Hip-Hop: Billion-Dollar Biz

Feb. 24, 2004 -- When hip-hop began more than 20 years ago, corporate America ignored it. Big mistake.

It now generates more than $10 billion per year and has moved beyond its musical roots, transforming into a dominant and increasingly lucrative lifestyle.

Visionaries foresee hip-hop-inspired housewares, furniture, linens, food, writing instruments and even a special hip-hop DVD section at Best Buy. They see publicly traded hip-hop companies and even a hip-hop entrepreneur rivaling Ralph Lauren or Oprah Winfrey on our list of the World's Richest People.

Their works include Def Poetry on Broadway, The Steve Harvey Show and The Parkers on TV and the Tupac Shakur movie Gridlock'd. Its most recent venture is a nationally syndicated radio show, Russell Simmons' Hip-Hop Laws of Success.

Carving Out an Industry

Hip-hop has grown well beyond the urban market since the genre's first hit, "Rapper's Delight," was released in 1979. SLMG says its customer base is the 45 million hip-hop consumers between the ages of 13 and 34, 80 percent of whom are white. According to SLMG's research, this group has $1 trillion in spending power.

The Russell Simmons' empire is well placed to garner a big chunk of that.

The original hip-hop mogul, has his hand in every piece of the pie, from apparel to cell phones to videogames. He recently sold his apparel company, Phat Fashions, to Kellwood for $140 million, but will remain CEO. He and Rick Rubin founded Def Jam Recordings in 1984 in a New York University dorm room with a $5,000 investment. At that time, rap artists were selling music out of cars and at parties. Entrepreneurs ended up dominating the industry.

"The reason why he [Simmons] is so successful is because of the arrogance of the established companies," says Griffin.

Although Simmons was the first, his road to success has been followed by many others, from Damon Dash and Jay-Z, the owners of the Roc-A-Fella kingdom, to Sean "P. Diddy" Combs, owner of the Bad Boy Entertainment conglomerate.

According to market research firm NPD Group, hip-hop CD sales hit $1 billion in 2003, due largely to top sellers from Eminem and 50 Cent. Throughout the music industry, artists are branching out and looking for incremental opportunities to grow their business and make more money.

"Especially with younger audiences, there's a huge battle for a share of their wallet, eyes and ears. It's harder to get played on the radio, and there are distractions from cell phones and TV," says Russ Crupnick, vice president of NPD.

‘Hip-Hop Is Like Water’

But not every artist has what it takes to become a mogul. Who could be next? Jameel Spencer, president of Blue Flame Marketing and Advertising, which is part of the $300 million (revenue) Bad Boy Entertainment, sees potential in Pharrell Williams, Eminem and Usher. "It's great to see all those guys [Combs, Simmons] getting behind these young kids. They have that hip-hop spirit — nothing getting in my way, nothing stopping me from getting where I want to go," says Spencer. As well as being the internal marketing arm for the Bad Boy recording company, Blue Flame is a full-service marketing agency with $12 million in billings last year. It's responsible for hooking up Combs as the voice on the Microsoft Xbox commercials and for his appearance in the ad campaign for Coca-Cola's Sprite Remix.

It wasn't always that easy for a hip-hop artist to partner with a multinational.

When hip-hop was young, big business was put off by the violence and the controversy associated with the music. Now, there's no difference between investing in a hip-hop artist and investing in Celine Dion, says Morris Reid, managing director of youth marketing consultancy Blue Fusion. "It's all business; you have to take a risk either way," he adds.

Not only is corporate America now taking the genre seriously, but so are investors. SLMG's partners include Pacesetter Capital Group, a private equity fund, and Syndicated Communications, a venture capital fund. Billionaire Ronald Burkle invested in Combs' Sean John clothing line.

So now we have the Sean John Lincoln Navigator by Ford Motor, a Jay-Z athletic shoe by Reebok and Pimp Juice, an energy drink from Nelly. Where does it all end? "Hip-hop is like water," says Spencer. "There's nothing you can do to stop it."

For more, go to Forbes.com..