Jay-Z sees the Web Difference

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NYTimes.com article states that Jay-Z is in the midsts of inking a deal that would make him the third major star to sign with Live Nation lately (w/ Madonna and U2 being the others). The article mentions the drop in CD revenues that we have discussed in class as a possible explanation for the sucess of Live Nation:

As CD sales plunge, an array of players — including record labels, promoters and advertisers — are racing to secure deals that cut them in on a larger share of an artist’s overall revenue… pressured record-label executives [must] rewrite the economics of their business and step beyond the sale of albums in an attempt to wring revenue out of everything from ring tones to artist fan clubs.

Live Nation’s core business has revolved around major rock and country tours, and with Jay-Z it is making an unexpected foray into hip-hop. The company is also placing an enormous wager on a performer who, like many others, has experienced declining record sales.

Because everyone in the business is trying to find ways to capitalize on the musics industry in new ways, the deal has a host of other benefits that Live Nation hopes may augment lackluster CD sales:

[T]he arrangement would also position Live Nation to participate in a range of new deals with Jay-Z, one of music’s most entrepreneurial stars, whose past ventures have included the Rocawear clothing line, which he sold last year for $204 million, and the chain of 40/40 nightclubs . . . As part of the arrangement, Live Nation would finance the start-up of a venture that would be an umbrella for his outside projects, which are expected to include his own label, music publishing, and talent consulting and managing. Live Nation is expected to contribute $5 million a year in overhead for five years, with another $25 million available to finance Jay-Z’s acquisitions or investments, according to people in the music industry briefed on the agreement. The venture, to be called Roc Nation, will split profits with Live Nation.

The overall package for Jay-Z also includes an upfront payment of $25 million, a general advance of $25 million that includes fees for his current tour, and advance payment of $10 million an album for a minimum of three albums during the deal’s 10-year term, these people said. A series of other payments adding up to about $20 million is included in exchange for certain publishing, licensing and other rights. Jay-Z said Live Nation’s consolidated approach was in sync with the emerging potential “to reach the consumer in so many different ways right now.” He added: “Everyone’s trying to figure it out. I want to be on the front lines in that fight.”

“I’ve turned into the Rolling Stones of hip-hop,” Jay-Z said in a recent telephone interview.

Will the new business model work for the Rolling Stones of hip-hop?

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