Madonna move squeezes music industry

It's all in the touring and merchandising for performing artists like Madonna these days. The days where record sales were paramount to a recording artist's success appear to be numbered, as more and more artists shun the traditional route of selling CDs in record stores and find alternative ways of marketing their wares.

Prince, who chose to give his new Planet Earth album on CD away at gigs and with the Sunday Mail, has blazed a trail for alternative marketing.

His decision met by suspicion from some quarters who thought it nothing more than a cheap marketing ploy, and by praise from others, who believe the record industry - long accused of having a stranglehold on the music we listen to - should be cut out of the music making process.

Now, hot on the heel of Radiohead's pay what you feel offering, Madonna is causing yet another rumble in the music industry with news of a possible move from her long-term record label Warner Brothers to concert promoter Live Nation Inc.

It's a significant step, and echoes Prince's decision to give his record away at gigs, rather than sell them in the shops separately; the rise of digital music and the collapse of CD sales means the money is in live performances and merchandising.

The original Material Girl has spied a good deal. Rather than keeping the recording and publishing rights under one house and concert promotion and management under another, Live Nation is proposing to undertake both functions.

According to the Wall Street Journal the deal, if it goes through, would be $120m for a 10 year contract. Madge will receive a mix of cash and stocks in return for the distribution of three studio albums, tour promotion, merchandising and licensing her name.

Madonna will take an $18m signing bonus plus a $17m cash advance and shares for each of the three albums in the 10-year deal. She'll also bag a whopping 90 per cent of the profits from any tour.

What's in it for Live Nation?

Number crunchers in the music industry estimate that Live Nation will have to shift 15 million copies of each of the three albums if they are to make their money back.

But the music industry is entering an uncertain period - and it now falls to promoters and record labels to diversify. By securing Madonna's business, Live Nation will get a hearty slice of the CD and digital sales pie by expanding beyond concert promotion.

This is what is becoming known as the '360-degree model' - where the record label manages an artist, organises tours and concerts and sells merchandise.

Getting Madonna on board provides the company with huge advertising potential for its new services.

But some industry insiders believe Live Nation is taking a big gamble, questioning what Madonna's allure will be in ten years time.

"There is clearly headline risk associated with a Madonna defection," Bank of America analyst Michael Savner wrote in a note to clients.

"However, the bigger risk would be to overpay for an artist that does not seem to be generating the revenue to support the contract."

Indeed, Warner Music Group decided against such a deal with Madonna for those very reasons.

Labels appear to be losing their leverage over artists as record sales shrink. A 50 per cent rise in digital music sales this year has not been enough to make up for a 20 per cent decline in CD sales, according to Nielsen/SoundScan data.

It's not necessarily the end of the road just yet, however. While some say record comps are drawing their last dying breaths, trade bodies are accusing the four largest music companies of controlling an unhealthy 95 per cent proportion of the music we listen to.

New bands are in a vastly different position to established artists like Radiohead, Prince or Madonna. They may need the services record companies can offer. And, as some industry observers have pointed out, Radiohead will be releasing a physical CD - which will have to be distributed, probably by one of these major companies.

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