Tommy Boy Can CD Future

Go back to airplay. The majors have always believed that radio play is the foundation of their business, particularly for breaking new acts. And given the scale on which they must sell records merely to meet expenses, their priority has always been Top 40 radio. But that once mighty common denominator is now in rapid decline. In the past three years the number of Top 40 stations has been cut in half, to 500. The remaining Top 40 stations now slant their programming to particular segments of the market. Radio has fractured into dozens of genres, serving diverse communities that are deaf to each other, but the majors keep flogging Top 40.

Tommy Boy also covets airplay, and nobody studies BDS reports more closely than Silverman. But the company looks to the fine-grain realities of retail, not the macroscopic proxy of radio, as the real foundation of its success. It has little choice. Only about 65 urban stations play rap. If a rap record is a massive hit, perhaps as many as 150 pop stations will also air it. "Hip Hop Hooray," the sixth best selling single of any kind through the first quarter of 1993, was played on fewer than a hundred stations.

As a result, Tommy Boy has become adept at painstakingly working a record city by city, sometimes almost street by street. Its finely focused "guerrilla marketing campaigns," aimed at highly visible people in the hip hop world, build word of mouth for new artists through novel promotions in clubs, record stores, and even car audio shops, ultimately creating demand at retail. Break a song in Jeeps first; radio - and MTV - will follow.

Or consider the charts. The majors still concentrate on achieving a high chart position - heavy sales in a given week - as a way to force-feed public perceptions about a record. Tommy Boy, on the other hand, goes after long-term share in its core market. It carefully nurtures music it knows has a basis in the dance or hip hop worlds and then tries to extend its appeal. Earlier this year, the company's newest star, RuPaul, had a huge hit with the single "Supermodel." But you wouldn't know it from the charts, where it never rose higher than number 45 in Billboard's Hot 100 because the label broke the record gradually in different cities.

What is the end result of Tommy Boy's strategic jujitsu? Information technologies may replace illusion with truth, but in the notoriously secretive record business, no comparable system exists to reveal financial performance, to rank industry profit margins like records, to put Tommy Boy's 20% to 25% margins up against the pack.

Is there an industry standard? "Zero," says Silverman, talking about new music, as distinct from profits generated by catalogue (backlist) sales. "If you include everything, not just new music, then I'd say it's about an 8% to 10% margin. Three companies lose money. MCA had zero profit last year. Arista, with Whitney Houston, will bring BMG's numbers up a bit, but I think they're still negative because of RCA, which loses money. SBK and Chrysalis also lose money. And there are companies within Warner, like Virgin and Giant, that had to be negative last year."

How can Tommy Boy prosper when others struggle? "Information is the great leveler," explains Silverman. "Everybody has access to the same information now, so it's a question of what you do with it. And nobody's doing what we're doing. When I tell people at other labels that we use Sound Scan to make A&R decisions - who to sign and how much to sign them for - they look at me like I'm crazy. But we can use Sound Scan to figure out how much money we can make on a proposed album. On that basis, we can bid with any label for talent - unless they want to lose money."

Tommy Boy's unique approach to signing artists speaks to a broader strategic philosophy: it lets the music shape the business and the business shape the music. While the major labels try to manipulate consumption, Silverman, with his reams of statistical analysis, and Lynch, with her constant presence on the hip hop scene, seek to understand consumption and adapt the company to it.

"The majors push the market," says Lynch. "Tommy Boy pulls from the market. We take something we know has a base in the streets and try to extend it."

"But it has to be natural," cautions Silverman. "You can't be manipulative, but you do have to be able to project the trend into the future, which you do in the Taoist way - by letting go."

Lynch looks beyond music. "We see ourselves as a company that is dedicated to reflecting and creating youth culture," Lynch says. "Music is our primary medium, but not the only one, because it includes Tommy Boy gear and a film project we're involved with."

Silverman goes even further: "Most record companies think they're in the record business. We don't think we're in the record business. We know we're in the lifestyle business. Nike was the first company to understand that. Goods and services have been evolving toward information. It's almost a spiritual thing."