Is Live Nation's Music Strategy Too Risky?

Live Nation (LYV), the world's largest concert promoter, is facing a serious shakeup. The company is "negotiating the exit" of Michael Cohl, the company's chairman, according to the Wall Street Journal. Cohl's been pushing the company's "360 deals" with superstar musicians, paying Madonna, U-2 and Jay Z well over $100 million to get a share of every aspect of their businesses.

And apparently he's been battling over them with the company's CEO, Michael Rapino, who wants to slow down on these deals, which many have called expensive and risky. This makes the whole situation particularly controversial because Live Nation has basically staked its future on these deals.

Needless to say, the music industry is in a shambles. Even the biggest music superstars aren't sure things. Madonna's latest album release was a huge disappointment in terms of sales, confirming some concerns that Live Nation has spent too much on these deals, too optimistic about what superstars are really worth. LYV stock is down about 45 percent over the past 12 months, and it traded down nearly 10% on Friday.

But Cohl's departure raises a number of questions. Will his nine-year non-compete clause remain in effect and be part of his existing settlement? Will he take some of those big name clients with him and start a competitor business? Or is he so crucial to LYV's relationship with these artists that they'll push to keep him?

And then there's the big picture question--other than concerts is there any way to really make money on the music business? This morning Miller Tabak downgraded the stock from Buy to Neutral, lowering its price target from $18 to $14. Meanwhile Standard & Poors downgraded the stock from Sell to Strong Sell. There's a huge conflict here between the need to reinvent the business model behind the music business and LYV's need to perform for investors. Based on the movement of the stock, it seems like Wall Street isn't so optimistic on LYV's strategy.

Comments

[DanielF]

The music business has always been challenging, even in the days when vinyl singles sold by the million each week. Many artists throughout the years have signed deals that gave them huge advances, only to find that costs such as promotion were coming out their own pockets. It left some touring for years to pay back the companies when album sales waned after huge débuts.

The companies are like banks, lending to their fledgling enterprises based on business and PR plans within a market that makes oil look stable: music. Today's million selling artist is tomorrows "Where are they now" feature on VH1. Investing in established names who have proven track records is still not risk free, but the questions become "Do the artists have enough assets to pay back the advance if they don't sell another record or concert ticket" and "What is the potential for their future marketability".

On those scores, the deals are secure, Madonna is selling out her latest $100+ million tour across the globe, and is close to 2 million sales on her latest CD. U2 have consistently produced huge tours breaking box office records. Jay-Z's many ventures have made him one of the richest men in hip-hop. If they were to retire tomorrow, I'd bet each of them could pay back the part of the advances they've received so far, and still leave themselves with a lifestyle to which we'd all love to be accustomed.

[bluesmoke]

"other than concerts is there any way to really make money on the music business?"

That's the million dollar question. Although Livenation may be overextended, their business model is intact. As baby boomers retire, they will still go to see their favorite rockers.

What remains to be seen is whether any digital distribution model is truly profitable, and if so, who controls the copyright & participates in the revenue stream - the artist or its underwriters.

[BerkeleyBob]

The alternative some musicians are trying is direct sales of CD at gigs or on their own websites. (On the latter, MP3 is feasible.) Some artists are going to vinyl releases... Digital distribution is the genie out of the bottle. Long ORCD. BerkBob

[talis1115]

I feel Live Nation are heading in the wrong direction. Stars like Jay Z and Madonna may look like safe bets but in the music industry things can change so quickly. I see in Daniel F comments that he said Madonna has sold close to 2million copies of her album world wide which is not entirely true. Close to 2 million have been sent to retailers by Warner Brothers but sales are still under 1 million world wide with the USA accounting for only 480k and it has now dropped out of top 30. Her tour is selling well but it is 30% slower then the last tour she went on. I do not feel that investing in an artist like that is a wise deal. Jay Z is yet to do anything of late to say he is worth it either. We will have to wait and see.

[leviticus]

Coming back to madonna on this deal, whatever the the sales of her last album may be. It is for her and for them still a good deal.
Many people forget that next to her album sales or concerts, you have the merchandising. Many people think "well what is merchandising" can't be much money in there. But the deal she made with them is total control and partnership between her and them over the brand "madonna".
The amount of money to be made just over the brand "madonna" is mindblowing. Like with britney spears, the money the paparazzi business made out of her just selling her pictures worldwide goes into the millions of dollars. Same with Madonna, plus she has like Rolling stones and U2 a vast and stabile fanbase that through the years is stabile or growing and never been in decline.
What she also does is have 1 concert somewhere and when it sells out quick add another 1 or 2 or more. Where the sales are slow, she just does 1. With live nation she now also goes to countries where she has never been or hasn't been in years. Like for instance she does like always goes to europe and north america and now also will go to South america. 1 million tickets have been sold so far and counting. U2 the same story. I don't know much about Jay-z and the money in hip hop to be made when it comes to just 1 person.
But from the moment i heard Madonna was going to do this, i got interested how a company would get their profit. She is 50 this year, but having looked into it. Especially her, because she is in pop, dominated by the next hot young thing and she being a woman and other bumps in the road for her. When it comes to Madonna in this stage of her career and it has been a long one. Their bet is solid. The money that that woman generates by just being Madonna goes beyond me. Don't get me wrong, i like Madonna. So no ill feelings or judgement. More power to her. I was just bewildered when i researched it a little bit, how much money their can be made by just having the name "Madonna" or "U2" or "Rolling Stones".
But like i said, being in a different genre, i thought Madonna isn't that a good decision. But please researched it on the internet and you will find that if you put Madonna's different works together and Live nations will make profit of of her within 2 years.
She allready, but it's a rumour, is making deals with several companies like phone companies and clothing companies and digital companies and other companies worldwide, plus special private concerts and so on and on.
She has been in the top 5 best earnings list as far as i know 3 times out of these last 5 years and that is past the height of her career.
You might think i am bias and making Madonna bigger than she is, but again having looked into it on the internet and magazines and other media.....i am just a simple person that discovered that being in popmusic, (thinking it's fast money, and then the new next best thing pops along to make money) when you have the endurance and just the name Madonna, the money comes sometimes slow and sometimes fast, but the money keeps on coming from al over the world. Even when it's slow, Malawi could house all the orphans instead of one.
Please respond if anybody disagrees, would like to know what they found out on this matter.

[RachelH]

Live Nation considers a change for future 360 deals. The New York Post has reported that Live Nation may outsource the distribution of albums to one or more music labels...here is the full article: www.ticketnews.com/Liv...