winner takes all

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Hey! Thank you for all the kind words about our Trapital Summit. I can’t wait. Hope you can join us! You can get your tickets here.

Today’s episode and memo is our latest installment of One of Ones. It’s a deep dive on 50 Cent. Zack Greenburg and I covered it all, from Power of a Dollar to Power Book IV. It was a really, really fun episode. Check out Zack’s piece here.

One of our topics was about how 50 Cent’s headphone line, SMS Audio, caused a rift between him and the Beats by Dre / Interscope team. I’ve been thinking about it ever since we finished the episode. Let’s chat more about that in today’s memo.

50 Cent and winner-take-all markets

NBA legend Pat Riley’s “disease of more” concept (from his 1988 Show Time book) was focused on successful NBA teams that struggled to defend their title. Those teams are often dethroned by internal forces. The individual players want more playing time, more focus, and more attention, which throws off the chemistry and selflessness that helped the team win in the first place. There’s only one ball to go around.

Interscope Records had its own stacked roster, especially in the 2000s. Eminem, 50 Cent, Dr. Dre, No Doubt, Lady Gaga, U2, Limp Bizkit, and more. The roster was as stacked as Riley’s Lakers teams. But at Interscope, there was only one pair of headphones to go around, and it was not 50 Cent’s SMS Audio line.

Beats by Dre was borderline incubated at Interscope Records. The headphones were always in Interscope artists’ music videos and worn by world-class athletes. Dr. Dre and Jimmy Iovine, cofounder of both Interscope and Beats, turned a boring utility product into a fashion statement.

But 50 Cent, who was signed to Interscope at the time, was all about ownership. He had recently changed the game with his Vitaminwater deal, saw what was possible, and would no longer be satisfied with a small ownership stake in a corporation’s big win. 50 wanted to be the corporation. He also didn’t want a vanity headphone line under Beats, like Diddy Beats (a poorly-aged name) or Heartbeats by Lady Gaga, which all came and went. Instead of following his record label’s rank and file, 50 acquired KonoAudio, rebranded it as SMS and built his own table for his headphone company.

In 50’s 2014 interview with Zack Greenburg, 50 jokingly called Interscope “Beats Records,” and talked about the tension his SMS Audio company caused with Interscope and how it led to his eventual departure from the label. Beats was acquired by Apple for $3 billion, while SMS Audio resulted in a $14.5 million settlement for 50 despite the relationships it fractured along the way.

It’s quick to say that 50 misplayed his hand, which is true, but it’s easy to see how 50 got there.

Entrepreneurship is full of operators who weren’t satisfied with a first-class ticket on the flight. They want to fly the damn plane themselves. It’s the VC who spins out of Kleiner Perkins to launch their own seed fund. It’s the Universal Music Group label head who was tired of the politics, wanted more control, and launched their own label. It’s the popular podcaster who left the big network to start their own media company.

The difference though, is that those games in business can have multiple winners. It’s especially true in B2B, where the long sales cycles, strong relationships, and customized use cases allow for multiple companies to thrive in a market.

But trendy consumer products though, like headphones, don’t work like that. They were more likely to be winner-take-all markets where network effects and cultural popularity take over, and brands compete head-to-head.

By the time 50 launched SMS in 2011, Beats had a 64% market share of headphones in the US over $100. Both headphones targeted the same customer, used the same type of celebrity endorsements, and even looked similar! Winner-take-all markets often benefit first- and second-movers, and Beats had a five-year head start on 50 Cent’s headphone business plus a stacked roster of major label stars to promote the brand.

Despite the SMS Audio, 50 got it right in the multimedia world with the Power franchise. He told a story only he could tell since it was loosely based on his life experience. He partnered with a network, Starz, that was eager for a hit. And he competed in a landscape where multiple shows, like Empire, can exist. And much to 50’s delight, he can antagonize, start shit, and turn shock value into a business model.

Chartmetric Stat of the Week - Empire State of Mind

On July 24, Jay Z and Alicia Keys "Empire State of Mind" achieved Diamond certification from RIAA. The song has over 1 billion streams on Spotify, topped the Billboard Hot 100 for 5 weeks, and is arguably the biggest hit of Jay Z's career.

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