In an era where music companies are still battling to enforce DRM measures to protect ailing profits, some of the world’s biggest music stars are leaving them behind to embrace new revenue models.
This, from today’s Sunday Times…
HIP-HOP star Jay-Z has always seemed as interested in business as music. From a poor start in a tough Brooklyn neighbourhood, Jay-Z has lived the rapper’s dream, making millions and boasting about it all the way. His hits include Get This Money, I Love the Dough and More Money, More Cash, More Hoes.
Unlike many of his contemporaries, however, making cash seems to interest him more than spending it. The rapper, real name Shawn Carter, even “retired” from music in 2003 to spend more time with his money.
When Bill Gates wanted a hip-hop star for his spoof retirement video, Jay-Z, long-time partner of pop diva Beyoncé, was the natural choice.
Now Carter has cut one of the biggest deals in music history. It’s a deal that, depending on who you talk to, either points the way to a new model for the struggling music industry or highlights what a savvy player Jay-Z is, while spelling disaster for the company that signed it.
American concert promoter Live Nation hit the headlines last October when it signed a $120m (£60m) deal with Madonna. The pop queen dumped Warner Music, her long-time label, to do the deal, in a move that for some underlined the eroding power of the music industry’s big players.
Music has never been more present in people’s lives or more easily available, but the shift to digital sales has so far proved less profitable than the industry’s last successful business model - promoting an artist by any means it can to make money from CDs.
CD sales remain a profitable business, but as they decline, artists, music labels and concert promoters are all looking past them at alternative revenue sources, from T-shirt and ticket sales to ringtones and licensing songs for use in video games.
“The paradigm in the music business has shifted and as an artist and a businesswoman, I have to move with that shift,” Madonna said in a statement when she signed her deal. Other stars were listening.
Now Jay-Z - 10 years her junior - has dropped Def Jam, the label where he was once president, for a $150m deal with Live Nation.
The company signed a reported $100m deal with Irish rockers U2 last month to handle the band’s merchandising, digital and branding rights, and is also said to be in talks with The Rolling Stones, presently working out their contract at Britain’s EMI.
Like Madonna before him, in straight record sales Jay-Z, 38, is not the force he once was. American Gangster, his last album, sold about 1m copies in America compared with 3m copies of 2003’s The Black Album, but he has also found new artists and pursued other business ventures, such as a clothing line, Rocawear, which he sold last year for $204m, sports investments and a chain of nightclubs. Forbes magazine’s last annual list of “Hip-Hop Cash Kings” ranked Jay-Z first with estimated earnings of $34m in 2006.
The Live Nation deal, which is yet to be formally announced, is a “360degree” deal that will give the concert promoter a financial position in virtually every aspect of the rapper’s career. Jay-Z is expected to get a $25m payment upfront, $10m in advances for each of three albums, $25m towards concert performances and $20m for the publishing rights that he owns. He will also get $25m in overheads to run his side projects with $25m more available to finance acquisitions or investments. He and Live Nation will split any profits 50/50.
Many music executives were dismissive of Live Nation’s move. They pointed out that the major labels were all now doing “360degree” deals and said it was well known that Jay-Z had unsuccessfully touted this same deal to most of the big labels.
“This isn’t a new model,” said one. “It’s ‘let’s take ageing artists past their prime and overpay them’ - that’s a very old business model.”
He said he doubted if they would make back the $10m advances on his new albums and that Jay-Z was not a touring artist of Madonna’s calibre.
Live Nation has a ticket sales deal with Ticketmaster but that expires this year.
David Joyce, analyst for Miller Tabak, said the company was “circling the wagons” by building a roster of big-name artists to help it see off competition when it goes it alone. He said the traditional music-industry players were increasingly looking for a slice of Live Nation’s action. Cherry-picking top acts for top prices is one way to see off that competition.
Music executives said the real test of Jay-Z and Madonna’s deals will come when they have new albums to release. Unlike the record labels, Live Nation is not set up to get CDs into stores or digital music onto iTunes and will probably have to sign up a label to do the release.
Original article is here
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