Samsung made Jay-Z's new album profitable before it was even released. What does it mean for the music industry? And which brands and artists can follow next?
Not only did Samsung score exclusive access to Jay-Z's first solo album in four years, the consumer electronics behemoth inspired the multi-hyphenate rapper to do something he'd done even less frequently -- tweet.
"If 1 Million records gets SOLD and billboard doesnt report it, did it happen? Ha. #newrules #magnacartaholygrail Platinum!!! VII IV XIII," he tweeted at 1:34 p.m. on June 17, some 16 hours after he made global headlines when a surprise three-minute commercial chronicling the making of Jay-Z's "Magna Carta Holy Grail" aired during halftime of the NBA Finals.
While the answer to Jay's question about sales is ultimately up to Billboard's charts department, the impact of his groundbreaking deal with Samsung had every sector of the industry buzzing. It marks the first time a major release has been exclusively premiered by a brand, and it raises even broader questions about the future of the music business. If artists at Jay's level no longer need a distributor to put their music in the hands of 1 million listeners, do labels ultimately matter? (Island Def Jam will distribute "Magna Carta Holy Grail" at retail after Samsung's 72-hour exclusive lifts July 7.) Which other brands could do this? (Paging Pepsi, Coke, Citi, Amazon and American Express, for starters.) And do first-week sales ultimately matter?
"First week is overrated. What about week 52?" says a major music manager who's inked branding deals to support album releases. "The fact that Samsung can write a big enough check to be able to underwrite the cost of the album and foot the huge cost of marketing and promotion, you literally go into the release week profitable. That's what it's about more than anything else."
Just how big was Samsung's check? The New York Post's initial report announcing the deal valued the partnership at $20 million, a figure that likely included media spend, but sources put the value of the entire deal closer to $30 million and say Jay-Z likely received as much as $7.5 million in music rights and endorsement fees. And that's in addition to his summer stadium tour with Justin Timberlake as well as active deals with Budweiser, where he's curated the second year of the Made in America festival, and Duracell's PowerMat, in which he has a minority stake.
Partnering with a brand to boost first-week sales is something several superstar acts have tried before. Lady Gaga, most notably, had a tentative deal with Virgin Mobile to give away 100,000 copies of 2011's "Born This Way" that fell apart due to Virgin's merger with Sprint. Guy Oseary, manager of Madonna, says he had attempted something similar for Madonna's "MDNA," but abandoned it once he discovered doing so wouldn't count toward first-week sales. "It took about three months to figure that out when we had other deals on the table," he says.
Samsung's pact with Jay-Z, however, came together in less than a month, and was brokered directly by Samsung chief marketing officer Todd Pendleton, Roc Nation's Jay Brown and John Meneilly and Jay-Z himself. Representatives for both companies declined comment on further details.
"So many people have been trying to unlock this one -- countless managers, artists, agencies, brands, everybody has wanted to use the collective footprint of music and a media buy at this scale," says Marcus Glover, president/chief creative officer of GLU Agency, a music branding firm that helped pair Nicki Minaj with Pepsi and Lil Wayne with Mountain Dew, among others. "Somebody finally did it on a scale that wows all of us, and of course it's Jay."
So why Samsung and not, say, Pepsi, Coca-Cola or Apple -- three other giant brands that have a history with supporting music? Simple: Samsung Electronics' 2012 global ad spend was $4.6 billion, an amount that's more than Coke ($3.3 billion) and Apple ($1 billion) combined, and almost a full billion more than Pepsi's spend ($3.7 billion), according to the companies' financial statements. That's also nearly $2 billion more than the $2.7 billion that labels spent on A&R globally in 2012, according to IFPI's annual report.
But despite its "Next Big Thing" tag line, Samsung isn't in the talent development business and likely won't be turning into a label anytime soon. But Samsung is engaged in shifting from being a hardware manufacturer to also becoming a media platform. The company has recently been active in building up its music and entertainment offerings, and in March announced plans to double the staff of its Music hub by the end of the year from 100 to 200, following its May 2012 acquisition of music service mSpot. "We want music to be one of the deciding factors in purchasing another device in the future," Samsung senior VP of media solutions TJ Kang told Billboard at MIDEM earlier this year.
The Jay-Z deal may not sell phones, but it instantly turns the Samsung Galaxy into a music device. And it's fascinatingly simple. Giving away 1 million copies on July 4 to the first 1 million Samsung Galaxy S III, Galaxy S 4 and Galaxy Note II users to register for a custom app isn't that tricky. Samsung had about 70 million smartphones in the global market in fourth-quarter 2012, and has no shortage of free PR and media buzz working in its favor. "I realized the tides had shifted when I saw CNN the next day and six minutes of every hour was dedicated to coverage of Jay-Z and Samsung," says Marcie Allen, president of MAC Presents and an 18-year veteran of music sponsorships. "If I had gotten coverage for six minutes on CNN of my Green Day-Nokia deal, I would be retiring on a yacht somewhere. That just doesn't happen."
Other brands have taken notice, too. Citi senior VP of entertainment marketing Jennifer Breithaupt recently teamed with Jay-Z for card member presales of his upcoming Legends tour with Timberlake, which yielded $19 million in tickets and VIP packages and more than 150,000 tickets sold to 11 dates. "[It] was one of the fastest-selling presales we've ever seen on Citi Private Pass, so it's no surprise to see the tremendous buzz around the rollout of his new album," she says. "As brands and artists collaborate to engage fans and create a surround sound via different channels, fans are hearing music for the first time in new ways -- from mobile downloads and apps to integration in TV commercials -- and this is a trend you'll see more often."
This is an excerpt. For the complete story, buy this week's issue of Billboard.
JAY-Z + BILLBOARD