Resnikoff’s Parting Shot: Behemoths in the Vacuum

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Once upon a time, consumers started a dramatic shift in the way they discovered, acquired, and accessed media.

In the music realm, albums shifted to discrete downloads, release dates shifted to now, and prices shifted to zero.  And all across the land, a vacuum started to form, and a battle emerged for the next-generation music industry.

For those tied directly to recordings, this is anything but a rosy fairy tale.  For everyone else, this story is still in its early chapters, and full of lucrative possibilities.  And for well-funded, well-placed companies like Live Nation, the opportunities couldn’t be any richer.

Major labels are losing ground at an unprecedented rate, and on a number of levels.  The CD album is receding, and bread-and-butter superstars are searching for an entirely different lily pad.  MVPs are plotting or executing post-label career moves, and younger artists are considering do-it-yourself options.

In that void, a number of entrants are rattling.  And so far, Live Nation has the most convincing story.

Starbucks started a label, and signed Paul McCartney, Joni Mitchell, and other heritage acts.  They struck an alliance with Apple, intensified their commitment to music, and deepened their consumer relationships in the process.  This is a story that has been growing for years, and Starbucks is playing an increasingly influential role in the music industry as a result.

But Starbucks is heavily invested in the recording, an asset that continues to erode in value.  McCartney barely crossed gold on Memory Almost Full, despite an unprecedented global push and undivided executive attention.

Of course, any judgments are premature, and this is a strategy that keeps unfolding.  But is Starbucks invested too heavily in a commodity that is slipping towards zero?

Then again, Starbucks is mostly invested in coffee, and the experience that surrounds the bean.  Sure, anyone can brew Juan Valdez at home.  But at Starbucks, conversation, community, and even culture awaits.

Still, Starbucks Entertainment president Ken Lombard wants a profitable music venture.  After all, why lose money?  But his higher calling is the carefully-crafted Starbucks environment, something that translates into deep loyalty, frequent visits, and bedrock revenues.  The experience is king, and that ultimately puts the artist second, and limits the role that Starbucks will play in the next-generation music business.

The Live Nation proposition is much broader, and carries far more potential.  Of course, the company is heavily invested in touring, and that predictably skews its focus towards the gig.  But Live Nation – through its newly-minted Artist Nation division – wants a much, much bigger piece of this pie.  And Madonna is the insanely rich guinea pig to prove the model.

Starbucks will sell you a McCartney disc.  They will give you a free download, and donate their WiFi to affluent iPhone users.  They will introduce you to interesting music as you chat over a mocha latte.  They will make themselves relevant in your mind, and warm the path for your return.

Live Nation will bring the Madonna circus to your town, dazzle you with an impossible ticket, and dominate local headlines.  At the show, they will sell you a CD, DVD, t-shirt, soft drink, pretzel, and a VIP parking spot.  After the show, they will cultivate a relationship with you online, they will lure you into a universe of recordings, merchandise, and digital downloads. And they will arrange these assets around an experience that cannot be downloaded, time-shifted, or duplicated.

Of course, the concept has to be scalable.  And very few artists can pack arenas the way Madonna can.  But Live Nation will sign other artists, and eventually develop new ones.  Artist Nation is but an infant, but this is a company that has the potential to develop a well-functioning, well-diversified music business model that generates serious revenues.  With or without significant profits from the recording itself.

Others will get into this game.  Rival AEG is one obvious possibility, but live performance is only one starting point.  Other media giants will leverage a strong footprint in one area to launch a more diversified music entrance.  Labels will also continue to push towards diversification, though their survival is anything but guaranteed.

Competition will intensify as this business changes, and artists – especially superstars – will be pulled into promising, well-funded models.  Of course, that is great for an elite class of bigger names, but more confusing for up-and-comers.  In the old days, artists pushed for major label recording deals and hoped for longevity.  Now, who knows what the best path is – perhaps creating great music and developing a meaningful fanbase are the only things that make sense today.

And this will take years and years to settle out.  Sure, Live Nation is poised to become a power-player in the next-generation music industry.  But this is still anyone’s game, and other behemoths are still plotting their entrances.   And fueling it all is an ever-increasing appetite for music, and tantalizing riches for anyone who can monetize it.

Paul Resnikoff, Editor.