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Live Nation's Strategy Looking Even Worse As It Has To Cough Up Extra $$s For U2, Madonna
from the how-not-to-run-a-business dept
While we definitely think there's a huge opportunity for more comprehensive business models in the music industry, we're still skeptical of Live Nation's model. The company, which is mostly known as a concert promoter, has signed huge deals with some big name musicians to get them to leave their record labels and do everything through Live Nation -- including music sales, concerts and merchandise. Live Nation gets a cut of it all. On the whole, such a model does make a lot of sense, because with one entity managing all of the different revenue streams, the company is much more likely to tweak the knobs. If it realizes that it can make more money in those other products by giving away the music, it (in theory) won't hesitate. That doesn't happen when the record label only gets a cut of music sales.
The problem, though, with Live Nation's model was its decision to focus on just a few huge names, and to pay them tremendous upfront amounts. Now, it turns out, the deals are even worse than what Live Nation expected. Apparently, it paid a portion of what it owed both U2 and Madonna in stock. That, by itself, is fine. It lets the musicians share in the risk a bit. Except, for some bizarre reason, the folks at Live Nation took away all of the downside risk for the musicians by promising how much the stock would be worth. With the stock market in freefall, that's now going to cost Live Nation a ton. For example, it gave a bunch of stock to U2, and guaranteed the stock would be worth at least $25 million. In actuality, it's worth $6 million. That means the company now needs to cough up an additional $19 million in cash and give it to the band. Madonna is apparently in a similar situation, with a similar guarantee about to come due.
