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Background
By the mid-2000s, James Dewitt Yancey, better known as Jay Dee and later J Dilla, achieved recognition in the music industry, with popular contemporary producers such as Pharrell Williams and Kanye West acknowledging his influence and talent. Despite not achieving mainstream success, he worked with numerous artists throughout his career, including the Pharcyde, A Tribe Called Quest, the Roots, Common, Erykah Badu, and D'Angelo. As part of the Ummah collective, together with Tribe's Q-Tip and Ali Shaheed Muhammad, he produced music for Michael Jackson, Janet Jackson, and Busta Rhymes.

Following the release of two albums with Slum Village, J Dilla left the group to focus on solo career. In 2001, he released Welcome 2 Detroit. Shortly after he got signed by MCA. However, the label shelved his second solo album. Around that time he started working with Madlib, with the duo releasing Champion Sound in 2003.

J Dilla was suffering from thrombotic thrombocytopenic purpura, a rare blood disease.

Recording
Two different accounts exist regarding the recording of Donuts. According to the popular version, J Dilla worked on the album in the hospital. Throughout the years, Dilla shared his latest work with friends and colleagues using short demo records, called "beat tapes". He played one of them, titled Donuts, to Madlib and Peanut Butter Wolf, the founder of Stones Throw, who then shared it with other members of the label. All of them loved it, but Egon didn't want to release it, since he thought Dilla should instead work on a sequel to Champion Sound. Peanut Butter Wolf convinced him that they should release an instrumental album, as Dilla couldn't record vocals due to his deteriorating condition. They brought vinyl records, portable turntables and samplers to the hospital, allowing Dilla to work on the album. Some sources claim that most of Donuts was recorded in hospital, using a portable turntable and Boss SP-303 sampler. According to Egon, "almost all of [the album]" was created before Dilla was hospitalized, but he continued working on the album during hospital stays. The Source magazine claimed 29 out of 31 tracks were "completed" in the hospital. At times, when Dilla's hands swelled up, causing pain, his mother massaged them, allowing him to continue working on the album.

Dan Charnas, the author of Dilla Time, presented a different version of events. According to his 2022 book, written based on nearly 200 interviews he conducted, the album began as a beat tape made by J Dilla but was largely finished by Jeff Jank. Citing people close to Dilla, Charnas asserted that the original version of Donuts was not recorded in the hospital, but rather at home, using Pro Tools audio editing software. He pointed out that time stretching used throughout the album is impossible to achieve on an Akai MPC drum machine Dilla used previously. The author concluded that while publications created the "dramatic creation story" of Donuts, based on the reports of J Dilla's condition and equipment being placed in his hospital room, Stones Throw, who at the time faced financial difficulties, chose not to refute it, as it increased popularity of the record and consequently its sales.

When Peanut Butter Wolf refused to ask weakened Dilla for any new material, Jeff Jank came up with an idea to release an extended version of the Donuts beat tape, which originally consisted of 27 track and was shorter than 30 minutes. However, when they asked Dilla about making a longer version, he replied: "Why don't y'all do that?" Jank agreed to work on the album, while Dilla focused on The Shining, a follow-up to his 2001 debut Welcome 2 Detroit. Due to other artists angering J Dilla with constant requests for multitrack versions of his beats, Jank chose to use the stereo mixed beat tape as a source, rather than ask him for multitrack project files. He started with minor adjustments, but gradually progressed to larger edits: the first one, which he used to find out what Dilla thought of his work, was combining two tracks into one, titled "Workinonit". Dilla approved it and Jank continued his work. Later he asked J Dilla for more material, as he thought the resulting album was still too short. Dilla gave him a CD with nine more beats, which Jank placed towards the end of the album. Jank named tracks on Donuts himself, but showed Dilla the final tracklist; he approved it, laughing at a couple of names.

Composition
Donuts is an instrumental hip-hop album: it contains no rapping, the only vocals are sampled, with most of them being short fragments of speech. J Dilla himself described it as a "compilation of the stuff [he] thought was a little too much for the MCs". The album consists of 31 tracks; Andy Kellman of AllMusic believed the number represents the age of J Dilla at the time of working on the album. The tracks are short, with the majority of them being shorter than two minutes. The track order is unusual: Donuts starts with an outro and ends with an intro. Collin Robinson of Stereogum viewed it as "almost too perfect a metaphor for Dilla's otherworldly ability to flip the utter shit out of anything he sampled". The end of the last track connects with the beginning of the first track, forming a loop. Different critics have interpreted the album's circular structure in distinct ways: as a reference to the shape of a donut and as the musician's attempt to defy mortality by stopping time with an endless loop.

The songs on the album vary drastically in style and tempo. The original press release compared the album to searching radio in a new town, while Clash magazine's Mike Diver thought it resembled a dialogue between two completely different producers: a lighthearted R&B one and a darker, moody one. Jordan Ferguson, the author of a 33⅓ series book about Donuts, described the album as a combination of all Dilla's previous sounds: electronic sound of his early 2000s works and "rare groove sensibilities" of his 1990s records, mixed with elements of contemporary "soul revivalism".

Donuts is largely sample-based, with most of the samples being heavily edited. On "Don't Cry", Dilla splits the sampled song, "I Can't Stand (To See You Cry)" by The Escorts, by the individual drum sounds, copying the melody on top of them. This results in a completely different song, played in a higher tempo than the original. Journalist Nate Patrin, in his book Bring That Beat Back, argued that Dilla intentionally split some of samples so heavily to achieve a certain sound, which he described as "life replayed in fast-forward". Some of the samples had their meaning altered through editing. "Stop!" features a voice sample of Jadakiss rapping "Is dat real?", edited to sound like "Is death real?". "Waves" is based on the vocal sample from 10cc's "Johnny, Don't Do It", a ballad about death of a biker, edited to "Johhny, do it!", words of encouragement for his brother John "Illa J" Yancey. In an interview with XXL magazine, Dilla's friend, rapper Questlove argued that every voice sample on the album has a meaning behind it; he used "Workinonit" as an example, where Dilla, despite the illness that left him immobilized and struggling to speak, conveys through the sample that he continued his work on the album. Throughout the album, on nine songs, there is a sample of a siren from Mantronix's song "King of the Beats". Patrin viewed it as a recurring motif of the album. The siren has since become a producer tag associated with J Dilla, with other artists using it as a reference to him.