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Jay-Z Deal Offers New Model for Music Sales
Jay-Z Deal Offers New Model for Music Sales
By JEFF LEEDS
April 2, 2008
Superstar rapper Jay-Z is on the verge of closing a $150 million deal with with the concert giant Live Nation that rivals the biggest music contracts ever awarded.
In Rapper’s $150 Million Deal, New Model for Ailing Business
LOS ANGELES — In a move that reflects the anarchy sweeping the music business, the superstar rapper Jay-Z, who released his latest album to lukewarm sales five months ago, is on the verge of closing a deal with a concert promoter that rivals the biggest music contracts ever awarded.
Jay-Z plans to depart his longtime record label, Def Jam, for a roughly $150 million package with the concert giant Live Nation that includes financing for his own entertainment venture, in addition to recordings and tours for the next decade. The pact, expected to be finalized this week, is the most expansive deal yet from Live Nation, which has angled to compete directly with the industry’s established music labels in a scrum over the rights to distribute recordings, sell concert tickets, market merchandise and control other aspects of artists’ careers.
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. Live Nation has already struck less comprehensive pacts with Madonna and U2.
In Jay-Z, Live Nation has lined up with a longtime star who, after toiling as a self-described hustler on the streets of Brooklyn, earned acclaim as a rapper and cachet as a mogul.
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. (Last year’s “American Gangster” sold one million copies in the United States; “The Black Album,” from 2003, sold well over three million.)
But the 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.
Jay-Z, 38, whose real name is Shawn Carter, owes one more studio album to Def Jam, where he was president for three years before stepping down in December after he and the label’s corporate parent, Universal Music Group, could not agree on a more lucrative contract.
His first undertaking with Live Nation is his current 28-date tour with Mary J. Blige, his biggest live outing in more than three years. After that, Live Nation envisions integrating the marketing of all Jay-Z’s entertainment endeavors, including recordings, tours and endorsements.
“I’ve turned into the Rolling Stones of hip-hop,” Jay-Z said in a recent telephone interview.
The deal answers a question that had been circling through the rap world for months: Where would Jay-Z take his next corporate role? 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.”
The popularity of music downloads has revolutionized how music is consumed, and widespread piracy has contributed to an industry meltdown in which traditional album sales — composed mostly of the two-decades-old CD format — have slumped by more than a third since 2000. (The best seller in 2007, Josh Groban’s “Noël,” sold 3.7 million copies, compared with 9.9 million for the top album in 2000, according to Nielsen SoundScan.)
That has further pressured record-label executives to 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.
Jay-Z said that his future as an artist could involve elevating the role of live performances, long a mixed bag even for popular rap acts.
“In a way I want to operate like an indie band,” he said. “Play the music on tour instead of relying on radio. Hopefully we’ll get some hits out of there and radio will pick it up, but we won’t make it with that in mind.”
Though sales for Jay-Z’s tour with Ms. Blige have been strong since it began on March 22, with almost all the early dates resulting in sold-out arenas, it is unclear when Live Nation could carry out other aspects of the deal. (Jay-Z said that he hoped to deliver his final album for Def Jam later this year.)
Critics of Live Nation, which lost nearly $12 million last year, predict that it would be difficult to turn a profit on the arrangement, given the continuing decline in record sales and the mixed track record of artist-run ventures. Shares in the company have suffered since October when Live Nation negotiated a deal with Madonna.
Michael Cohl, Live Nation’s chairman, said he was not worried. Though he declined to discuss terms of the Jay-Z arrangement, he said it did not require an increase in record sales to be profitable. “He could be doing more tours and doing great,” Mr. Cohl said. “There could be endorsements and sponsorships.” He added, “The whole is what’s important.”
He cited Jay-Z’s forays into a host of other businesses as a model for Live Nation. “What he’s done has kind of mirrored what we want to do and where we think we’re going.”
Some executives at major record labels have privately portrayed Live Nation’s artist deals as overly expensive retirement packages for stars past their prime.
Others disagree. “I’d much rather be in the business of marketing a superstar who cost me a lot of money than taking the 1-in-10, demonstrably failing crapshoot” of signing unknown talents, said Jeffrey Light, a Los Angeles entertainment attorney, referring to the traditional record company model.
But the dimensions of the competition could change if Live Nation begins vying for the same emerging artists that the labels hope to sign. Live Nation is negotiating with a Georgia rock act, the Zac Brown Band, after apparently wooing it away from an offer by Atlantic Records, according to music executives briefed on the talks.
Jay-Z, for his part, suggested that the string of stars to exit the major-label system would also signal to younger acts how to plot their careers. He said that rising artists will be thinking: “ ‘Something must be happening. Madonna did it, she’s not slow. Jay-Z, he’s not slow either.’ ”
http://www.nytimes.com/2008/04/03/a.../03jayz.html?hp
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