Jay Z’s Cell Phone Partnership Strategy, Explained

Jay Z’s Cell Phone Partnership Strategy, Explained

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Hey! Next week I have something fun planned. We are counting down the 10 most influential hip-hop business deals of all time. I’ll be doing this together with my friend, Zack O’Malley Greenburg, a former Forbes editor who wrote Jay Z’s biography, Empire State of Mind.

We went back and forth on our rankings, debated with each other, and we feel pretty confident, but want to make sure we didn’t miss anything. So we have a question for you:

What do you think is the most influential hip-hop business deal of all time? Reply to this email with your answer!

This week is a short week for me. My wife and I took a vacation! In today’s newsletter I’m re-sharing one of my favorite essays I’ve done, Jay Z’s Cell Phone Partnership Strategy, Explained. It’s very relevant after Kanye’s Stem player, and people exploring unique ways to release their music. I also have a new podcast episode with Dazayah Walker, head of investments at Quality Control Music. Let’s dive in.

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new pod: Dazayah Walker, Quality Control Music

New Trapital Podcast episode with QC’s head of investments, Dazayah Walker! We talked about the the hip-hop record label sources deal, what it looks for in founders and startups, its partnership with TechCrunch, and more.

Listen to the Trapital Podcast here:

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Jay Z’s Cell Phone Partnership Strategy, Explained

Originally published November 21, 2019

Last week was the anniversary of Jay Z’s The Black Album, which means it was also the anniversary of The Black Phone:

Remember this thing?!

The custom edition Nokia phone came preloaded with Jay Z’s 2003 album. “The Black Phone is at the forefront of the future which includes buying music instantly and taking it with you wherever you go,” Jay Z said at the time. This phone was the earliest example of the billionaire’s mobile distribution strategy, which is now an integral part of his playbook.

Kingdom Come, Blueprint 3, the Decoded autobiography, Watch The Throne, Magna Carta Holy Grail, 4:44, and Everything is Love all had some form of windowing exclusivity—many of them with cellular carriers or manufacturers. Jay’s albums were B2B products disguised as B2C.

Jay’s cell phone deals have had their hits and misses. The ones that missed were often ahead of their time (to a fault). But each misstep led to future success. It took time for this process to optimize.

It was a true career journey with three distinct phases:

The“Motorola Two-Way Page Me” Phase (’03-’06)

This phase was the wild, wild, west for cell phones. Nokia and Blackberry seemed destined to run the table. Powerful artists like Jay Z wanted to take full advantage of 1000 songs in your pocket and the opportunity to engage with fans. The Black Phone was Jay’s first attempt.

From Billboard:

See that? In 2003, Jay Z had his own boutique version of Community and SuperPhone. Ironically, Jay Z is now the last rapper we would expect to ask fans to text his public phone number. This is a guy who logs onto Twitter once every other year and likely regrets it soon after.

The Black Phone had the right idea, but the technology wasn’t ready to realize its potential. Mobile connectivity wasn’t advanced enough to seamlessly download (legal) albums directly to phones. Albums had to be preloaded on devices. That’s why The Black Phone was sold as a separate device and not a digital download. That’s also why U2 sold that red-and-black iPod preloaded with the group’s 2004 album. This was the height of music piracy. “Digital downloads” were a point of contention.

These preloaded devices also had limited reach. The Black Phone was priced at $124 after rebates and was only available at the now-defunct Media Play and Sam Goody. I’m not sure what’s worse, spending $124 or processing multiple rebates! It’s an especially big ask for a fan who didn’t need a new cell phone in November 2003. The Black Phone also tied Jay to a sole piece of hardware. The Nokia 3300 competed against the infamous Nextel chirp phone and others that were far more popular. Cell phone switching costs have always been high. The phone eventually became a novelty collector’s item for real diehard Jay Z fans. (And by “real diehard,” I mean the folks who get defensive when Kingdom Come gets hated on).

Sure, there is a “diehard fan segmentation” case to make for The Black Phone (a la Nipsey Hussle’s $100 mixtape). But that argument loses steam because the $100 mixtape had an intentionally limited supply. If the technology was ready, Jay Z and Nokia would have gladly welcomed more business.

The Black Phone became hip-hop’s Sega Dreamcast. In 1999, the short-lived video game console pushed its built-in modem and online multiplayer ability as a strong selling point. Sega was ready for the future, but less than half of U.S. households had a computer, let alone internet access. Many of those that did have the internet access still had to disconnect to make phone calls. The product was ahead of its time.

A few years later, Hov teamed up with Cingular to exclusively sponsor and broadcast “The Hangar Tour” leading up to the release of Kingdom Come in 2006:

Seven 30-minute shows in one day? Crazy. MTV did a play-by-diary of the day. It was intense, but Cingular was all about it. Here’s then-Cingular executive David Garver via Gigaom:

The concept was there. And Cingular was eager to push its music capabilities. The company had launched a music streaming service back in 2005. But again, neither the technology or regulatory environment were there ready.

Here’s a clip from the New York show:

​https://youtu.be/K648wjwk7ps​

This video looks like it was recorded on a Motorola RAZR, which says a lot about where mobile streaming was in 2006.

Products that are “ahead of their time” will always excite industry experts, stans, and early adopters. But timing is an important factor in product-market fit, and it can’t be overlooked.

The “Obama on the Text” Phase (’09-’13)

By the time The Blueprint 3 dropped in 2009, the technology had improved. Jay had a brief exclusive partnership with both streaming platform Rhapsody and MTV to give fans early access before the official launch.

But things heated up in 2010 when Jay released his memoir and autobiography, Decoded. Hov teamed up with Microsoft Bing search engine for an expansive rollout. Here’s a short YouTube clip that breaks down how the project was a joint opportunity for Bing to show off its new navigation capabilities and for Jay Z to immerse pages of his books in unique locations across the world:

​https://youtu.be/fnVZTBuzxP4​

The book spent 19 weeks on the bestsellers list, Bing had an 11.7% increase in website traffic, and briefly entered the top 10 of visited websites. While it wasn’t a typical Jay Z album-cell phone deal, it informed his future cell phone deals in two ways.

First, it incorporated critical goals from both parties. Both Bing and Jay Z had new products to launch. They partnered with the Droga5 creative agency to maximize its potential. It was much more synergistic than The Black Phone deal. Nokia was selling its phones with or without The Black Album. The cell phone manufacturer had less skin in the game. The deal was similar to a sponsorship where the party receiving the sponsorship dollars is much more reliant on the deal’s success than vise-versa. When both parties have goals of equal importance, the end outcome is typically greater.

Second, The Decoded-Bing launch came after Jay Z’s 2008 Live Nation deal—one of the two most important hip-hop business deals of the past twenty years (the other is Beyonce’s surprise album). That partnership set the landscape for Jay Z’s ideal deal structure which includes these four elements:

• exchange of capital
• joint ownership for an important launch of a product, service, or company
• additional funds for marketing, promotion, investments, or other expenses
• leverages both companies core competencies and existing audiences

Jay Z got another crack at this in 2013. He interrupted the NBA Finals to let us know he was dropping Magna Carta Holy Grail, and that Samsung owners would get 72 hours of early access. It was a $20 million deal—$5 million of that was used to buy 1 million albums at $5 each. It was a much better deal than Jay would have made if he only sold his albums to the general public. There was controversy about whether the Samsung deal makes the album go Platinum, but Hov was less concerned about that. $20 mil is $20 mil. The true customer wasn’t the fans. It was Samsung.

Everything was good on paper, but yet again, the technology wasn’t ready. When the album launched, the Samsung app crashed. Hip-hop Twitter basked in the schadenfreude—even after the app started working. Jay Z later reflected on the incident in a July 2013 interview with The Breakfast Club:

It was a politically correct response that he played off with a not-so-subtle humblebrag. But that doesn’t absolve Samsung or Jay from launching a product that can’t meet the capabilities of the available technology. A product manager’s worst nightmare is a crash during peak demand—whether its from high unexpected traffic or an overlooked bug. The end outcome is the same, and it’s a risk that could have been mitigated.

The “We just call the shots by simply moving our thumbs” era (’15-present)

The distribution channels for 4:44. The top box is the exclusive partners, who got initial access and their customers (green). The second box are the other digital streaming providers, and the third box are the brick-and-mortar retailers.

In 2015, Jay Z bought Tidal for $56 million, relaunched the service, but got off to a rough start. Here’s what I wrote last year:

Tidal’s value prop challenge still looms (read Why Tidal is Banking on Meek Mill’s Success for more on this), but Jay Z made out well in 2017 when he sold a third of the company.

From a 2017 article from The Verge:

Jay Z made a sale that valued the company at more than 10x his purchase price just two years earlier. That’s impressive especially with all the turmoil and controversy that surrounded Tidal during that stretch.

But the real kicker is that $75 million was budgeted for exclusive content for Sprint. Five months after the deal was publicized, Jay Z dropped 4:44 as a Sprint-Tidal exclusive. This connected the streaming service with Sprint, which now had a vested interest in Tidal’s success (not too different from Live Nation’s interest in Roc Nation). And by partnering with a cellular carrier instead of a manufacturer like Nokia or Samsung, Jay increased his flexibility and integration capabilities.

It was the ideal partnership for Jay Z. The 4:44 launch still wasn’t perfect, but it was the best example yet. Technology enabled the distribution, joint ownership, and vested interest of all parties involved to get the product in the hands of the target consumers.

Jay Z spent the past two decades finding a way to make this happen. What he chased was a version of the strategy popularized by Microsoft in the 80s and 90s. The Windows operating system wasn’t (primarily) sold to end consumers. It was sold in partnership with IBM, which made it the standard operating system on IBM-compatible machines, which helped make it the de facto for PCs and business. Microsoft then leveraged its distribution to sell compatible and integrated products like the Microsoft Office Suite.

Sprint was an ideal partner in several ways. Jay Z had made it a point to partner with underdog brands throughout his career. Tidal is an underdog. Sprint is an underdog. Bing is an underdog. These partners might not match the industry leaders, but they are more willing to grant Jay Z the power desired to make his albums more lucrative than the average artist.

I once joked in a Trapital article that Jay Z’s next cell phone deal might as well be with Cricket Wireless. That may still be true. Jay did once said himself, “We don’t have any rules, everybody is trying to figure it out. That’s why the internet is like the Wild West. The Wild Wild West. We need to write the new rules.”

But all jokes aside, if anyone can turn a Cricket Wireless-album deal into gold, it’s the guy who has more experience than almost anyone in this space.

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coming soon from Trapital

Podcast: Kevin Liles, 300 Entertainment. I had a great chat with 300 co-founder and CEO! We talked about him selling his label for $400 million to Warner, Gunna’s big year, Def Jam Vendetta, DJ Akademiks, and a whooooole lot more. Can’t wait to share this one.

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