Live Nation CEO Explains Crazy Business Strategy

The Wall Street Journal has a Q&A today with Live Nation CEO Michael Rapino as he’s coming off a string of “360” deals and the ouster of the company’s former chairman Michael Cohl. So, what does he have to say? Not much that makes sense.

First he suggests that Live Nation somehow beat out other concert promoters by signing U2 and Madonna to overpriced deals:

WSJ: But in some cases you’re paying a big number to maintain the status quo. For some artists, you were already doing their merchandise; you were already doing their tours.

Mr. Rapino: Everybody makes this big assumption that U2 and Madonna were going to continue to work just for us. The biggest cost of my business is competition — promoters bidding against each other to get a tour. We had no belief that if we did nothing that we would have just continually got the U2 tour for 10 years, and/or anywhere near the same economics. We got the Madonna 2014 tour at 2008 prices.

WSJ: What’s to stop Madonna from saying, “I don’t like the 2008 prices now that it’s 2014. I want to renegotiate for 2014 prices”?

Mr. Rapino: Madonna and these artists don’t get paid in 2014 unless they perform. It’s not like Madonna’s living off the signing bonus we gave her in 2007 in 2014. We have a contractual deal that has a very structured schedule of payments for certain rights. We project that Madonna will gross over $1 billion in this 10 years. She’s working to generate the $1 billion, not the $100 million schedule that we’re going to pay her over time. That’s just the appetizer.

Fair enough.

WSJ: Madonna was the first artist with whom you signed a recorded-music deal. You’ve now got three more. Are you building a record label?

Mr. Rapino: We have no desire to be in the record business. We are not going to be [talent scouts], we’re not going to produce records.

If and when the new model requires us to help distribute those rights for the artist as part of the 10-year package, then we absolutely believe there’s value in distributing that music without all the infrastructure costs of being in the business.

We will outsource it all. We will do nothing in house. We are not in the record-business infrastructure…

We have always said that Madonna is the most expensive deal we did because it was the first deal to break the model. And every deal after that would be sizably better. With Madonna, we have somewhere around a 9% [operating cash flow] margin. That’s double the 4% I’m making now.

[Assuming your projections are correct…]

WSJ: You and former Chairman Cohl came to have differing outlooks on your 360 strategy. He wanted to sign many more of these, and you wanted to hold back. Can you explain the difference in viewpoints and how it arose?

Mr. Rapino: Michael 100% agreed with the strategy, never debated the strategy. [But he] thought we should move faster and sign more artists quicker. And we never had a strategy to sign more than four or five in the first year.

Keep in mind we had no idea how well or not well we would be received by the industry when we did our first deal. After we did the Madonna and the U2 announcements, the artists were lining up. I wasn’t as tempted to worry about signing six more.

We went after some sizable artists to make a statement and feed the pipe. So when we got Madonna, U2 and the three or four others, my plan was always: “That’s enough. Now we’ve got to execute. We’ll entertain new deals as the opportunity comes.

WSJ: How do you see the broader economic picture affecting your business?

Mr. Rapino: If we get to $7 gas, the natural [thing] is to assume that because it’s a luxury item or a consumer item that it’s affected. But we have found that most consumers only go to two shows a year. And even if you look at the data for the last 15 or 20 years in the concert business, there’s no correlation between recession down times and declining ticket sales. No matter where the price of gas is, the consumer’s still got to get out. They’ve still got to save their money to go see Tim McGraw.

Unless they have to save their money to pay for the gas to get there.

See Also:

Live Nation Addicted To “360” Deals, Signs Nickelback

Live Nation Close To Doing Another Crazy “360 Deal” With Shakira

Live Nation Fires Back: Madonna Tour Not a Flop

Feud At Live Nation

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