Material Girl
A detailed analysis of the reported new deal between Madonna and Live Nation has been published on the online website of Forbes.
Are major record labels in a heap of trouble? Of course.
Do they look foolish as they fumble around for a viable business model? Ditto.
Have they become irrelevant? Not a chance.
That’s something to keep in mind as you absorb the, ahem, “latest seismic shift to rock the music industry,” according to The Wall Street Journal.
It appears that Madonna is closing in on a decision to walk away from Warner Music Group once her contract is up. Rather than re-up with the major label that’s been her professional home for her entire career, the Material Girl is expected to sign a record deal with concert promoter Live Nation, the Journal reported Wednesday evening.
If they handed out trophies for business savvy and chutzpah, Madonna would deserve a mighty big hunk of metal for this move. Why? For starters, she’d get a mountain of cash and stock worth around $120 million.
What would she trade away to Live Nation for her windfall? For one thing, the rights to promote her live shows. Madonna has proved to be an exceptionally strong draw on the concert circuit, having grossed $194 million during her 2006 “Confessions” tour.
But, as the Journal points out, she’d probably retain about 90% of the ticket grosses under her new deal. Live Nation would also get the rights to sell Madge’s next three studio albums.
More importantly for the company, it would also get to sell and license other Madonna merchandise. Given the mountainous advances owed to her under the deal, the implications of this are a tad scary. Brace yourself for a flurry of Madonna fragrances, ringtones, concert video downloads, multimedia features on your wireless carrier, movie and TV licensing deals – anything to help Live Nation make a return on its huge investment.
Finally there’s this: by snaring a genuine pop icon, Live Nation, which was spun off from Clear Channel Communications in 2005, will have announced to the rest of the industry that it’s serious about becoming a full-service music company. Not only will it be able to promote their shows, it’s even willing to offer record deals.
Ironically, it’s an approach that’s very much in synch with the recent public musings of Warner Music Chairman and Chief Executive Edgar Bronfman Jr, who has been outspoken this year about the need to expand the company’s business beyond recorded music (which is contracting) and music publishing (which remains stable) to include growing areas of the music economy, like merchandising and artist-management services.
In fact, Live Nation and Warner have seemed so simpatico that it had recently spurred speculation in some quarters that Warner was considering a takeover of the concert promoter.
But such a deal would appear to be unlikely at the moment, given that Warner’s stock price has sunk so low that its market capitalization is now barely larger than that of Live Nation. Moreover, as the prospective Madonna deal demonstrates, Live Nation Chief Executive Michael Rapino is a guy with big plans. He does not seem inclined to chuck it all and let someone else take over the show.
Click here to continue reading this article by Louis Hau on Forbes.com.
Rapino’s willingness to make such an expensive deal is also impressive given the fact that Live Nation hasn’t exactly been minting money. Live Nation lost $130.6 million in 2005 and $31.4 million in 2006. It eked out a meager profit of $9.9 million in the quarter that ended in June.
But while Live Nation is clearly ambitious, it still can’t offer everything that a major label can. For all their worlds of woe, and for all the stupid, boneheaded moves they persist in making, the majors still matter.
New digital distribution platforms may be making it easier than ever for recording artists of all stripes to get their music out to the public on their own, but the majors boast formidable marketing muscle. Their recording artists continue to dominate terrestrial radio, which, while not as influential as it had been in the past, remains crucial to generating platinum-level music sales.
And the major labels retain control over extensive distribution networks for compact discs and other physical products. Their reach is so great that many otherwise independent record labels still opt to use the majors to get their wares to market.
Yes, physical formats are on the way out. Sales of CDs are tanking, while those of purchased downloads are surging, albeit not enough to make up for losses on the physical side. But CDs still account for the vast majority of worldwide music sales – more than 80%, last we checked. Unlike a point-and-click download, it still requires sizable distribution channels to get a CD from a production line into the hands of a consumer.
This helps explain why the Journal quotes sources as speculating that Live Nation might enter into licensing agreements with a major label to release Madonna’s music.
A licensing or distribution deal is also a possibility for Radiohead, which recently ended its affiliation with EMI Group and made its new album, In Rainbows, available for download Wednesday at whatever price fans were willing to pay, plus a nominal service fee.
It was a public-relations masterstroke, generating a tidal wave of free publicity for the album, while cementing its bonds with existing fans in an innovative way. The irony of the move was that it presented Radiohead as a champion of digital freedom when in fact the band has maintained much tighter control over its catalog on the Web than most other music acts. You can download Radiohead’s music via the new download service from Amazon.com, but you can’t purchase individual tracks. And none of Radiohead’s albums are available at the Apple iTunes store.