For years – about 7 to be exact – I have entertained the argument that Hip-Hop sales have declined primarily because of the Internet. While that is true today, I have maintained that the blame for the cause of the sales drought belongs somewhere other than file sharing, mp3s and ipods. As the Fourth-Quarter of 2009 ends and with it the Christmas sales that became the life blood of the industry, I thought it would be good to devote this week’s AllHipHop.com Hip-Hoppreneur ™ commentary – the last of 2009 – to the full story of what really happened – beginning in 2002. I think getting to the bottom of exactly why first-week sales have fallen off of a cliff and why they will not return, is a case study and business lesson for all entrepreneurs, artists, managers, and professionals who are trying to find a way to navigate the changing music industry landscape of the next decade. The reason why I think my perspective is unique is because I am one of a small group of individuals who have seen the business from virtually every angle – concert promotion, radio, artist management, journalism, and perhaps most importantly – retail. Those perspectives are enhanced by my worldview as an economist and political strategist. From 2003 to 2006 I managed or consulted with record stores in the Northeast region who operated at the height and heart of the mixtape phenomenon. In that capacity I rang the cash register, heard what the consumer liked and didn’t like, advised record labels on what artists were selling (or weren’t) and was a first-hand eye witness to the tactics of the Recording Industry Association of America (RIAA) and the war that they and the major retail chains waged on the independent record stores (who represented approximately 30 to 40% of all sales in rap music). I even brokered a meeting between Members of Congress and these independents in an order to save them (or help them save themselves). I dealt with the business of selling music at an industry and street level. To me it is the most important, yet untold story of the last decade (watch how many top 10 lists leave it off) but filled with lessons that must be mastered if the culture and industry are to undergo a resurrection this coming decade. I’ll tell the story from two reference points. The first is an excerpt of a January 2003 interview I conducted with Russell Simmons, Co-Founder of Def Jam Records and Chairman of the Hip-Hop Summit Action Network, published at BlackElectorate.com (http://blackelectorate.com/). The second is an excerpt from Volume II of my new book series, The Entrepreneurial Secret To Starting A Business Without A Bank Loan, Revenue, and Collateral (http://theEsecret.com/) From my 2003 BlackElectorate.com interview (http://www.blackelectorate.com/articles.asp?ID=791) we read: Cedric Muhammad: Let’s close out with a last couple of questions. Ok, Russell, we do a lot of work with record stores. I don’t buy this argument that file-sharing, CD-burning, and MP3-ing is what hurt us last year… Russell Simmons: No?! Cedric Muhammad: This is what I think. Nothing came out until May with Cam’ron and Eminem right after. It was like nobody put out anything in last year. I addressed this with the LA Times (http://www.blackelectorate.com/articles.asp?ID=641)… Russell Simmons: In Hip-Hop. Yeah right! It wasn’t that many good records… Cedric Muhammad: Naw, it was like nothing came out. It was Styles P. in July, Cam’ron in May and then you had to wait for LL, Jay-Z, and then Ja Rule and Nas… Russell Simmons: That is very, very important point, what you are saying. But I can tell you that it really is affecting us in a dramatic way. There is so much file-sharing. And I just bought a piece of a company, Brilliant Digital, and they have something called Altnet that identifies what’s clean and what can be traded and you pay 50 cents for the service. If you got 2 million Nat King Cole Records going over the counter in one year and you would have had 200 thousand and if 50% of those people pay you some money per file, or everytime they shared a file, on millions of records that would have never have been sold or traded under any circumstances in stores; and now it is being traded; and we could actually make the majority of them pay some fee for this; I think that we should pursue a real dialogue with these online companies and big file-sharers like Napster or now, Morpheus -the big file sharer, on how this can be done profitably. Cedric Muhammad: But I have a problem when the RIAA (Recording Industry Association of America) comes in. You know how people are making money in their stores in this drought Russell? They are selling 10 different ‘Best of 50Cent’ mixtapes… Russell Simmons: Right. Cedric Muhammad: The mixtapes are keeping the Mom and Pop record stores going. And you have Hillary Rosen (who just resigned last Thursday as head of the RIAA), who I know you are friends with and the RIAA shutting stores down and it is the labels who are facilitating the release of the music to mixtape DJs… Russell Simmons: They aren’t making enough money on records that cost a fortune (to consumers) that cost nothing to make – they pay a lot in the actual recording but the manufacturing of these records costs nothing. They charge a lot of money for a huge overhead and the artists aren’t making any money either. No one is making money. They have to figure out how to go with the culture. The culture is going with the file-sharing and trading so they have to figure out how to monetize the new industry. They cannot keep fighting it. No legal issue can help. The legal approach can slow down the momentum of the cultural process but it cannot save the industry. You can threaten and you can arrest some kid and you can threaten everybody […]