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Madonna Jumps Ship For Musical Sea Change

Madonna
AP
Madonna

The Material Girl is cashing in, ditching a traditional music label for different kind of music company with a whole different approach to the industry. Now the music industry is waiting and watching--wondering who will win the next battle in the music industry's war.

When Madonna's contract with Warner Music expires, she's leaving the music label model entirely. She's planning on signing a 10-year $120 milliondeal with Live Nation, the concert promoter company.

Madonna gets paid the big bucks (in cash and stock) and Live Nation gets the rights to sell three studio albums, promote Madonna's concert tours, sell merchandise and license the powerful Madonna name. It also launches Live Nation into the big leagues, defining it as a full-service music company, not just a concert promoter.

This is exactly the kind of deal the music labels have been chasing. Since revenues from album sales are declining--down across the board 15% this past year (that includes digital album sales, so physical album sales are down even more). Warner Music Group has diversified-- it now has a joint venture called Brand Asset Group which looks to get artists deals with advertisers. And Warner Music tried to bring in Inter Active Corp's TicketMaster so it could offer Madonna a more all-inclusive deal.

But Warner couldn't stomach the $120 price, and many analysts think this is a very good thing--that it's financially smarter to lose Madonna than to pony up $120 million. For this deal to be worthwhile for Live Nation, it'll have to sell, by some estimates 15 million copies of each of the three CDs they deliver. Or more, if margins continue to decline.

And what of Warner Music? It's not a good thing to lose such a big name. But the good news is that they still own the rights to Madonna's library, which is a never-ending revenue stream. And they have the rights to Madonna's next album. So her jumping ship won't be felt until 2010. Wall Street isn't worried about Warner suffering from her choice here. It's the bigger issues--like the overall decline in album sales--that's the big picture problem.

The fact that Madonna's looking for a new model from a concert promotion company fits into a trend--Paul McCarthy, Bob Dylan and Joni Mitchell signing with Starbucks, RadioHead letting listeners pick the price they pay for an album. Artists are taking more control of the process-- now we have to see which model works, and what could pay off for investors.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.