How Master P Built Hip-Hop’s AOL
Startup Lessons from the CEO of No Limit Records
My father always schooled me on the behind-the-scenes aspects of music; from reading the liner notes on a Steely Dan vinyl for drummer credits to how Maxwell played every instrument on his debut album. A particular recollection happened to be an impromptu business lesson. “Check this out, slim. Did you know Master P earned 90 cents on-the-dollar for every album he sold? Most artists today barely earn seven.” Of course, I didn’t know.
Maybe this memory isn’t so random. Young hip-hop artists like Mac Miller, Tyler the Creator and (most recently) Chance the Rapper have managed to successfully maintain control and direction of their careers. I always check my Twitter timeline for record label signings of new artist. Skeptical if Dave East’s career will blossom at Def Jam. Eager to see if Young M.A. will sign to a major label. Are all new artists signing ‘360' deals frankensteined by the legendary Lyor Cohen? Roughly ten years after those talks with my dad, I can’t shake the urge to drill down and discover the truth behind the off-the-cuff wisdom that sparked this all.
Reading AOL co-founder Steve Case’s The Third Wave triggered my yearning for days of old. The days when it took ten minutes just to connect to the internet; instant-messaging my friends on AIM (or AOL Instant Messenger). Days when I repeatedly played Kanye West’s College Dropout with my “walkman” CD-player on the bus (the music would skip when we hit potholes). Days when I use Napster, Kazaa, LimeWire & BearShare to burn custom mixtapes andsell them to my classmates. The days when connecting to the world wasn’t as simple as few taps and swipes on my iPhone. My childhood was a crossfire between hip-hop and the Internet — I loved it. Anyways, all this reminiscing coalesced into an odd realization:
Master P is the Steve Case of Hip-Hop; I mean this with the utmost respect and nostalgic regard.
America Online (AOL), co-founded by Steve Case, broke through the crowded internet startup gold rush in the 1990’s and established itself as the go-to platform for introducing average Americans to the internet. No Limit Records, founded by Percy ‘Master P’ Miller, also established itself as one of the elite hip-hop imprints during the 90’s (often cited as the “Silver Age” of rap music).
Both AOL and No Limit grossed large profits by establishing successful brands at the early stage of breakthrough cultural innovations (commercial internet and nationwide hip-hop, respectively). Under Case’s leadership, AOL received the highest valuation for a technology company at the time ($100.75 per share in 1998). In parallel, No Limit Records was allegedly worth over $350 million at its peak. Forbes Magazine even ranked it as the third largest hip-hop label, and this was as recent as 2013. Master P’s self-proclaimed nicknames is, ironically, the Ghetto Bill Gates — I’m not mad at it. Still, I think Steve Case presents a stronger correlation when comparing timelines, innovations, and under-appreciated legacies.
In April, Steve Case recounted the impetus, rise and ill-fated fall of America Online in his book, The Third Wave: An Entrepreneur’s Vision of the Future. AOL’s humble beginning and subsequent boom took place in the First Wave of the internet (1985–99) while its bust occurred in the Second Wave (2000–15). As the subtitle suggests, Case presents prospects and way-ahead predictions for the next generation of tech entrepreneurs moving forward in the Third Wave (2016 — ).
My goal is not to give you an in-depth analysis of how AOL harnessed the aforementioned P’s to succeed in the tech world — the company’s CEO already wrote a book about it. My research aims to identify the intersection of the hip-hop industry and technology as it relates to entrepreneurship. I’d rather use Case’s ‘P-framework’ to show you how Master P was equally innovative and business-minded during the First Wave of the internet, but in the realm of Hip-Hop.
No Limit Records & AOL were both founded in the early 1990’s (1990 and 1991, respectively), so their respective timelines ran concurrent. Before there was ‘Master P’, there was Percy Miller from the Calliope projects in New Orleans, LA. Before we knew ‘No Limit’ as a legendary recording label, No Limit Records was an actual record store opened by Miller — in Richmond, CA.
People: The Company You Keep
If you want to go quickly, go alone. If you want to go far, go together. — Unknown (Africa)
Master P broke through the clutter of aspiring artists and entrepreneurs in the hip-hop industry by harnessing the ‘power of the people’. He knew that he didn’t need an ‘entourage’, but a team full of value-adding players. “You are the company you keep”, a simple yet appropriate aphorism best suited to drive home this point: the power of an individual’s inner circle. Just as the company you keep plays a vital role in your success, so too do your business associates make or break your company’s long-term growth.
Sonya Miller, wife of Master P, was the first teammate. She not only was one of the first artists on No Limit Records, but would even oversee operations at the No Limit record shop while Master P was on tour. Tobin Costen, former college DJ, joined No Limit Records and assisted in operations, booking recording sessions for artists, and played a major role in fostering relationships with Priority Records’ Bryan Turner and entrepreneur Wendy Day (both Turner and Day’s roles are fully explained in Partnerships).
“Each release could be expected to sell roughly 150,000 copies, exclusively through independent channels. No Limit billed more than than $900,000 in the first twelve months of Costen’s tenure”. — Dan Charnas, The Big Payback
Master P also used the power of the people to promote and market his brand. After establishing the No Limit record shop, Miller booked himself as an opening act on tours headlined by the likes of the legendary Tupac Shakur and Bay Area hip-hop icon, Too $hort. He would also sell these artists’ tapes in his shop and stock his own tapes in the same sections. So, in a way, Master P created an original content marketing strategy akin to Netflix (Second Wave), even before the commercial release of the internet; using the demand and popularity of well-known brands to create goodwill for his own.
Master P deserves credit for pioneering the alternative work-life balance culture provided by most Silicon Valley tech giants today. Writer Neal Strauss’s 1998 New York Times editorial piece on Master P revealed, “In an attempt to increase the morale and productivity of his troops, Master P is building a No Limit compound in Louisiana complete with a fleet of 15 Hummers, a $5 million recording studio, a gym, dormitories and a pool and sun deck. Essentially, Master P created a work environment that inspired wellness and creativity similar to Google (Second Wave), most likely before Google was even founded.
Platform & Products: Produce, Sell, Reinvest, Repeat
Master P’s anchored his bootstrapping (read: hustling) and platform-building expertise as a foundation to leverage independence throughout his business endeavors. By building his own platforms, Master P significantly reduced the necessary amount of manpower and liability of potential suitors for business partnerships (which will be explained later).
In 1990, Miller received $10,000 from an insurance settlement due to his grandfather’s death. He invested the newly acquired money into purchasing and renovating an abandoned storefront in the Bay Area. After securing a reliable distribution channel for inventory, Miller stocked the shelves with some of California’s most popular hip-hop acts — Spice1, Too $hort, and Tupac Shakur, to name a few. The story obviously doesn’t stop there and, well, Percy Miller is obviously not your average small business owner. By 1994, Miller and Costen transitioned No Limit record retail store to the No Limit Records music label we know today.
‘’Most people at music labels don’t know the retail side of the business,’’ he said. ‘’They don’t know how to serve a customer. A lot of people just make music for themselves. Me, I make it for the consumer.’’ — Master P (How a Gangster Rapper Turns Entrepreneur, Neil Strauss, NY Times 1998)
Miller and Costen’s supply chain for creating and releasing albums is even more impressive.
In assembly-line fashion, Costen and Miller would assign tracks to albums — whichever one needed a hit, whichever one was already being pre-sold to distributors and retailers — and rush them into production. -Dan Charnas, The Big Payback
Within a year of consistently producing and releasing music under the No Limit imprint (exclusively through independent distribution channels), Miller and Costen earned roughly $900,000 in revenue. By 1995, after finalizing a partnership with Priority Records, Miller’s Ice Cream Man album was his first album to go platinum (selling over one millions units).
Partnerships: Making A Deal They Can’t Refuse
Just as partnerships were key in the first Internet wave, they will be key again in the third. Entrepreneurs won’t be able to go it alone in the third wave; they must go together. — Steve Case, Washington Post (May 2015)
Remember when I mentioned how my father boasted how Master P earned 90 cents on-the-dollar for every album sold? Well, he wasn’t too far off.
[…]the new distribution contract between Priority and No Limit — one that accorded an astonishing and in some way unprecedented set of deal points for such a small, artists-run label… an advance of $375,000 for every album against 75% of the wholesale price, leaving Priority just 25 percent to split between itself and CEMA. — Dan Charnas, The Big Payback
No Limit Records’ “unprecedented” deal would not have been possible without a combination of hustle and partnerships. As earlier mentioned, Costen and Miller proved No Limit’s viability as a standalone independent operation. Together, they established relationships to create distribution channels for No Limit’s music. Earning close to one million dollars in revenue by selling 150,000 albums within a year solidified No Limit’s leverage and reputation as a viable industry competitor.
Master P’s experience as a retail record store owner educated him on consumer-facing strategy and operations. He had to initiate and solidify business deals with Oakland record inventory distributors to stock the shelves of his storefront. It became second-nature to identify processes that needed to be outsourced, then subsequently network to create the partnership.
The Third Wave of Hip-Hop: The Bad & Downright Ugly
Master P and other hip-hop legends like E-40 and Too $hort are vanguards of artist-led entrepreneurship in music. Unfortunately, for every Master P there’s an MC Hammer and ten other artists who were never able to sustain financial wealth. We see so many artists sign seemingly lucrative deals and are subsequently dropped from the label two years later. In reality, most artists’ cash-flows are crushed under the weight of overhead, operating and debt expenses. They don’t fully understand that huge billboards in [insert any major city here], habitual bottle service, cars, jewelry, publicists, stylists, managers and assistants all come at a price.
Sadly, many artists aren’t aware of their financial health or even adequately educated on how to manage their money. So those aforementioned marketing campaigns and salaried positions are usually employed through the record label directly, not the artist. The label holds the lion’s share of leverage due to a mix of:
- incurring most of the liability tied to the success of the music;
- owning the intellectual property rights to said music; and
- the lack of business acumen and financial acuity from the artist.
We’ve yet to bring up the elephant in the room: streaming. Yes, streaming has improved access to music for a larger (and younger) consumer base — appeasing both Millennials and Centennials’ need for on-demand and instant gratification. It has also plugged the hole of album leaks by releasing streamable versions of music before the physical CD. However, streaming platforms like Apple Music, Tidal & Spotify take a larger portion of profits than physical outlets like Wal-Mart & Target. Also, the metrics on how many stream equal one album sold are still complex, fluid and downright confusing. Record labels can no longer rely on album sales to earn a profit. Thus, the ‘360' deal is born.
The 360 recording contract (invented by former Def Jam & current 300 Entertainment CEO Lyor Cohen) allows record labels to take a cut from more of an artists’ revenue streams in addition to album sales. If an artist lost money because an album under-performed and sold fewer units than projected, they could still recoup their earnings by touring, selling merchandise and signing endorsement deals. Now, using 360 contracts, record labels can take a percentage from those revenue streams and any additional stream that uses the artist’s brand. This is a major 180 from the financial freedom earned by artists like Master P who successfully leveraged their own brands.
The Third Wave of Hip-Hop: The Tipping Point & The Future
There will be the occasional come-out-of nowhere phenomenon, but the next generation of entrepreneurs is going to be prepared for a long slog.
-Steve Case, The Third Wave
1998 was a great year for hip-hop, especially for Master P and No Limit Records. Besides signing Snoop Dogg to No Limit in order to help him move on from Death Row Records, Master P launched No Limit Films. The creation of No Limit Films was spurred by the inception of DVD technology. Master P was now able to self-produce his own films and release them through straight-to-video distribution channels, mirroring his supply chain strategy with music. He could bypass the movie industry middle-men (studios, production agencies, theater chains, etc.). I’m Bout It, MP Da Last Don and I Got The Hook Up were No Limit Films’ most popular releases. Essentially, Master P championed the “Street DVD” era — small-budget films, documentaries and compilation videos independently distributed through mom-and-pop stores. Together, No Limit Records and No Limit Films grossed over $160 million in 1998. Master P earned roughly $56.5 million that year and ranked eleventh on Forbes’ top-earning entertainers list the following year.
I’m Bout It debuted at number one on the Billboard video chart, garnering double-platinum certification from the RIAA, rivaling many major movie studio releases. — Dan Charnas, The Big Payback
I mentioned Tyler the Creator and Mac Miller earlier. They are distinct examples of how Master P’s entrepreneurial DNA has disseminated through hip-hop, 20+ years later. Tyler the Creator capitalized on the internet (First Wave) and social media (Second Wave) to promote his Odd Future imprint. Like Master P, Tyler was able to build his own consumer fan-base before partnering with a record label (Sony RED) for distribution purposes. He also diversified his revenue streams; creating Golf Wang merchandise apparel, producing Loiter Squad (a sketch comedy show on Cartoon Network’s Adult Swim channel) and establishing an annual carnival and festival.
Before Mac Miller signed a deal with Warner Bros. Records, he cut his teeth in the music industry by partnering with an independent distribution label (Rostrum Records). In 2011, Mac Miller’s debut album Blue Slide Park became the first independently distributed album to top the Billboard charts since 1995. Miller’s current deal with Warner Bros. came after establishing his brand and building his own leverage. Signing to a major label was advantageous because Miller was able to set the terms of the partnership. Miller’s major label debut album GO:OD AM, rolled out an innovative marketing campaign by releasing a mobile app (Second Wave) before releasing the album.
I hope Tyler the Creator, Mac Miller and Chance the Rapper continue to serve as new-era examples for creatives on how to take control over their own careers. I don’t see Chance’s new album, Coloring Book, as just a great project. I see a business-minded creative who built his fan-base by leveraging his brand in his hometown of Chicago and utilizing social media to amplify his presence while spreading his message. I see the first independent artist to perform on The Tonight Show. I see an exclusive streaming distribution partnership directly with Apple Music, joining major artists like Drake and Future. I see the evolution of an entrepreneurial blueprint first established by Master P and other forefathers. I see new material I can use for the slightly inaccurate claims I’ll undoubtedly profess to my future kids, as my father did for me. Most importantly, I see endless possibilities for both you and I to make our mark as we enter the Third Wave of business, technology, hip-hop and innovation.