Bye-Bye, Madonna: Warner Music Dodges A Bullet

Peter Kafka | October 10, 2007 9:40 PM

Madonna2 Madonna is about to leave Warner Music Group (WMG) for concert promoter Live Nation in a $120 million deal, the Wall Street Journal reports. Live Nation will promote her concerts, sell her merchandise, and distribute her next three records.  Like the Radiohead giveaway, this is being described as a blow to the big music labels. But WMG investors should be celebrating.

Why? Because while the company's management apparently tried hard to dump truckloads of cash on Madonna, she wouldn't let them -- and has thus saved them tens of millions of dollars. The Journal says that Madonna's LYV deal calls for the company to pay her a total of up to $60 million for three albums; in order for the company to recoup its advance, it would have to sell 15 million copies of each album. That would never, ever happen...

Madonna has long passed her peak as a recording act; she makes her money on the road now. And even if she was burning up the charts, she still wouldn't clear 15 million copies an album. The best selling album in the U.S. last year was Disney's High School Musical soundtrack, which sold 3.7 million copies; the best selling "real" music act was Rascal Flatts, which sold 3.5 million copies. The U.S. represents about a third of the music market, but even the most optimistic foreign sales estimates wouldn't get those totals into double digit millions. And CD sales are only going to get worse.

But not only will Warner not lose money by overpaying Madonna, it will continue to make money from Madonna. That's because the company will continue to own all of the Madonna recordings that people still want to buy --  her catalog from the 1980s and 90s -- and has the rights to repackage them as much as they'd like. Live Nation, in essence, will be promoting Warner's assets for them, for free. Now that's a groundbreaking deal.

Related: Radiohead's New/Old Business Model: Free Music
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10 Comments

rob said:
According to the Yahoo! version of the story (which references the WSJ), LiveNation gets much more then just the album sales but merchandising and touring rights as well....



I think it's Pollstar that tracks tour revenue - getting a slice of those numbers will make this deal more then payoff.



Wouldn't analysis of who comes out ahead on this be more worthwhile once this moves beyond "propsed" and is based on more then "citing unnamed people familiar with the deal"??
Peter Kafka said:
Rob, you're correct - Live Nation will get more than the album sales. But it will pay dearly for those as well, and it's not clear it will see a return there as well. I've written about it in the next post. As far as getting a look at the "real" numbers - I'm eager to do so. Until then we have to work with the information we have; I also think Ethan Smith at the WSJ has a good grip on this stuff.
Victoria said:
Whilst CD sales will never be what they used to be artist like Madonna have the advantage of having a large number of fans who will buy a physical copy regardless of the quality combined with sales of the general public who like the music the sales could be good - her last album Confessions On A Dance Floor sold 11 million and is still selling strong, especially in Europe.
Andy said:
Your financial analysis is on point, but come on, this is not good for WMG or any other label. This move will get a lot of other artists moving in the same direction and create enough momentum to finally push the record companies down the steep part of the slippery slope.
Marc said:
You're missing the bigger picture here Peter. By losing one of the largest artists in modern music history to a non-record company, the expenses that Warner & other members of the RIAA will incur as a result will be astronomical in comparison to what they would have paid Madonna.



Its been a long time coming, but with the announcements of Radiohead, Jamiroquai, Oasis, NIN and now Madonna in the last month, the record companies' demise is now on the horizon. These companies, as we know them, will no longer be a part of the music industry in the next 10 years.
Peter Kafka said:
Victoria, where did you get the 11M sales figure from? Love to see the source; SoundScan lists U.S. sales at 1.6M, which would mean she has done enormous business in the rest of the world.

Andy and Marc, I think you -- and many others -- are overstating the importance of this move, as well as Radiohead's and the other bands you've mentioned. The big music labels are in big trouble - but not because Radiohead is giving away its music, and not because Madonna convinced a concert promoter to cut her a huge check. I'll address it in another post later today.
chartreuse said:
wtf?

This shows how much smarter Madonna is compared to WMG...
enGAYge said:
Madonna has always sold better overseas.She is huge in Europe and Japan. The US is very fickle when it comes to music. The fans are not too loyal, or forgiving when it comes to their "esteemed" artists. But I gotta give it to Madonna. That woman has managed to hold on for a long time.In the US and abroad.
sarah v. said:
sarah_sexy_fcker@hotmail.com


lol ...add me! koolio too every 1 yippy.

:_) hahahaa....!!! XD
sarah v. said:
well lol it's meeh again! hahaa...

you people actally read this stuff?

madonna and the others shouldn't really be judged because were all indivisuals in life! lol
love sarah v.

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