Russell Simmons' rush for profits - Rush Communications; includes related article - Company Profile - Cover Story

Black Enterprise, Dec, 1992 by Christopher Vaughn

Cafe Tabac, one of Manhattan's trendier restaurants has standing-room-only on a hectic Friday night, but Rush Communications CEO Russell Simmons has no trouble securing a prime table in the middle of the room. This is the first stop on his nightly crawl of restaurants, clubs, parties, concerts and after-hours joints throughout New York City. The man known as "the king of rap music" is warmly welcomed into the mix of fashion models and Armani-clad executives. However the T-shirt, loose-jeans-wearing Simmons really comes alive during a conversation with a well-connected investment banker. The discussion is both friendly and intense; after two minutes, the rapmeister readjusts his baseball cap, bids the banker goodbye and grins--satisfaction crossing his face.

So what's the big deal? You wouldn't believe it. Simmons is investigating the possibility of taking his $34 million New York-based rap and hip-hop entertainment empire public. Yes, public. As in Wall Street. The Big Board. The New York Stock Exchange (NYSE). Big-time capital gains.

And you thought rap was just a fad.

During the past 10 years, Simmons, 35, has been the driving force of rap music and hip-hop culture. His Rush Communications is now the nation's second-largest black-owned entertainment company, which debuted at No. 32 on the 1992 BE INDUSTRIAL/SERVICE 100 list. The company's growth could make Rush Communications in the nineties what one-time perennial BE 100s leader Motown Records was during the seventies. Simmons, who puts his annual income at close to $5 million, is often compared to Motown founder Berry Gordy, just as Rush is often compared to Motown. However, there's one major difference: Motown created and sweetened black musicians for mainstream consumption, while Rush makes the mainstream swallow its artists and their messages black--with no sugar and no apologies. "I'm bringing them today's black culture," he explains. "And I'm putting it out there for anyone and everyone who wants to buy it," he says.

Indeed, Simmons has gone beyond selling music and managing artists to marketing the very fabric of black urban culture to mainstream America. Simmons' company currently includes seven record labels, several management companies, a film and television division and a radio production company. And by mid-1993, if all goes according to plan, a 24-hour satellite-distributed rap radio station, a clothing line titled PHAT Fashion and a sports management operation will be in place. (See sidebar, "Rush Gets Busy.")

But will it sell on Wall Street? Simmons is probably at least two years from making a decision on such an attempt. However, the move, if successful, would make his company only the fourth publicly traded BE 100s company. While going public could generate additional operating capital to finance expansion and new projects, the road could be filled with potholes--such as a loss of the hip-hop cultural integrity that Simmons sees as the heart of Rush's value to the marketplace. A closer look at the development of Rush Communications can provide some insights into whether the company should go public, and what its strengths and weaknesses might be as a publicly held company. The plusses: Rush is a leader in hip-hop entertainment marketing and has a strong management and operational structure. Rush also has a demonstrated ability to establish partnerships (rather than take on inordinate amounts of debt) to take aggressive advantage of business opportunities. The minuses: Rush may need to develop a more consistent earnings stream than can be provided by music sales and films. which may be viewed as hit-or-miss businesses by the investment community. Also, it is still too early to tell whether Simmons can effectively communicate the value of his company and the strength of his management team to the investment community, or whether he's ready for Rush to be judged on the open markets.

Hip-Hop: A Growth Niche

Although film and television productions are some of the projected growth areas for the company, hip-hop/rap music is at the heart of Rush's success. The hard-edged, base-heavy style of rhymes and rhythms was born in the streets of the Bronx and Harlem during the late 1970s. Once dismissed as too hardcore for either longevity or universal acceptance, it has infiltrated and influenced all manner of mainstream culture and shows no signs of retreat. While there are no solid figures on rap music sales, industry experts assert that it accounts for at least 5%, or nearly $400 million, of annual recorded music sales. Madison Avenue uses it to sell potato chips and fast food, and it's common fare on Hollywood movie soundtracks. Cable stations including Black Entertainment Television (BET) and MTV count on rap video offerings to attract young viewers. Its Afro-urban styles, such as those marketed by Los Angeles-based Solo Joint Inc./Cross Colours, another newcomer to the BE 100s, are taking international fashion by storm. And despite albums with titles like Fear Of A Black Planet, young white males are among the most loyal consumers of rap music.