don't call it a comeback

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Hey! The air quality in the Bay Area has been bad this week due to the wildfires. It's that time of year. If you're in the area, I hope you stay safe until it passes.

Before we get to the memo though, I want to talk about Deion Sanders. I felt bad for his last college football program, Jackson State, but it’s fun to see this Colorado football team make moves. I still believe that Deion’s peak is his back-to-back Super Bowl rings with the 49ers and Cowboys. It's hard to top that. But if Colorado continues to win, this Coach Prime era has to be in the conversation. I'm on the bandwagon and I have no shame!

​Today’s episode and memo is about the one, the only, Def Jam Recordings. It’s hip-hop’s most influential label, and its backstory was fun to dig into. I’m joined by friend of the pod, Zack O’Malley Greenburg. We talk about the highs, like Def Jam’s peak years. But we can’t talk about Def Jam without mentioning the lows, like co-founder Russell Simmons’ numerous allegations of sexual assault and misconduct. It’s nearly a 40 year history, and we covered it all.

You can listen to the episode here or read highlights below.

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more Def or more Jam?

In an interview with VladTV, Russell Simmons shared why he and Rick Rubin parted ways in 1988:

Simmons once said Def Jam got its name because Rubin was more “Def,” while Simmons was more “Jam.” At best, the combo paved the way for LL Cool J, The Beastie Boys, and Run DMC. But at its worst, the split identity left a label and its artists straddling multiple worlds.

Ironically, each Def Jam phase has leaned one way or the other. Redman’s successful 1992 debut, Whut? Thee Album, was a turning point for Def Jam. The label was $19 million in the red at the time—bleeding money. But Reggie Noble’s success set the tone for Def Jam’s 1990s focus on hardcore New York rap.

A decade later, though, once Def Jam was entirely under the major record label umbrella, it leaned more into the “Jam.” Then CEO L.A. Reid was in superstar-building mode. L.A. admittedly dropped Lady Gaga too soon, but he was there for the rise of Rihanna, Ne-Yo, Justin Bieber, and “Stadium Ye” Kanye West. By the mid-2010s, though, Justin Bieber was the most bankable artist on the roster.

People often comment on Def Jam’s shift away from its core, but to be fair, Def Jam’s co-founders couldn’t agree on its core either!

Like most companies, the brand evolves with each of its leaders. The major label incentives pushed those leaders to focus on market share, efficiency, and landing hot artists. And those incentives make it hard to turn down a commercially successful artist like Bieber.

​Listen to the full episode here or read below for more highlights.

the infrastructure for newer companies

To prep for this episode, I asked a handful of industry execs which Def Jam CEO was most effective at their job. Most of them gave me different answers. There’s no correct answer, but here are two wise moves worth mentioning.

In the mid-90s, Russell Simmons was reportedly frustrated when Bad Boy and Death Row execs got on the cover of VIBE, but Russell couldn’t get on.

It was humbling, but Def Jam saw an opportunity to shift its brand. Instead of being the brand in front, Def Jam became the infrastructure for several sub-labels to stand out in front. Def Jam had deals with Roc-a-Fella Records, Murder Inc., and Disturbing Tha Peace. Def Jam backed them like an institutional VC firm that invests in emerging fund managers.

Those labelheads were younger, closer to the ground, and tapped into their respective regions. It allowed Def Jam to stay present and benefit from those companies. We covered Roc-a-Fella’s story recently. Murder Inc. had its moment with Ashanti and Ja Rule, and every Ludacris album in the early 2000s was a hit.

In most cases, record label imprints or labels housed under other labels gain little traction. Many are merely vanity projects. In hip-hop, the best examples are Def Jam’s sub-labels and Young Money under Cash Money Records. There are a few others, but the list of good examples is few and far between.

how DMX and Jay-Z fueled the Def Jam sale

The other smart move in Def Jam’s late 1990s run was its sale to Seagram, which owned Universal Music Group at the time. Seagram recently bought PolyGram, which had owned 60% of Def Jam, and now Seagram’s UMG wanted the rest.

​In our episode, Zack told how Def Jam was offered $50 million but turned it down. Then, Seagram countered with $34 million, so Def Jam went to the drawing board.

Seagram had valued Def Jam on a multiple of revenue, not EBITDA. So Def Jam set out to maximize its revenue. Lyor and Russell went to their top two artists on the label, DMX and Jay-Z, and asked them to release another album by the end of 1998.

X got a $1 million bonus for Flesh of My Flesh, Blood of my Blood released just seven months after his debut album, It’s Dark and Hell Is Hot. Jay-Z released Vol 2… Hard Knock Life just ten months after In My Lifetime, Vol. 1.

Here’s a quote from former Def Jam exec Kevin Liles in a 2016 interview with The Fader:

In 1998, Def Jam made $40 million in profit on an estimated $176 million in sales! Seagram bought the remaining 40% stake for $100 million, double the initial offer.

DMX was feeling himself after that one, and rightfully so. From The Fader in 2016:

I’m sure X would have felt even more vindicated with an even larger bonus thought!

This is still one of my favorite hip-hop best business deals. It’s a high-stakes M&A deal at the industry’s peak. It was well-timed. Def Jam did give up ownership and control, but at least it maximized the check in the process.

In the rest of the episode, we also talked about:

• Jay Z’s tenure as CEO
• Def Jam Vendetta, Def Poetry Jam, Def Comedy Jam
• which CEO was most effective?
• underrated moves, missed opportunities, and more

money moves

• Why Saudi Arabia will invest more in music​
• Why Usher should headline the Super Bowl halftime show
• the unlikely way rap is written today​
• why Netflix should become a channel distributor for its rivals​

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coming soon from Trapital

Stanford GSB Talk. In May, I did a talk at Stanford about the future of music. Excited to share it with you!

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