Issue #2 | RapCaviar & Luckin Coffee
By Jeffrey Dong
The Cautionary Tale of the CD
Bring it back to 2008, another period when the world seemed to be coming to a standstill. Sadly, I was too young at the time to comprehend how the world’s banking system was near the brink of collapse. I guess I was too busy worrying about more important things like passing my 7th grade geology test or prepping for my mile run for gym class. It was during these times that I discovered my love for hip-hop. The financial crisis coincided with the releases of major hit albums like Tha Carter III, 808s & Heartbreak, and Paper Trail. I always looked forward to coming home, buying and downloading MP3 songs and music videos off iTunes, and syncing the latest hits into my 8GB iPod Touch. Simpler times. Fast forward to today, the days of spending $1.29 on each song or not having enough storage on your iPod are over. The music industry has finally woken up to the rise of streaming.
To say that streaming services moved the music industry forward since the introduction of the iPod is an understatement; it gave consumers the opportunity to access new music and services in an entirely new format. With Spotify and Apple Music reigning as #1 and #2, respectively, the subscription model solidified the ability for listeners to tap into an endless supply of music all within a press of a button. Forget buying CDs at your local Barnes & Nobles store or torrenting music online.
In the era of the pre-streaming, the CD was an essential revenue stream for recording labels and artists. The impenetrable music industry was upended by a “go-big-or-go-home”, blockbuster-style approach that was being used in Hollywood:
Spend lavishly on a months-long marketing campaign
Promote a few radio-friendly singles-turned-into-massive-hits people can rave about
Drive home the money-making machine: the long-awaited studio album
Hit the road for concert tours
Go on a 1-2 year hiatus to brainstorm and record the next big hit
This recipe for success proved to be lucrative for decades, yet this strategy was time-consuming. In the age of streaming, time has never been more of the essence. With everything and everyone (and by everyone, I mean 300+ million total paid subscribers) easily accessible through music streaming services, the need to sell CDs or digital albums as the money-making product has declined. Inversely, the need to spew out more singles into the hands of the consumers has exponentially increased. Recording labels are investing into everyone’s favorite artists like Ariana Grande so that they could create more content that would eventually be added to your personal playlist. Your inexplicable love for thank u, next translates to more streams. More streams = more $$$.
🔌 As Meek Mill once elegantly quoted, “there’s levels to this shit.” The music industry has been historically divided between stakeholders vying for their piece of the pie. One’s got to wonder how Spotify makes a cut out of this.
🔌 If you’re interested in learning more about how the movie and recording industries profit, I recommend Anita Elberse’s book Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment.
🔌 Could Soundcloud be the next MySpace? Like most people, I use it today to listen to 1-hour Big Bootie Remixes, long-lost mixtapes, and leaked versions of Yandhi.
The Most Influential Playlist In Music
Back in 2015, Tuma Basa, former global programming head of hip-hop at Spotify, was handed the reins to curate the RapCaviar lineup. RapCaviar was (and still is) a hand-crafted, 50-song playlist of the latest, most relevant hip-hop songs to date. The selections would get refreshed on a weekly basis, whereby a few new songs would get rotated in. Tuma’s job was simple: analyze a treasure trove of data to gauge a song’s popularity across Spotify and handpick those he believes will pique stardom interest. No pressure. With his intuition and knack for predicting hits, he was essentially choosing songs from a few selected artists and showcasing them to the 9 million followers he had amassed on RapCaviar.
His influence over music gravitated far beyond our phone screens. Making it into the exclusive, hit-making playlist would be equated to levelling up in the hip-hop game. You could be an A-list rapper like Travis Scott whose songs were destined to top Billboard Hot 100, or a rising artist like the early Lil Uzi that’d garnered a massive following in SoundCloud before blowing up to the masses. Bottom line was if your song made it onto RapCaviar, everyone was paying attention.
That’s the ultimate power of the playlist. With hip-hop evolving faster than we can say the words to Eminem’s song Godzilla, the concept of the playlist has never become more potent than it is today. As a consumer, RapCaviar simply made it easier for me to find music that’s trending and keep up with the times. As a creator, RapCaviar helped launch careers of today’s mainstream rappers and put hip-hop artists on the fast track to success. As a consumer, it dumbed down this process of answering “who should we listen to” and “what songs are bangers”. As a creator, being on the playlist was similar to gaining VIP access; you had to earn it first to get recognized.
The byproduct of the RapCaviar effect helped set the precedent for how artists today try to build streaming audiences. Within this new digital era of music consumption, the genre is rewriting its own blueprint for success and is not-so-subtly reshaping the future of music entirely.
Since 2017, hip-hop/R&B has become the most listened-to genre on Spotify and Apple Music, and the proof is in the pudding. This category represented more than a quarter of total album equivalent audio consumption made in 2019. As I write this, 7 out of the 10 most-streamed songs on Spotify for the week come from hip-hop artists; 3 from RapCaviar.
Hip-hop and streaming pair well together like avocado and toast. The synergies between the two unravel a thirst for more hip-hop, prompting huge bidding wars for new talent, pushing traditional pop singers to the sidelines, and making people question what rock even is. These collaborations between Ed Sheeran and rap stars like Meek Mill, Young Thug, and Eminem are not a sheer coincidence.
In the era of the “OK Boomers”, hip-hop is crowned as the new rock-and-roll. It seems like the days of hustling and selling your mixtape on the streets are far gone. Want to get recognized? Get on your computer and buy a microphone, and try shooting your shot into one of these playlists for a starter.
Drake’s Hits, Demystified
Say what you will about the man, Drake is a shrewd businessman and a game-changing music connoisseur. You see his name featured on, what seems like, every hit single these days with both established and up-and-coming rappers. He has rewritten the record for the most entries ever on the Billboard Hot 100, lately thanks to Oprah Winfrey and her bank account. In his latest album, Scorpion, he goes off the charts by breaking the Beatles’ over-half-a-century record and posting 7 singles back-to-back on the Billboards Top 10 (vs. Beatles’ 5 singles in 1964). So what’s his secret to success?
It’s hard to match Drake’s level of likeability; everyone loves Drake (and even if you don’t, you have to admit that he’s hiding somewhere in your top 2 playlists). Coming from a unique ethinic and religious background as a Toronto native, Drake often speaks vulnerably about his identity inside and outside the studio. It’s no doubt that his upbringing and rise to fame are very different than his hip-hop predecessors’. But what makes him so different makes him so exceptional. He embraces a hybrid musical identity (part-R&B, part-hip-hop) that was unique to the game, embodies the city of Toronto in the studio and on the court, and chisels his brand image meticulously through Instagram. He checks off all the boxes for becoming your atypical hip-hop legend.
With the simultaneous rise of streaming and online media, Drake’s been able to leverage his likeability to the fullest and access his diverse fanbase more directly. He avoids FOMO at all costs and always finds a way to stay relevant, whether it’s through integrating other cultures’ unique rap attributes into his music or becoming an internet-breaking meme. The guy doesn’t just dominate music; he dominates pop culture.
His decade-long success story is a case study in point that underlines how synergies between hip-hop, online streaming, and social media are upending business strategies in the music industry and redefining what it means to build clout. In the post-Drake era, these tech-enabled platforms will play more definitive roles in giving rise to international rap and connecting diasporic communities together. In addition, with the new generation of tech-savvy rappers, being your own brand ambassador in the digital world is just as important as making music that slaps.
No one:
Absolutely no one:
Luckin Coffee stock:
What happened after April Fool’s Day this year was no laughing matter to the unlucky investors, including myself, who felt the financial massacre from Luckin’s latest fallout. If the recent market volatility wasn’t enough to wreak havoc on their (my) portfolios, then this news was the nail on the coffin.
An investigative report came to light, exposing the unprofitable, rapidly-growing coffee chain for inflating their sales figures by $314 million. To put it into perspective, that’s roughly 40% of the alleged $732 million in sales the company reported last year. It didn’t take long after the news for the stock to start plunging more than 70% into the red, which is now worth less than a grande-sized Caramel Frappuccino from Starbucks.
Let’s take a step back: The alarms were sounded back in January when an activist investment firm exposed the alleged fraud at Luckin, but the company vehemently denied such claims (now, look who has the last laugh). All signs behind this accounting misdeed point to Jian Liu, Luckin’s former COO, and several other employees, who all engaged in fabricating fraudulent sales transactions and certain costs from Q2 to Q4 2019. Major institutional investors from JP Morgan to Singaporean sovereign wealth fund GIC have significantly lowered or fully backed out from their stakes in Luckin Coffee, igniting the precipitous dip that sent shock waves down Wall Street. Since then, trading has been halted (thank god) until “additional information requested” by the Nasdaq is made readily available.
Coming Off the Caffeinated High
“Move fast and break things” sounded like every start-up’s mantra to succeed. Founded in 2017, Luckin Coffee lived up to this mentality by vying to disrupt the one product many Chinese seemed to have recently discovered: coffee.
Drinking coffee has been common amongst westerners for decades, to the point we don’t think twice about ordering a Pumpkin Spice Latte topped with whipped cream. However, eastern, tea-centric societies like China haven’t traditionally grown to appreciate coffee like the way most college students do when they’re up at 3AM finishing a 10-page paper due the next day. Eventually, with full pockets, an astute observation of western culture, and an addictive thirst, Chinese millennials have caught on to this game-changing drink and have driven a growing coffee market worth north of $9 billion in China.
Luckin came in hot into the market, saw the opportunity amongst the younger generation, and conquered into becoming the fastest-growing coffee chain in the world. It achieved stardom status by offering what was a superior, affordable, and surprisingly hip alternative to Starbucks; it garnered strategic marketing endorsements from local influencers and celebrities all over China.
Deemed a tech company that was inspired by the concept of “new retail”, Luckin helped revolutionize the way consumers engaged and interacted with food and beverage products online and offline. Its O2O (online-to-offline) business model was predicated on the idea that traditional high coffee prices and inconvenience are major pain points for today’s customers. Its revolutionary solution? Build more stores.
But the company wouldn’t be building your traditional coffee storefronts. The company’s physical footprint would be fueled by its digitization efforts, which meant building certain stores designed for certain purposes. Intended for those that buy coffee for the sake of just buying coffee, Luckin created grab-and-go stores. They can’t forget about those that order coffee straight from their couch, so they architected small delivery-only stores. These nascent concepts have inspired a new wave of doing business in the F&B and restaurant sector, merging the online customer experience to offline stores.
Shit Out of Luck
Red flags were waved from the beginning. Luckin prided itself on its unprecedented way of doing business, yet its innovative business model was far from, well, innovative. Their massive growth was a double-edged sword, fueled by deep discounts (🚩), heavy marketing and customer acquisition costs (🚩), and expensive global expansion efforts (🚩). To compare apples to apples, Luckin opened 1,700+ shops in 21 cities since 2017; Starbucks has just 3,300 stores despite having its presence in China for over two decades. Its unsustainable business model can be compared to that of MoviePass (⚰️ and major 🚩), which relied on similar deep discounting practices. Prior to April 1st, it was difficult to gauge on whether or not this strategy of building fidelity first will be enough to help steer the company towards, dare I say, profitability.
Now that the company’s fully exposed, we can safely conclude that its business model makes no sense. Its current predicament also feeds into this looming question that could further implicate Corporate China’s relationship with the rest of the business world: how much can we rely on the financials for Chinese companies? After Luckin reported its incident, two more US-listed Chinese companies made news headlines with similar accusations for inflated sales. The lack of transparency, corporate governance measures, and regulations is reviving doubts about accountability, which could dampen the outlook for future cross-border investments with China.
One can only speculate for the future of Luckin, and I’m hoping to hear some silver lining when the facts are sorted out. In the meantime, there’s one thing I know that’s for sure: I’ll be moping around and bumping to Trust Issues by Drake until this whole thing blows over.
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