the cratering music industry
TOP STORY
Madonna Heads for Virgin Territory
From Warner Music With $120 Million
In the latest seismic shift to rock the music industry, pop superstar Madonna is close to leaving Warner Music Group Corp.'s Warner Bros. Records for a $120 million deal with concert-promotion giant Live Nation Inc., according to people familiar with the deal. Madonna still has another studio album left to deliver with Warner Music.
The 10-year pact with Live Nation, of Beverly Hills, Calif., would give Madonna a rich mix of cash and stock in exchange for the rights to sell three studio albums, promote concert tours, sell merchandise and license her name.
The fact that a concert promoter like Live Nation is set to land the deal rather than a traditional record label like Warner Music is a sign of how quickly the landscape is shifting in the cratering music industry.
Traditionally, acts like Madonna would release their recordings through a major record label and then make separate deals for touring and merchandising with other companies. Now, however, a range of players in the music business -- labels, concert promoters and even managers and ticketing companies -- are eager to make broad deals that give them a larger piece of the pie by participating in revenue streams such as endorsement deals between artists and advertisers, as well as the sales of concert tickets and merchandise.
Promoters typically book artists and venues for concerts, dividing the door take with the performers. Live Nation appears to be gambling that by bringing virtually all of Madonna's ventures under one roof, it can make money by cross-promoting albums, concert tours and other merchandise.
The package includes a general advance of $17.5 million and advance payments for three albums of $50 million to $60 million, according to people briefed on the deal.
Live Nation also is expected to pay $50 million in cash and stock for the right to promote her concert tours. If and when she does tour, though, the promoter will only get 10% of the gross, with 90% going to the artist; that is the standard split for music superstars in the concert industry these days. Income from licensing ventures such as the use of Madonna's name on fragrances or other products would be divided evenly with Live Nation.
Madonna's representatives have been negotiating for months with both Warner and Live Nation. Warner took the unusual step of enlisting IAC/InterActiveCorp, the parent of TicketMaster, as a partner to try to counter Live Nation's proposal for a deal that covered both touring and recorded music. IAC and TicketMaster would likely have brought concert-industry expertise to the table, though it is unclear precisely what role they were proposing to play.
The deal carries significant risks for Live Nation. People in the music industry estimate that at current recorded-music prices, the promoter would have to sell about 15 million copies of each of its three albums to make back its investment on that piece of the deal alone. But an artist manager not involved in the deal said that with prices for CDs and downloads alike falling, that number could increase.
Warner Music would retain the rights to sell Madonna's catalog of albums dating back over 20 years, and her last studio album for the label will likely arrive next year. It isn't clear when her first album for Live Nation would be delivered, nor is it clear how the promoter would distribute and promote the album, since the company has limited infrastructure to do so. Under the terms of the deal, ownership of Madonna's three Live Nation albums would revert to her after a period that couldn't be determined.
People briefed on the deal speculated that Live Nation would enter a licensing arrangement with one or more traditional labels to release her albums. A spokesman for Live Nation declined to comment. Madonna's manager, Guy Oseary, couldn't be reached.
Most major labels have struck at least a handful of "360 deals" with new bands, where they share in multiple revenue streams. Superstar deals are more` expensive and riskier, and therefore much more rare.
Going the other direction, Radiohead this week released its latest album through its own Web site, circumventing for now any corporate partner.
Madonna, 49 years old, has reinvented herself multiple times throughout her career, seizing on new music, dance, culture and fashion trends. Even as her album sales have steadily diminished, her protean persona has kept her in the news, and maintained her clout as a concert draw. Currently she's an adherent of a brand of Jewish mysticism known as kabbalah.
Brian Posner, chief executive of ClearBridge Advisors, a fund that owns 9.3 million Warner shares, or 6.2% of the company, said he was comfortable with losing Madonna, given the price its rival paid. "Warner has demonstrated extremely savvy financial discipline with regard to the deals in enters into and, as importantly, the deals it doesn't enter into," he said.
The deal comes as Warner Music's share price has taken a beating, while Live Nation's has soared. In 4 p.m. composite trading on the New York Stock Exchange yesterday, Warner shares were at $11.29, up 11 cents for the day but off 59% from a 52-week intraday high of $27.24 and almost $6 less than its IPO price of $17. Live Nation shares were down 32 cents to $23.36, slightly below an intraday high of $25.63 for the year but solidly up from its offering price of $11.50.
Entrepreneur Robert F.X. Sillerman founded the company that would become Live Nation in 1997; he sold it to Clear Channel Communications Inc. for nearly $3 billion in 2000. Clear Channel spun the unit off in 2005. The concert business is a notoriously tough one for promoters, who typically give the biggest performers 90% or more of ticket sales, after certain expenses. That makes the business minimally profitable, and Live Nation, the largest concert promoter in the world, has sought to find other sources of income.
In August, Ticketmaster said it had ceased negotiations with Live Nation to extend their ticket-sales contract. Live Nation hasn't explicitly laid out plans, but the company is expected to make some kind of bid to get into the ticketing business on its own. In 2005 and 2006, Live Nation lost $130 million and $31 million, respectively. In the quarter ended June 2007, it made a $9.9 million profit on $1 billion in revenue.
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