It appears that pop star Madonna is leaving Warner Music Group (WMG) for concert promoter Live Nation (LYV). The price tag is $120 million for 10 years. Live Nation will pay part in cash and part in stock, according to The Wall Street Journal. Under the arrangement, Live Nation will have" rights to sell three studio albums, promote concert tours, sell merchandise and license her name."
Some industry experts believe that each album would have to sell 15 million copies for LYV to get its money back. Lining up sponsors for events and tours could offset some of that.
WMG put on a brave face, but no one should be fooled. One large shareholder of Warner said he was fine with losing Madonna because the cost of keeping her may have been too high.
But, Warner should have gone the extra mile. There are only so many battles that the music company can afford to lose now. Its stock has fallen from $30 last June to under $10 late last month. The shares now change hands for $11.29.
The consumer move from CDs to music downloads is slowly killing Warner. It does not keep as much of a digital dollar as it does from a CD. And, each quarter a larger number of its customers move to platforms like the Apple (AAPL) iPod. Piracy has also eroded earnings.
Having a few big artists with enough star power to let Warner bring in money for sponsorships and merchandise will be critical to the company’s future. It can’t afford to let Madonna go no matter what it costs to keep her.
Douglas A. McIntyre