Entry 2:

05/10/08

The New Business Model

written by The Knock

Everyone is well aware of the spiraling decline of record sales – year after year.

Consistently.

Presently, we’re in a failing economy where money isn't flowing as freely as it used to – which means: Even upper-middle-class consumers are feelin’ it – and more and more people are crossing over to the dark side of music piracy. It’s pointless to speculate how many music fans consciously decide to “illegally” download, or how many discover peer-to-peer outlets with the most innocuous of intentions, but one thing is for sure: The music industry’s old business-model of just throwing darts at the public until it hits a bulls-eye is no longer a viable strategy.

The point becomes clearer than ever when you examine some recent business decisions of by several of pop music’s most business-savvy artists of our time.

Why? Because artists with solid track records of making wise business deals and career-moves, don’t get where they are without knowing when to jump ship.

The lesson is: If you’re an up-an-coming artist, and you don't follow their example, you could end up amongst the Tevin Campbells of the business. “Tevin who?” some will inquire ... Exactly.

Some big-name musicians have recently inked some very adventurous – perhaps risky – deals that illustrate just how determined they are to maintain their status:


Jay-Z

The former president of Def Jam has just taken a huge step in a different direction. He and Def Jam's parent company, Universal Music Group, couldn't come to an agreement on his contract last December. Since stepping down from that position, the music world has been following his every step. Should you?

The self-proclaimed "Rolling Stones" of hip-hop's net worth is now an estimated $547 million, after his recent $150 million signing with Live Nation.

Live Nation is essentially known as a concert promoter. However, Jiggas' deal is much more than that. Live Nation is also expected to finance Jay's own label, publishing and management companies under one umbrella called Roc Nation. They also have first right of refusal at any future ventures he pursues.

Madonna

With her new album, Hard Candy, released to much acclaim and attention, Madonna, too, will say goodbye to her conventional record deal with Warner Music Group, whose stock has dwindled as much as 70% in the last 20 months. The 49-year-old Rock and Roll Hall of Famer will sign a three-album, $120 million dollar deal with, again, Live Nation. Additionally, she will give Live Nation rights to all of her musical revenue streams in a joint-venture called Artist Nation. In this new contract, she will eventually own the masters to all three albums. Warner Music Group will still own all of her previous album rights. Looks like a step up to me.

U2

While U2 is not saying goodbye to Universal Music Group yet, they are beefing up on their concert contracts and fan-base relations. Like Madonna and Jay-Z, the Irish rock-band is signing a twelve-year deal with the concert promotion company Live Nation (are you noticing a trend here?). U2 already had an eleven-year relationship with Live Nation prior to this deal, however, this amended conjuncture will include touring, merchandising, as well as the band's Web site, U2.com.

Many experts agree: With the dismal sales of CDs, these artists are making a collectively sound decision; they believe the "gamble" lies considerably more on Live Nation's end.

Don't believe the hype!

Although Live Nation reported a loss of $12 million last year, the concert industry's revenue has risen eight percent to an estimated $390 million in 2007. That means that more fans are attending concerts. Professionally speaking, the importance of a live show now equals, if not eclipses, distribution. This trend suggests that concert-profit will be the largest of an artist's revenue stream.

Over the next few years as major artist's contracts expire, you will see an influx of these all inclusive "360" deals. They will come from everywhere. You will see deals from concert promoters, publishing companies, record labels, brand-name vodka companies, Coke, Pepsi, Doritos – you name it.

The only tools an act will need to promote and distribute music are a name and a website.

Fuck CDs.

They're barbaric.

This sheds some light as to how bright these record executives really are. How many of them must be shooting themselves in the foot right now? Instead of spending millions of dollars in litigation against their own customers, they could have inexpensively created new distribution methods. They could have took advantage of the new technology instead of the feeble attempts to outlaw it. There is going to be a rude awakening when Frito Lay outperforms Capitol Records in music sales.