Samsung Is Spending $5 Million To subsidise Jay-Z’s New Album, And Actually It’s A Brilliant Use Of Its Money

Jay-Z for Samsung

At first glance, Samsung’s $5 million deal with Jay-Z to release his new album, Magna Carta Holy Grail, as a free copy on 1 million Galaxy and Note mobile devices, seems like a collossal act of marketing hubris.

But it’s not. Once you understand Samsung’s corporate finance structure, it turns out to be a fantastically good deal for the Korean electronics giant.

First, the case for the prosecution:

  • Samsung is unlikely to see a significant boost in mobile phone sales because customers tend to be locked in to two-year contracts.
  • Samsung owners only get a three-day period of exclusivity with the new album, so the “advantage” of having a Galaxy S-4 rather than an iPhone is short-lived.
  • Because each copy of the album is being given away free, they may not count as sales and thus not add to Jay-Z’s ranking on sales charts.
  • Not every Samsung owner is a Jay-Z fan, so there’s a question of how well targeted this campaign is (although the music will only be available to anyone who is willing to download an app, so there is an element of self-selection).
  • Lastly, writing Jay-Z a one-off check for $5 million, to reward him for recording an album he was certainly working on anyway, just seems excessive.

That all turns out to be irrelevant once you look at the scale of the advertising budgets Samsung is working with. This chart comes from Horace Dediu, who maintains a blog post titled The Cost of Selling Galaxies:

Cost of selling galaxies

Samsung spends more than $4 billion annually on advertising. $5 million is, therefore, barely a rounding error in Samsung’s accounts.

And Samsung isn’t strictly paying for phone sales. Sure, a small number of people will be tipped in favour of a Galaxy rather than an iPhone because of the offer. What Samsung is really getting is free PR and the media exposure that goes with that.

As of 3 p.m. today, Google News registered 312 news sources carrying stories about the deal in the last 24 hours. That number will surely double in the next week or so. And then there’s the word of mouth … and so on.

To buy that level of exposure through traditional advertising would have cost multiples of $5 million. (Oddly, had Samsung done just that, few would have noticed or complained about the budget.)

In the 3 minute TV commercial Jay-Z made to support the giveaway, he says, “We don’t have any rules. Everyone is just trying to figure out, that’s why the internet is like the wild west, the wild, wild west. We need to write the new rules.”

In part, it’s scripted, self serving nonsense. Jay-Z isn’t really that interested in writing the new rules of the internet. Rather, one of the songs on his album has a “wild west” theme.

But he is right about one thing: The old rules — in which a $5 million budget would have been blown on TV commercials within just a few weeks — are increasingly pointless.