to wear headphones around the neck even though they may not be plugged in.”31 Adds Dunn: “It’s not about the sound, solely; it’s about the fashion.”32

  In August 2011, with Beats’ annual revenues rocketing toward $500 million,33 the company got an incredible infusion: handset maker HTC paid $300 million for a 51 percent stake. With new cash came new products—for example, the understated Beats Executive headphones and the Beats Pill, a modern take on the boom box—and brand extensions galore. There were HTC cell phones with Beats Audio, Beats-branded laptops from HP, and even a deal with Chrysler to put Beats speakers in a new edition of its sporty Charger sedan.

  “What Dre did was smart,” says MC Serch, who lives in Detroit and has done some work in the auto industry. “Dre is seen as an audio guy… Putting the Beats Audio into computers, expanding the Beats brand—that makes sense. I don’t know if you’ve heard that Beats Audio in the Dodge Charger. That shit bumps.”34

  By the middle of 2012—a year in which Beats would clear $57 million in profit on $860 million in revenue35—Dre and his partners had grown rich enough to buy back half of HTC’s stake. They also decided to cut out Monster as the product’s manufacturer and distributor, taking the reins themselves. Lee was shocked. “They knew nothing about manufacturing,” he says. “They knew nothing about engineering… Dre is not that kind of an engineer.”36

  Beats plowed forward aggressively, buying streaming service MOG for $14 million that year37 and raising $60 million to transform it into what would become Beats Music in 2013.38 The cash came from a list of investors including billionaire Len Blavatnik, the owner of Warner Music Group; by the time Beats Music launched, industry insiders believed that streaming had already overtaken MP3s as the dominant music medium.

  With Blavatnik on board and Universal holding a sizable stake in Beats, the company’s fledgling service had buy-in from two of the three major record labels. It placed Iovine and Dre tantalizingly close to completing a trifecta that would allow the service access to an all-you-can-eat music menu. New executives hired the same year—including Ian Rogers, the former chief of music software company Topspin, and Trent Reznor, the audiophile front man of industrial rock group Nine Inch Nails—were indicative of Dre’s continuing focus on sound quality.

  “Beats was always about helping people rediscover the magic in the experience of listening to music,” said Iovine at around the time his company’s streaming service launched. “Now that we are well along the way to addressing the quality of audio playback with Beats headphones and speakers, [Beats Music] allows us to reintroduce the same magic into the process of music discovery and consumption.”39

  Lee didn’t believe that Beats would be able to achieve anything without Monster’s expertise; a new streaming service wasn’t enough to change his mind. At this point, his stake had been diluted down to 3 percent, and he decided to sell it back to his partners for about $20 million. His message to his former partners: “You guys got no exit strategy.”40

  At least that’s how Lee frames it. Some insiders say that his son, Kevin, was the one responsible for giving up Monster’s stake in Beats. Lee strenuously denies this: “He had nothing to do with me giving up my shares.”41 Regardless of whose choice it was, the move would end up costing Lee roughly $70 million in pretax profits.

  While Diddy had discovered his twenty-first-century groove in the television world with Making the Band and, later, I Want to Work for Diddy, his music career was heading in the wrong direction.

  In 2004, he took part in the Super Bowl halftime show that ended with Janet Jackson and Justin Timberlake’s “Nipplegate” scandal, wherein Jackson’s breast was bared for a split second on national television. The revelation spurred 540,000 people to file complaints with the FCC. (It also inspired a young PayPal programmer, frustrated because he couldn’t find any clips of the slip online, to create a video-sharing service that eventually became YouTube.)42

  After selling 50 percent of Bad Boy to Warner for $30 million in 2005,43 Diddy released his third solo album, Press Play, the following year. The record failed to move one million units, despite decent reviews. In the four years that followed, he became disillusioned with the music industry and turned his focus almost entirely to his other business ventures and his reality TV career. “I went through, like, a year and a half of being uninspired, and I just hit a wall. I was just like, Why am I getting up out of bed?” he told me in 2014. “Music is such a part of my life… I just didn’t feel like people had the passion that I had.”44

  Diddy’s next release would be a concept album called Last Train to Paris, recorded under the name Diddy–Dirty Money with singer Kalenna and Making the Band winner Dawn Richard, from Danity Kane. The album, a moody mix of electropop and hip-hop, follows Diddy as his character travels from London to Paris, searching for
a lost lover. Famous friends including Swizz Beatz, Timbaland, Lil Wayne, Drake, Justin Timberlake, and Wiz Khalifa contributed to tracks, and others, from Anna Wintour to Tommy Hilfiger, popped up on spoken-word interludes.

  The album performed modestly from a commercial standpoint and received mixed reviews: the BBC dubbed it “a seriously impressive artistic statement,”45 while Rolling Stone put it on a list of 2010’s biggest musical disasters.46 The record did include a single cowritten by a committee featuring Jay-Z; the song earned multiplatinum certification and kept Diddy’s name in the music conversation.

  Diddy also attempted to cross-promote his new record, teaming up with Dre’s headphone company to release Diddybeats, a $179 pair of earbuds that came with a free track from Last Train to Paris and a travel case inspired by his Sean John fashion line. “Dre and I wanted to design an earbud that was a combination of great style and powerful sound,” said Iovine. “Diddy was the perfect choice for this because he’s a pioneer in marrying music with fashion.”47 For his efforts, Diddy received a small financial interest in Beats, according to sources close to the negotiations.

  But Diddy’s tiny leather-and-aluminum earbuds—available only in black, white, and pink—were barely visible when in use. Without the ability to make a bold fashion statement, they never took off like Dre’s brightly colored, over-ear monsters. The biggest problem for Diddybeats, according to Lee, was that Diddy simply “didn’t believe in it”; the Monster chief says that Iovine “kind of dragged him along.”48 By this point, Diddy had established strong friendships with Dre and Iovine. He also struck a deal with Interscope to distribute Bad Boy’s music at around the same time.49