Empire State of Mind

by Zack O'Malley Greenburg

  “The idea was great, it had great PR and buzz, I just don’t know how many people were going to pay him to use his color,” says media buyer Ryan Schinman. “It kind of disappeared, and nobody makes a big deal about it, but that’s because it’s Jay-Z and he’s a risk-taker. I think everybody realizes he has this ability to try things and push the business model and change it.”23

  Then again, there may yet be life in Jay-Z’s seemingly moribund vehicle. In early 2010, the paparazzi spotted him in New York picking up buddy Kanye West in a silver fourdoor Jeep Wrangler, instead of the customary backseat of a chauffeured Maybach.24 The appearance came just months after the release of his album The Blueprint 3, which features a song called “On to the Next One” and includes the line, “Bought the Jeep, tore the motherfuckin’ doors off.”25

  Is the reference a meaningless lyrical detail? Is it a veiled metaphor for the failed Chrysler deal? Or is it a signal that another Jay-Z Jeep deal is in the offing? The song offers no further clues, just a warning: “Y’all should be afraid of what I’m gonna do next.”

  11

  Reinventing the Roc

  On an empty Formula 1 race track in the shadow of a medieval castle two hours west of Frankfurt, nearly one hundred thousand people have gathered for the twenty-sixth annual edition of the German music festival Rock am Ring. The evening’s roster includes guitar legend Slash and Marxist rock group Rage Against the Machine, standard fare for the rock-heavy lineup. As the sun dips behind the rolling hills to the right of the bandstand, however, a different sort of act is preparing to take the stage.

  The single drum set used by the last group has been replaced with a battery of snares and cymbals, and a small platoon of guitar and brass players has coalesced in front of them. Three parallel red lines appear on the giant television screens above the stage as the speakers crackle into operation. The lights flash urgently, and the rowdy crowd slows to a murmur.

  “Uh uh, uh uh,” whispers a voice from offstage. “The dynasty continues.”

  Moments later Jay-Z saunters to the stage, clad in black jeans and a black T-shirt, with black sunglasses to match. When the band bangs out the first chords of the hit song “Run This Town,” the crowd roars its approval. Then the disembodied voice of R&B star Rihanna asks who’s going to run this town tonight, as if there’s any doubt about Jay-Z’s opinion on the matter. “We are!” he roars. “Yeah, I said it, we are / This is Roc Nation, pledge your allegiance.”

  By this point at a concert in any U.S. arena, nearly every member of the crowd would be putting their thumbs and forefingers together in a diamond shape to form the “Roc” sign, first popularized as a way of pledging allegiance to Jay-Z’s original Roc-A-Fella Records. In Europe, where Jay-Z is a relative unknown compared to his wife, Beyoncé, inspiring blind devotion takes a bit more work.

  “Everybody put your diamonds in the air,” he instructs the audience as he begins his third song, demonstrating with his own hands. Sure enough, a sea of arms rises to form Jay-Z’s logo. The exercise complete, he launches into a series of his most bombastic ballads, starting with the stomping beat of “On to the Next One.” Less than halfway through the show, Jay-Z seems to have won over the last holdouts in the writhing mass of humanity before him. Toward the end of his set, he launches into his international hit “Big Pimpin’” but deliberately stops the song a few measures in. When the crowd moans in distress, he tells them he won’t start up again until everybody grabs something to wave around in the air. Within seconds, a vast swarm of makeshift cheerleading equipment swirls into the twilight—sweaters, scarves, flags, even an inflatable cow—and Jay-Z restarts his song to thunderous applause.

  In a balcony high above, reserved for press and VIPs, a bespectacled man in a suit turns to me and smiles, motioning toward the crumbling fortress in the distance.

  “Imagine,” he shouts above the din in a heavy German accent, “what the guy would think who built that castle!”

  The jubilant scene in Germany was part of Jay-Z’s Blueprint 3 tour, a sixty-two-show international extravaganza that ended in 2010. The tour likely wouldn’t have been possible—or at least, it wouldn’t have been quite as profitable—were it not for a career-defining megadeal whose cogs were set in motion years earlier.

  In December of 2007, Jay-Z was growing restless as his three-year contract to preside over Def Jam approached expiration. After launching the solo careers of stars like Rihanna, Kanye West, and Ne-Yo, he felt he’d proven himself as a record label executive. His own musical career was once again on the rise, and he’d handled the bootlegging of his latest album with grace; American Gangster went on to become his tenth platinum solo effort.

  Def Jam’s situation wasn’t looking quite as rosy, but that was more a reflection of a music business trend than Jay-Z’s management skills—industry-wide album sales fell from eight hundred million in 2000 to four hundred million in 2008.1 Jay-Z figured he was worth more than the roughly $10 million annual salary he’d been earning as president. “I felt underutilized,” he later explained. “To me it was like, ‘I’ve sold companies for huge amounts of money. I’m an entrepreneur—that’s what I’ve been all my life. I can’t just sit here and make records and not do anything else.’ ”2 He tried to convince Def Jam to bring him back in an unorthodox new role in which he’d help the label make money in the industry’s shifting landscape. “I told them, ‘How about this idea—instead of spending $300 million to break four acts, why don’t you guys give me a credit line, and I’ll just go do things. I won’t make music. I’ll go buy some headphones, or buy a clothing line, just be part of the culture.’ But the money scared them off, because they’re not used to thinking that way.”3

  On Christmas Eve of 2007, Jay-Z announced that he wouldn’t be returning to his post at Def Jam for a fourth year. “I am pleased to have had the opportunity to build upon the Def Jam legacy,” he said in a written statement. “Now it’s time for me to take on new challenges.” If Jay-Z left because Def Jam wasn’t willing to give him the new authority he desired, his former bosses gave no indication. “While [Jay Z] will continue to be one of our signature artists, he will nonetheless be missed in this executive capacity,” declared Antonio “L.A.” Reid, the chairman of Island Def Jam.4

  From Jay-Z’s perspective, the appeal of forging ahead on his own outweighed the draw of Def Jam’s traditional label structure. “It’s really about trying to invest in the future, trying to invest in maybe coming up with a new model,” he said shortly after his exit. “Because going in hard making records with artists and throwing those records into a system that’s flawed is not exciting for me . . . My whole thing is, how do we invest in the future? If everyone is committed to doing that, then I’m sure there’s a deal to be made.”5

  The blogosphere buzzed with all sorts of interesting possibilities as to what his next move would be. At various points, speculation swirled of an impending collaboration with Apple or a super-label with Beyoncé, or both. But once Jay-Z moved on from Def Jam, the first months of 2008 passed without any of the rumors coming to fruition. Between launching 40/40 Club locations in Atlantic City and Las Vegas (the latter has since closed), becoming more active as a shareholder in the Nets, and brainstorming ideas for the final album he owed Def Jam under his artist agreement, Jay-Z had plenty of work to keep himself occupied. It seemed he wasn’t planning to conquer any new frontiers anytime soon.

  In April of 2008, however, the proverbial other S. Carter sneaker finally dropped. Jay-Z and concert promoter Live Nation announced that they were joining forces as part of a ten-year, $150-million agreement. The pact consolidated all of Jay-Z’s music-related ventures—touring, recording, and management of other artists—under the Live Nation umbrella. Because his new deal encompassed recorded music, Jay-Z had to pay Def Jam $5 million to buy out his contractual obligation to make one final album. “I wanted to have it back for a number of reasons, the most important being that it wasn’t consistent with the type of business I plan
ned,” he explained. “It was moreso the principle than the amount of money. It was about owning my own masters and owning my own companies, but you have to pay for the privilege.”6

  Principle aside, the $5 million buyout was an excellent business move—and likely a greater motivation than the notion of gaining full control of his masters, which were set to revert to him in 2012 anyway under his expiring Def Jam deal. In the new agreement, Live Nation paid Jay-Z an advance of $10 million for the bought-out album that would become The Blueprint 3 and promised him the same amount for at least three albums over the course of the ten-year deal. The rest of the pact encompassed many slices of his business, making it one of the most prominent examples of a so-called 360-degree deal: he received an upfront payment of $25 million plus an additional $20 million for certain publishing and licensing rights. (He kept his masters, though one lawyer familiar with the matter points out that there was a “fairly complicated and strenuous licensing agreement which some people might consider equivalent to a sale [of his masters].”7) He also received $50 million to cover costs of starting a new record label and talent agency called Roc Nation, as well as a general touring advance of $25 million. “I’ve turned into the Rolling Stones of hip-hop,” Jay-Z told the New York Times shortly after signing.8

  Jay-Z’s proclamation wasn’t far from the truth. The touring portion of his pact gave him the big-budget backing he needed to elevate his live performances to a new level, both in terms of production value and financial success. On 1999’s Hard Knock Life tour, widely considered the most successful hip-hop tour of its day, Jay-Z had to split each concert’s ticket sales of $375,000 with coheadliner DMX and a host of lesser rappers. After paying sound engineers, stage technicians, and the like, even the best artists only take home a third of their gross ticket sales, so Jay-Z’s gain was likely in the neighborhood of $60,000 per show, meaning he netted less than $3 million on the forty-eight-show tour—before taxes.9

  The Rolling Stones, on the other hand, grossed $558 million from 2005 to 2007 on a 144-show tour, the most remunerative in history.10 Even after whittling down the group’s take to account for expenses using the same one-third formula, each of the four Stones walked away with about $325,000 per show before taxes, or nearly $50 million per member over the course of the tour. Considering that breakdown, it’s not hard to see why Jay-Z would want to be the Rolling Stones of hip-hop.

  The disparity in earnings between the two acts can be traced to a simple equation: convince fifty thousand people to pay an average of $80 per seat every night, and you, too, can be the Rolling Stones. Getting that many fans to pay that much to see a concert is something that only a few acts, usually limited to mainstream rock groups, can achieve. According to Nielsen SoundScan, rock is the most popular genre of music, selling 124 million records in 2009. That’s far more than alternative (68 million), country (46 million), and rap (26 million),11 and those numbers translate to huge crowds when acts like the Rolling Stones, U2, Bruce Springsteen, and the Eagles go on tour.

  The paradigm for hip-hop concerts is totally different. Because the genre’s audience is roughly one-fourth the size of rock’s following, it’s nearly impossible for even the most prominent hip-hop acts to pack an eighty-thousand-seat football stadium; twenty-thousand-seat basketball and hockey arenas are basically the limit. And unlike rock, which typically features a live band with a singer and at least three instrumentalists, rap concerts center on a DJ at a turntable and an MC rapping over the beats, leaving fewer elements that can be varied in a live show. A skilled turntablist can please the crowd with tricks like “scratching”—moving vinyl records back and forth with one’s fingers, thereby producing the sort of electronic ripping noise popularized by early hip-hop music—and by seamlessly segueing from one song to another. But if the DJ isn’t creative, rap concerts can sometimes sound like the MC is simply rapping over recorded music.

  There have long been other, more insidious factors working against the viability of hip-hop tours. Until Jay-Z’s Hard Knock Life excursion changed the landscape in the late 1990s, prevailing attitudes made it nearly impossible to conduct a large-scale hip-hop tour at all. “Concert promoters and the venues were driving prices so high for rap concerts and security, by the time you finished paying for all of that you couldn’t put out a decent rap show. . . . But we showed that it could be done,” Jay-Z explained in 2005. “Once I got to a certain point in my career, I realized the things I did affected hip-hop and black people as a whole.”12

  One of the things Jay-Z did was to blaze a trail for hip-hop acts at rock music festivals. Shortly after signing his deal with Live Nation in 2008, he headlined the Glastonbury Festival in the United Kingdom. Many spoke out against bringing in a rapper to play a traditionally rock-focused show, including Noel Gallagher of the rock group Oasis, who said that Glastonbury’s organizers had made the wrong decision. Critics predicted Jay-Z would be booed off the stage. But when Jay-Z took the stage weeks later and opened his set with a bold parody of the Oasis song “Wonderwall,” he immediately won the crowd. “Both audience and artist rose to the occasion and turned in a moment of real, euphoric, pop-culture history,” declared the Sunday Times. “His performance will go down in Glastonbury history,” chimed the Independent.13

  As his career progressed, Jay-Z began to see a spike in his touring earnings. He cleared roughly $60,000 on revenues of about $200,000 per show in 1999; by 2003, his take-home fee jumped from $100,000 to $300,000 per show while on tour with 50 Cent.14 When he signed with Live Nation five years later, Jay-Z eliminated the need to rely on a coheadliner to help bankroll the shows. These days, Jay-Z is more Springsteen than Snoop Dogg. Under his Live Nation deal, each show is a near carbon copy of the musical spectacle described at the beginning of this chapter. There’s a big-budget rockerstyle entrance, the full brass band, and the dual drum sets. Instrumental music from a living, breathing backup band is something few mainstream hip-hop acts can boast. As a result, Jay-Z’s average gross per concert since signing with Live Nation is over $1 million—nearly twice as much as Lil Wayne, the next most successful live rapper.15

  While working as Def Jam’s president, Jay-Z essentially went on a three-year hiatus from touring. He returned with his sixty-two-show Blueprint 3 tour, which started in the fall of 2009 and grossed roughly $60 million in ticket sales, to say nothing of merchandise. If the eight hundred thousand people who attended Jay-Z’s latest tour each spent an average of $10 on merchandise (T-shirts, posters, etc.), that’s an additional $8 million to split between Jay-Z and Live Nation. All in all, that means Jay-Z’s net earnings for less than a year of touring were about $25 million, roughly three times his annual salary as a Def Jam executive.

  “Jay can look at Live Nation as his music unit, I suppose,” says Jeff Chang. “If you’ve got so much other business going on, you want a unit taking care of that part of your career.”16 As such, Live Nation took over the tasks previously reserved for record labels: producing and promoting records. In the past, labels would give an artist an advance for an album, and tours would be handled separately by a concert promoter. In Jay-Z’s deal, the concert promoter received a slice of all his music-related revenue streams—touring, merchandizing, record sales, etc.—in exchange for a hefty upfront fee and profit split.

  Jay-Z’s 360-degree deal was the latest evolution of a type of agreement whose roots date back to the 1960s. In those days, a few groups like the Partridge Family and the Monkees were signed to “multiple rights” deals. These acts were conceived entirely by music industry executives, and group members were simply hired as employees. Record labels owned the rights to everything associated with the bands, including their names. In 2007, British pop star Robbie Williams became the first independent act to sign a 360-degree deal, inking an 80-million-pound pact (about $120 million at the 2002 exchange rate) with EMI. Madonna followed by signing a ten-year, $150-million deal with Live Nation in 2007, paving the way for Jay-Z’s deal in 2008.17

  The moti
vation for record companies to sign acts to 360-degree deals isn’t hard to understand. In 2008, ticket prices for the top one hundred tours averaged $67, more than double the 1998 average; album sales plummeted. In 2007, the Institute for Policy Innovation reported that U.S. recording firms were losing $5 billion per year to music piracy.18 The 360-degree template represented a chance for labels to get a cut of something that couldn’t be copied and shared over the Internet: revenues from ticket and merchandise sales.

  For the upstart Live Nation, 360-degree deals were a way to lure artists from the traditional record labels that were trying to get in on the lucrative touring business. Flush with cash from its late-2005 initial public offering on the New York Stock Exchange, Live Nation threw gobs of money at big acts like Jay-Z and Madonna, partly in the form of stock options. Jay-Z’s deal included 775,000 shares of Live Nation, along with an option to purchase 500,000 more—bringing his equity stake to nearly 1 percent of the company (at the time this book went to press, his shares were worth about $12 million). Shakira and Nickelback, two other acts signed by Live Nation, did not receive stock options. For savvier artists like Jay-Z and Madonna, the negotiations were a bonanza.19

  “Live Nation did these huge deals largely on the terms of the artist,” explains Dina LaPolt, an entertainment lawyer who specializes in multiple-rights deals. “Normally, the record company has a lot of leverage, and the artist is really very limited in what rights they can kick out and what rights they have to be stuck giving the record company. But in the case of the 360-degree deals with Live Nation and Jay-Z and Madonna and all them, those artists had significant amounts of leverage and significant bargaining power because they were so successful. . . . They were able to extract millions and millions of dollars from Live Nation.”20