Madonna move shows music industry’s 360-model
Madonna’s possible move from her long-time record label Warner Bros to concert promoter Live Nation underscores how shrinking music sales are turning former partners into competitors, Yinka Adegoke writes on Reuters today.
Traditionally, music companies like Madonna’s Warner Music Group have focused on recording music and managing publishing rights, while relying on companies like Live Nation and AEG to arrange concert tours and manage artists.
But the rise of digital music and the collapse of CD sales has forced all industry players to review their business models and negotiate wide-ranging contracts with artists to boost sales and profit margins.
Madonna now is close to sealing a $120 million, 10-year contract with Live Nation, and music analysts said she will be a boost to Live Nation’s attempts to expand beyond concert promotion and get a share of CD and digital music sales.
The Beverly Hills company may not recoup the $120 million contract, say music insiders who questioned Madonna’s star power a decade from now. But she can lend credibility to Live Nation as a full-service music company.
“It’s an optimistic message to other artists that ‘we want you’,” said one music label executive, who spoke on condition of anonymity. “They believe digital music is going to grow exponentially and they want a piece.”
As for Warner Music, its management declined to sign such a broad deal with Madonna because they felt the financial terms were too steep, said the source familiar with the talks.
Wall Street seemed to agree with Warner’s decision. Warner Music shares were mostly stable until the broader market downturn pushed the stock to close down 1.42 percent at $11.13. Live Nation shares ended down 3.72 percent at $22.49.
“There is clearly headline risk associated with a Madonna defection,” Bank of America analyst Michael Savner wrote in a note to clients. “However, the bigger risk would be to overpay for an artist that does not seem to be generating the revenue to support the contract,” he said.
Madonna is one of several marquee artists who have renegotiated their relationships with record companies in recent years. One reason is labels are losing some of the leverage they once had as recorded music sales shrink.
While digital music sales have risen more than 50 percent this year, that was not enough to make up for a 20 percent decline in CD sales, according to Nielsen/SoundScan data.
This June, maverick pop star and former Warner artist Prince gave away copies of his Planet Earth CD as part of a promotion with a British tabloid newspaper and also to fans who attended his 21-show concert at London’s O2 arena.
This week, Radiohead, now out of contract with EMI Group, started allowing fans to name their own price on its latest album download.
Live Nation has declined to comment on the possible deal with Madonna. It has previously stated ambitions to get a wider share of the music business, such as selling tickets directly rather than through partners like IAC/InterActiveCorp’s Ticketmaster.
Some analysts are skeptical of the benefits of the Madonna deal. “Despite potential merits of linking with the pop icon, we see risks for concert promotion giant wading into uncharted territory,” said Tuna Amobi, equity analyst at Standard & Poor’s in a note to clients.
From Reuters.