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We’ve written about 360 deals before.  The much rumored deal between Jay-Z (aka Shawn Carter) and Live Nation is expected to finalize this week along those lines. 

The NY Times reported that the deal is valued at $150 million.  The short of it is that Jay-Z gets what amounts to an investor in Live Nation for future ventures that he creates.  These would include record distribution, merchandising, concert ticket sales and merchandising.  Live Nation will annually fund Jay-Z’s umbrella company (that will partake in the venture) and share in the profits thereof.

The deal reflects the kinds of 360 deals that we’ve talked about, where more and more mergers and acquisitions will happen along the vertical: record labels, distribution, artist management, merchandising, advertisers, promoters, etc. 

The inevitable ‘why’ comes to mind.  Because CD sales are down, more music is becoming free or low cost, but demand appears to remain strong. 

So the best business models will seek to diversify and capture different streams of revenue, presuming that core demand is still there. 

 What’s more interesting is that LiveNation is positioning itself as the ‘GE’ of music. 

Live Nation could have its hand in just about every aspect of music (rather entertainment).  Investing in Live Nation could be like investing in a mutual fund for entertainment.  Distribution, concert tix sales, merchandising, promotions, the whole nine. 

 Logical Next Step

What would be interesting is to see Live Nation partnering/acquiring a company in the web 2.0 space, like a distributive media company (e.g., widgets), a virtual world like Doppelganger’s vSide or the next FaceBook kind of social media company. 

It would make sense when looking at the mega trends of more people spending time online, TONS of dollars going in online advertising, online services, etc.

Live Nation appears to be building such a model.  It acquired Music Today, a one stop shop for merchadising, fan club building and more for artists.  Live Nation has been partnering with several companies to develop its online presence, like Last.FM.  Full acquisition might be the next step.

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Further, it is marking its territory to become the better record label model.  It already wooed Madonna from Warner.  Now, Jay-Z is leaving Def Jam.  This is particularly interesting since Live Nation has historically focused on rock and country.  

I asked a couple of record labels about possible acquisitions as a revenue strategy, but maybe it could be basic business strategy to ward off companies like Live Nation.  Most said they really hadn’t thought it through.  But a few are realizing the game is changing and it’s not really about entertainment, but a basic business policy that creates allies everywhere to further the mission of the company.  I’ll write more on this later. 

Fascinating!!!

The latest…Warner Music Group said that it is looking for consumers to pony up $5 extra in their ISP bills to have full access to WMG’s library of content.  The goal is to create a large pool of money to be distributed to the value chain (labels, artists, writers, etc).  Jim Griffin was tapped by WMG’s Chairman/CEO, Edgar Bronfman to come up with this proposal and has said the fee is not mandatory.    There’s been a LOT of hub bub about this.   

Why?  I don’t get it. 

It all amounts to a cable operator model…where you pay a basic ISP fee, and an optional fee for premium services (much like the basic cable bill, then an extra fee for HBO). 

The Problem

The potential problem that I see is actually economics.  Someone pays $5/month to get unlimited downloads.  But on iTunes, the tracks would be $.99/track.  Depending on the division of that amount, I wonder how much dough WMG could be leaving on the table, given the reach of iTines and it’s massively used iTunes store.  Presumably, WMG would pull all of its content off of iTunes for the cable model.  But since iTunes acts as an enormous aggregator – with many fans liking non-WMG artists as well – then WMG might be limiting the amount of potential sales because people might not want to move over to a WMG platform to discover and purchase content (i.e., it loses some consumer ease of use). 

A Tax???

Despite what you may have heard, Griffin explains that the fee is not mandatory and, thus, is not a “music tax”.  If it were, I’d be yelling bloody murder too!!! 

Some people don’t listen to music all that much in any form.  Thus, a mandatory fee would force non-music lovers to subsidize music lovers – as the goal of any tax is.  Opponents of a “tax” say the government would get involved.  I don’t see the Fed getting involved in a private industry thing such as this, which doesn’t serve a moral purpose, rather than labels, artists, etc.

The Point

The point that Jim Griffin is addressing is that the industry has to move away from a model that controls distribution to one that seeks to monetize that distribution.  The current route of suing every college student, and Tom, Dick & Dana for downloading should go the way of the dodo.  Rather, if people are doing it anyway, find a way to make some money off of it.  I have to agree.

Maybe there is another way to make money on the back end by investing in the companies that provide a better downloading/file swapping experience.   Hmmm…kinda like investing in oil-related companies when you’re outraged that gas prices are going through the roof.   

I still think that using music as a way to sell other services is the best model.  That’s way more labels are considering 360 deals (they get a share in merch, concert sales, advertising, in addition to record sales).

Given that CD sales have been tanking, it was inevitable that labels were looking into getting more of the pie by structuring what are called 360 deals. Basically, labels would give more money as an advance to an artist, but get it back in recorded music sales AND concert tix, merch, advertising, etc.

360 deals are good for artists who can be called brands…maybe the music isn’t that good, but the artist is a character. 50 Cent is a current example. MC Hammer comes to mind too (although, back then, I doubt if he had a 360 deal).

Historically, artists relied heavily on concert tix sales and other non-recorded music sales to put money in their pocket, since the recorded music sales were subject to recoupment of the advance.

I would expect to see more 360 deals, within limit, since not all artists can be seen as brands (multi-talented who can act, perform well, pitch a product, etc).

What’s more interesting is that I would expect more labels to be acquiring non-label companies. Some labels are beginning to do this. One I know recently purchased a merchandising company to bring this function in-house. Imagine that labels would own businesses within the verticals…advertising companies, ticketing companies, merchandising companies, etc. As labels need to grow revenues and profits, acquiring a vertical that can be accretive to earnings immediately or shortly afterwards will be key and expected…barring any regulatory rules, that is.