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Tuesday, September 16, 2008,10:14 PM
Live Nation Strikes Deals With Jay-Z, U2; Shakes Biz
Aggressive moves build new model for music industry

By Brian Hiatt

WHILE THE MUSIC business as we know it collapses, one company is sweeping in to pick up the pieces: Live Nation, the world's largest concert promoter, made another set of aggressive moves beyond its core business in recent weeks, striking broad deals with U2 and Jay-Z. "Live Nation is growing very, very fast," says U2 manager Paul McGuinness. "It's going to emerge as one of the centers of the music industry, if not the center of the music industry."

The U2 pact guarantees that Live Nation will promote tours by the band for twelve years, as well as handle the band's merchandising, run its Website and sell its tickets (financial terms were kept under wraps). The $150 million, ten-year Jay-Z deal (which was not finalized at press time) is even broader, much like the $120 million deal Live Nation made with Madonna in October: The company will release his future albums, promote his tours, handle his merch and partner with him on various entrepreneurial ventures under the name Roc Nation.

After a series of acquisitions and other moves, Live Nation is becoming a company like no other in the history of the music business, with tentacles extending into ticketing, recorded music, merchandising, fan clubs and artist Websites. By committing to releasing albums by Jay-Z and Madonna, it is taking on roles traditionally performed by major labels. But more important to its bottom line, Live Nation is also treading on Ticketmaster's territory. The company — which books more than 150 venues worldwide — will dump Ticketmaster beginning next year, instead offering tickets through its own system, which will allow sites such as U2.com to sell directly to fans.

In the past two years, Live Nation also bought Musictoday, which runs artists' fan clubs, and Signatures Network, a leading music-merchandise company.

"There are a whole bunch of products that are based around live concerts that we've never participated in, where we didn't have the infrastructure," says Live Nation CEO Michael Rapino. "We really just moved into that infrastructure and became a vertically integrated music company." Ever-decreasing sales for recorded music give Live Nation an advantage. "For us, it happens to be great news because the live show is becoming the center of the wheel for artists. [Most] of their revenues are coming from the road, which is a very different economic model. We say to artists, 'If we're going to do your tour, what else can we do around that show to maximize our revenue and do a great job for you?'"

It also helps that, unlike record companies, Live Nation will deal directly with consumers online, allowing it to offer, say, Madonna or Jay-Z MP3s to fans who just bought tickets to their shows. In this scenario, albums become just another form of merchandise.

Some in the music industry question whether Live Nation is overpaying for artists: They doubt that Jay-Z and Madonna have the longevity to justify the multiyear pacts, and they challenge why the company paid U2 a presumably huge advance for the right to promote tours it would have likely promoted anyway. "With Jay-Z, no one in the record industry would have made that deal," argues Randy Phillips, CEO of AEG Live, Live Nation's biggest concert-promotion competitor, pointing out that Jay-Z has never been a U2-level force on the road. "Too much money. If you're looking for a rationale for what Live Nation is doing, you're not going to find it in a business model that makes sense."

He adds, "They're trying to figure out how to move the needle on their stock price, or they're looking for a buyer. And they feel having all these big names and assets will help." Live Nation lost nearly $12 million last year, and its stock price has been trending downward.

Rapino insists that Live Nation will sign very few Madonna- and Jay-Z-style deals. "It's hardly a scalable proposition," he says. He notes that Jay-Z's current arena tour with Mary J. Blige is expected to gross $30 million, likely making it the most successful of the rapper's career. And he says the U2 deal, which partners Live Nation with a band that has earned $706 million on the road over the last twelve years, is a no-brainer: "When you've got one of a handful of bands that can sell out stadiums worldwide, you don't want to leave that one to 'Oh, we've got a great relationship — let's not worry about them,'" he says. "And now we're in a true partnership with the greatest band in the world."

Overall, Rapino adds, all of the new businesses Live Nation is entering — from T-shirt sales to recorded music — have far better profit margins than live concerts: "We have learned that if you have a longer relationship with the artist and you have more revenue streams with the artist, your model is much more robust."

"Live Nation is going to emerge as one of the centers of the music industry — if not the center."

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