Jay-Z, Samsung and the 21st-Century Patrons of the Arts
When you’re locked in a global war to dominate the smartphone market, every little advantage helps. And now Samsung has enlisted one of the most brilliant musicians and promoters of the past two decades to its arsenal: Jay-Z.
During game 5 of the the NBA finals on Sunday, Samsung aired a three-minute ad announcing the release of the rapper’s upcoming album Magna Carta Holy Grail, due out on July 4. According to The Wall Street Journal, the cellphone maker is paying the rapper $5 per album to issue his newest LP, through a dedicated app, to the first million Samsung Galaxy users 72 hours before its wider release.
For Jay-Z, the deal will provide a nice supplement to the wider album sales, which even in this age of rampant piracy should be significant. Jay-Z’s last LP, Watch The Throne, sold 436,000 copies in its first week, according to Nielsen Soundscan.
Samsung’s motivation, however, is a bit more complex. As TIME contributor Eliot Van Buskirk has pointed out, content distributors are increasingly vying to have exclusive access to new music as it debuts, before it’s proliferated widely via radio, satellite radio, streaming services, and piracy. But surely Samsung doesn’t believe that offering access to a rap album three days early is going to generate enough extra Galaxy sales to justify the $5 million investment.
Indeed, Samsung probably just views this deal as another advertising expense, and a way to get its brand associated with one of the biggest and hippest names in music. This is the same strategy that companies like Mountain Dew and Converse have taken by launching their own record labels. These companies aren’t getting into the music business so much as trying burnish their image by linking their brands to hip, young musicians.
In fact, when you look at it that way, and consider the staggering amount of money Samsung spends on marketing each year, the deal begins to look like a real coup for Samsung. Industry analyst Horace Deidu estimates that Samsung Electronics spends more than $10 billion per year on ads, sales promotions, and public relations. That number includes marketing spending for far more than just smartphones, but anybody who’s watched television recently can infer that much of that spending is going towards the very competitive and lucrative smartphone market. And with 30-second primetime ads going for hundreds of thousands of dollars a pop, spending $5 million on Jay-Z, and the free buzz that goes with such a unique deal, is money well spent.
But companies aren’t getting into the music business just to look cool. Tech firms from Google, to Apple, to Microsoft are falling over themselves to launch music-streaming services as well, despite the fact that the leader in this category Spotify — which has 24 million active users, 6 million of whom pay for the service — has yet to make a profit. This is not to say that no streaming service can ever be profitable, but with so many competitors, profits will be slim if they materialize at all.
So why are these companies so eager to throw their hats into the music-streaming ring? It’s surely about more than music. These firms are competing with one another to lure customers into larger ecosystems that can be platforms (at least in the case of Amazon) to sell just about anything. According to David Pakman, former CEO of eMusic, these companies are using streaming music as a “loss leader,” that is, as a way to draw customers in to buy more expensive items down the road. In fact, he argues, this is exactly what Walmart used to do by selling cheap CDs back when the music industry was flush.
And when you realize that, at its height, the entire record industry had revenue of under $15 billion a year, you begin to see that for big tech firms like Samsung, the music business is just a pawn in a much bigger game.