Resnikoff’s Parting Shot: Madonna’s New Bank

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Is Madonna really worth $120 million?

Perhaps the diva is showing some wear-and-tear, but this superstar can still deliver big singles and drive ticket prices into the thousands.  Remember the Confessions Tour of last year?  A ticket was worth its weight in platinum – and receipts nearly topped $200 million.  In fact, it was the highest-grossing tour by a female artist in history.

In that light, the nosebleed valuations attached to the Live Nation deal seem sensible.  Of course, Madonna has difficulty matching earlier album sales totals, but the recording is a far smaller piece of this pie – and this era, for that matter.

When Madonna releases her next album on Warner, the revenues will likely be lukewarm.  And even if the music is amazing and fans get excited, most of the energy will spill over into other areas.  Some will bite and make a purchase, but most will download for free.

But you can’t download a live concert – at least the real, in-the-flesh experience.  Maybe you can hop onto BitTorrent and grab some amazing concert footage.  Or even purchase a live performance album release.  But what is your girlfriend (or boyfriend, bff, sibling, spouse, child, etc.) going to get more excited about – a video download, or a real ticket to a real show?

One can be duplicated, viewed on-demand, and buried within a massive iTunes library.  The other is a one-time, once-in-a-lifetime opportunity.  Labels are now specialized in producing assets that can be reproduced instantly and infinitely.  They are also specialized in an asset that is increasingly generating excitement for other assets they do not control.

Live Nation makes its money off of something that can never be duplicated.  And that is why they can afford the elephantine deal terms to lure Madonna.

Sure, the live performance sector has its own issues.  Bob Lefsetz is right – there are only so many Madonnas, Bruce Springsteens, and Rolling Stones left in the chamber.  And major labels are having difficulty creating newer, larger-than-life superstars, much less icons.  At some point, the heavy-hitting, arena-packing ammunition runs out.  But Madonna is clearly a big bullet, even at 50.

So what about Warner?  You may say that this is just a symbolic loss, that sinking hundreds of millions to save a superstar would be ludicrous.  After all, how many limbs does this label really have to sacrifice?

Financially, retaining Madonna would be foolish.  But symbolism is what top executives like Edgar Bronfman, Jr. have spun so well in the past.  Now, the market is over it.  WMG is bumbling above $10 per share – and often beneath it – thanks to a deflated story of digital replacement and rebounding recordings.

Symbolic or not, majors are having difficulty keeping their MVPs – unless gargantuan, upfront sums are promised.  Linkin Park may prefer that ATM, but Madonna is hitting another bank.  Others, including Radiohead, Trent Reznor, and Pearl Jam, are starting their own institutions.

Wall Street was yawning Thursday following news of the deal.  Shares of WMG remained mostly unchanged, dropping 1.42 percent to $11.13, while LYV slipped 3.72 percent to $22.49.

Part of the reason is that industry executives and investors have known about this deal since the summer.  Ironically, authors like Wall Street Journal staffer Ethan Smith have been monitoring the blogosphere on this one for months – a newfound short-cut on investigatory traditions of old.  But that is another story, and another industry battling its own disruptive demons.

Back to Warner, a bigger source of boredom is dogging investors.  Once upon a time, the recording industry seemed like it was weathering the storm.  And the story made sense.  The iTunes Music Store was a savior, file-sharing was a temporary problem, and the slip in CD sales was manageable – and replaceable digitally.

But since IPOing Warner Music Group in May, 2005, the team of Bronfman & Co. have had difficulty propping that tale.  Or, perhaps reality simply disagreed with more optimistic forecasts.  Barreling into the fourth quarter of 2007, CD sales are in a tailspin, superstar artists are not renewing, and iPods – not iTunes downloads – are making breadwinning profits.  Investors, meanwhile, are pursuing more convincing stories.

Still, recordings are yielding billions in annual revenues, despite the absence of a growth picture.  That raises the question – can this sector survive in any meaningful way?

Sure, competing with zero is a losing proposition.  But during the short history of digital music, most paid assets have been overpriced, incompatible, and unavailable.  Maybe consumers would have been willing to pay for their now-behemoth collections.  But they simply lacked a hassle-free, affordable option.

In late 2007, the question is whether the sector can ever recover, or if recordings are doomed to become marginal revenue generators – and lead-ins for more lucrative areas like touring.  For now, the sentiment is that the music industry is rapidly shifting away from the recording as a controllable – and moneymaking – asset.  And without truly diversified platforms, that makes it incredibly difficult for labels like Warner to attract – and retain – important artists like Madonna.

Paul Resnikoff, Editor.