The music industry trend of signing superstar acts to long-term mega-deals is under scrutiny after Irish band U2 exercised a contract clause that left partners Live Nation 19 million dollars out of pocket, reports and analysts said.
U2 became the latest in a series of iconic artists to sign a lengthy deal with Beverly Hills-based Live Nation in March when they inked a 12-year agreement covering the band's touring, merchandising and website.
It followed a 120-million-dollar 10-year deal between Madonna and Live Nation and came shortly before hip-hop mogul Jay-Z clinched 150-million-dollar decade-long multi-pronged contract.
Analysts said the deals reflected falling CD sales which had left music industry players seeking to secure wide-ranging partnerships that allowed them to tap into multiple revenue streams, such as concert tickets and merchandise.
However Live Nation took a financial hit on Wednesday when U2 exercised a clause that forced their partners to buy back 1.6 million shares from the band for 25 million dollars -- 19 million dollars above the stock's market value.
US media reports said Live Nation could suffer further losses if Madonna chooses to exercise a similar clause in her own agreement, worth 25 million.
However the 19-million-dollar loss was played down by Live Nation chief executive Michael Rapino, who said he expected the company to begin recouping its investment when U2 resumed touring in 2009.
"Madonna and U2 are the only two deals that did contain this provision," Rapino was quoted as saying by the Wall Street Journal. "The Madonna business is great, and we look forward to monetizing our investment in U2 next year."
Analysts say the rocky US stockmarket and the experience with U2 may persuade Live Nation to refrain from including "put provisions" or buybacks in future contracts.
"It's smart for Live Nation to include equity but they shouldn't include puts like this anymore, obviously," David Joyce, an analyst at Miller Tabak Roberts Securities, was quoted as saying by Forbes.com.
Mark Goldstein, a professor of the music industry at the University of Southern California and a former senior vice-president at Warner Bros. Records described the string of high-profile, Live Nation deals as "almost about appearances than about the economic realities."
The desire to lure A-list talent reflected an acknowledgement that previous business models were becoming obsolete, Goldstein said.
"There was a tacit acknowledgement that the business was becoming dysfunctional and that there was a need to go in a new direction," Goldstein told AFP.
"In order for Live Nation to position itself as the avatar of the future they had to make deals with the big artists so that they could proclaim 'This is what we're doing, we're out here making things happen. We're solvent enough, we're competent enough, we know we can make this work.'"
"The U2 deal was always a little crazy to begin with, and I think even the Madonna deal was pushing it a tad. But I think it's because it's not about the immediate economics, it's about positioning themselves for the future."
Copyright 2008  AFP American Edition
