TheCapitalClinic

There are rumors of a mind-boggling “forward contract” in the works between Madonna and Live Nation [with a possible counter-offer by a major label] involving a pre-payment of future cash streams, largely touring and swag [and some recording] in the range of $100 million to $180 million. If true, this deal is another benchmark [among several recently discussed in various blogs at this site about how artists can make a living] of a fundamental shift in the music business from recorded music sales [physical and perhaps even digital over the longer term] to performances and merchandise sales that many supporters of the Music Uprising at Fuzz foresaw many moons ago.

In calculating the “present value” of such a forward contract with a single artist, super-star that she may or may no longer be over the life of the contract, as a financier one would have to discount for the latter possibility. If you apply a reasonable discount rate, say, a risk premium of 25% per annum over a risk-free return [or a total of about 30% which would not be unreasonable, given (1) what the private equity investors require today, and add (2) the very real possibility that Madonna is "over the hill" or will be before her touring schedule covered by the contract runs out], for the valuations to make sense, charges for future large-venue Madonna performances have to go through the roof [such charges involving, so-called, superstar headliners are already bordering on the ridiculous]. Even $100 per head at a 10,000 seat venue for a total gross revenue take of $1 million per performance isn’t going to cut it anymore. Maybe, $500 bucks a head might work. But at a gross take of $5 million a show [before covering third party expenses and profits] that's still an awful lot of shows just to cover the advance.

If headliners like Madonna can get these kinds of "advances", the only way concert operators [or the majors if they are involved] can recoup is by charging outrageous prices for tickets since they and their cohorts, TicketXXX, etc., also have to make their yard or three. Clearly, there will be a huge negative public reaction to what will be perceived as mega-arena rip-offs at some point in time, as well as performance glut due to the frequency of these "shows of a lifetime."

This bodes well for the artists working the smaller venues, developing more reasonably priced "scenes" with intimate artist-to-fan relationships performed more frequently [such as the current tour of Fuzz label artists, The Lovemakers], where the "value-proposition" is more palpable and sustainable. Indeed, I predict that the ticketing and merch business of a multitude of these truly inspired “working artists” will be the "sweet spot" of the new music paradigm [as contrasted with the limited number of over-pampered and jaded "super-stars" who will not be able to sustain the value-proposition they offer through their media-hyped BS].

Several ways to look at the alternatives to, say, a heavily discounted $150 million [grossed up to $250 million] revenue food-chain split among a single “super-star” and a handful of “middlemen” [concert promoters/labels, large venue operators, ticket vendors, merch suppliers, etc.] is to “disaggregate” a corrupted ecosystem and reconfigure it as follows:

1. For the Content Creators: $150 million advance to one “superstar” is equivalent to $50,000 for 3000 “working artists” [or some variant thereof to allow for qualitative differentiation];

2. For the Content Distributors: $250 million [the recouped advance, plus a risk-adjusted 30% return in one year for the promoter, plus the take of a few “middlemen] could be spread over hundreds of thriving local venues, specialized labels, and value-added sponsors;

3. For the Future of Music: Artistry will blossom and grow for and among the many rather than whither and die for the privileged few. [Clearly, there is a revolution in the making here.]

Together Artists and Fans will build and deserve whatever future we create – be it "diversity and excellence" or "lowest common denominator."

If you agree with the foregoing assessment of the music landscape of the future and the alternatives laid out, (1) Artists should “tweak” the roll-out of your careers with a vengeance as performing/touring musicians in all areas [technology, marketing, bus-dev, fan analytics], and, equally, (2) Fans should support your favorite “working artists” and take a hard-look at the real long term costs of the current mind-melding that is being force-fed on us [although, to be sure, it is fun sometimes just to “go with the flow”]. Brothers and sisters, we are all in this together.

Link: http://www.digitalmusicnews.com/stories/072607madonna