Live Nation And Jay-Z: Setting A New Tone For Music Industry?

CNBC.com

With the music industry in an upheaval, Live Nation--the world's largest concert promoter--is revamping its business and taking on the music establishment at the same time.

How? Live Nation is expected this week to close its biggest deal yet: a reported $150 million package for Jay-Z that includes his recordings, tours for the next decade, and financing for his own entertainment ventures.

After selling his Rocawear clothing line last year for $204 million dollars, Jay-Z started a chain of nightclubs, so this deal gets Live Nation into a whole new range of businesses. Businesses that Live Nation would want to integrate with Jay-Z: his recordings, tours, and endorsements. And of course it shows Live Nation directly competing with the music labels for both the music rights business and all the related marketing.

Does it make sense for Live Nation, which lost almost $12 million dollars last year? This does seem part of a trend for them. In October, Live Nation negotiated a deal with Madonna worth some $120 million dollars, including slightly fewer rights. And just this week the company negotiated a deal with U2, for slightly fewer rights again--that one worth probably around $70 million.

The question is whether this kind of investment is worth it for Live Nation with the ongoing decline of album sales. It seems it'll take Jay-Z doing more tours, as well as more endorsements and sponsorships, for it to be really be worth it for Live Nation.

J. Pat Carter

Jay-Z holds his four MTV Video Music awards in Miami, Sunday, Aug. 29, 2004. Jay-Z won Best Rap Video, Best Direction in a Video, Best Editing and Best Cinematography. (AP Photo/J. Pat Carter)

It's no wonder Jay-Z (real name Shawn Carter) finds this deal appealing though. He'll reportedly get paid an upfront payment of $25 million, an advance of $25 million (includes fees for his tour), an advance of $10 million on an album for three albums at least during the deal.

Plus he'll get $5 million a year for five years to cover overhead, millions more in publishing and licensing rights, and another $25 million for "Roc Nation" a company to finance Jay-Zs ventures, which Live Nation would get half the revenues from. Whew, that's a lot of money!

There's also the question of how influential this Jay-Z deal will be in getting younger artists to sign up with Live Nation. It does se a precedent of sorts for up-and-comers to go this route instead of the traditional music label one.

If Live Nation wants to get a critical mass off artists, then this could be a good play for attention. But whether the Jay-Z deal itself is worth it is yet to be seen.

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