Madonna Bails on Warner, Goes With Live Nation

Singer's plan to leave mainstream record label could have a ripple effect.

Oct 16, 2007 — -- It's official: Madonna is leaving Warner Music Group to team up with concert promoter Live Nation in a deal reported to be worth $120 million over 10 years.

Madonna said in the statement that she was drawn to the all-encompassing deal with Live Nation because of the changes the music business had undergone in recent years.

Live Nation has access to the superstar and grabs a stake in her albums, tours, merchandising, films and other music-related projects.

Financial terms were not disclosed in the joint statement released by Madonna and Live Nation.

Under terms of the proposed deal, Madonna, 49, would receive a signing bonus of about $18 million and a roughly $17 million advance for each of three albums. A portion of the compensation would involve stock, The Associated Press reported citing an unnamed source familiar with the deal.

"The paradigm in the music business has shifted and as an artist and a business woman, I have to move with that shift," Madonna said. "For the first time in my career, the way that my music can reach my fans is unlimited. I've never wanted to think in a limited way and with this new partnership, the possibilities are endless."

The singer still owes Warner Bros. Records another studio album and a greatest-hits album.

"I am thrilled that Madonna, who is also now a shareholder in our company, has joined with us to create a new business model for our industry," Live Nation CEO Michael Rapino said. "Bringing all the varied elements of Madonna's stunning music career into the Artist Nation and Live Nation family, moves her future and the future of our company into a unique and extraordinary place."

The deal encompasses all of Madonna's future music and music-related businesses, including the Madonna brand, new studio albums, touring, merchandising, fan club and Web site, DVDs, music-related television and film projects, and associated sponsorship agreements, the statement said.

A Big Defection

Madonna's decision to leave Warner Music Group is the latest in a series of high-level defections from the mainstream music industry.

Losing another big name is not going to destroy the business, but it signals just how much power and independence some of the superstars have.

"It's part of a very interesting trend, where marquee artists are realizing that they can improve their fortunes by severing their relationships with the major labels and are defecting in massive quantities," said Aram Sinnreich, managing partner of Radar Research, a media and technology consulting firm in New York and Los Angeles.

Garth Brooks made a record deal with Wal-Mart. Prince distributed 2.5 million records through a Sunday newspaper in the United Kingdom. Paul McCartney and Joni Mitchell both signed deals with the Starbucks record label and Radiohead just released its latest album for free over the Internet, telling fans to pay what they think is appropriate.

"It signals something very interesting for the music industry, which is: Once you're famous, there's really no good reason anymore to do a deal with a major [record label] because there's nothing else they can provide for you," Sinnreich said.

"Even the top-tier name-brand artists in the world have royalty rates far below 20 percent of the retail price," Sinnreich said. And the royalties are paid after the labels recoup their extensive costs, which he said they usually fail to do.

To top all of that off, the record labels alienate some fans by suing customers over illegal downloads.

"So if I'm already a household name … what reason do I have to stay with the majors?" Sinnreich said. "It is far better to either team up with a powerhouse company like Starbucks, Wal-Mart or Live Nation, who are going to be able to give me much more leverage in my deals with them and much more attention as one of the only artists in their roster."

Madonna's reported intention to sign a $120 million recording and touring deal with live entertainment promoter Live Nation Inc. shows just how much the industry has shifted.

Live Nation has 160 venues, including House of Blues and Fillmore locations, Jones Beach in New York and London's Wembley Arena. It is Ticketmaster's largest single generator of ticketing fees, according to The Associated Press.

But most of its Ticketmaster contracts expire in the next year, with House of Blue expiring in 2009. Live Nation wants to bring the ticket-processing fees — often $5 or more — into its own coffers.

Madonna might also benefit significantly from a touring component of the deal, which was reported to give Live Nation the exclusive right to promote her tours.

Warner was reported to have pursued a possible partnership with Ticketmaster to keep Madonna.

Sinnreich said that record labels need to find a way to increase financial incentives to marquee artists to stay with them once they are household names. At the same time, in order to stay financially viable, the record labels somehow need to capture some of the merchandise and touring revenue that currently flows to the artists.

Warner Brothers quickly countered that Madonna's loss would not hurt its business. The music company released a report from a Bank of America subsidiary saying that Warner Brothers will get negative press for losing Madonna, but that is nothing compared to what it risks for overpaying "an artist that does not seem to be generating the revenue to support the contract being discussed."

And what about Madonna? Will she suffer from leaving the safety of a major label?

Sinnreich said that Madonna has been very savvy in technology from the start and looks carefully at what business deals she does.

"Her and Michael Jackson were the first to use music videos as marketing tools," he said. "Madonna was really the first MTV superstar."

The Material Girl also has taken extensive steps to hinder the illegal downloading of her songs, including publishing dummy copies of her songs on file-sharing services to thwart downloaders.

Basically, Sinnreich said, "I think she's a very, very sophisticated thinker."

With reports from the AP