Live Nation : 360 Deals

Media companies are now taking over for some of the biggest artists in the music business, in new ways that amount to near ownership of the artists and their images. Live nation, a company that was previously owned by Clear Channel Communications, has signed major stars in the last two months, including Madonna, U2, and Jay Z. Just as Clear Channel Communications was bent on world domination of radio content, Live Nation seems determined to take over the rest of the information, appearances, and merchandise that fans and music consumers can get from and on the biggest stars in the business. Live Nation is engaging in what are called "360 degree deals" which essentially means that Live Nation takes control of negotiating everything from the concert venues where artists will appear, to what negotiating everything from the concert venues where artists will appear, to what television shows their music will appear on, to what types of products will bear on artist's name. It seems somewhat odd that some of the nation's biggest superstars, who spent so much time carefully crafting their images, and engaging in brilliant efforts at marketing themselves, would turn over the reins to a company that is concerned only with earning money from those images. What is unclear is what impact such deals will have on up-and-coming artists. For now, the focus is on whether or not the deals that these industry giants have signed, and whether they are worth it to Live Nation. Larry Bills of Bizmology argues that the deals are smart for Live Nation, while Peter Kafka of Silicon Alley Insider says that the Madonna deal in particular is a money-losing proposition for Live Nation, I offer my interpretations of Bills and Kafka's articles below and also on the author's blogs.

Live Nation is Singing a Bold Tune in the Music Biz:
Comment:
First of all, you have provided some strong analysis of the recording industry, including your explanation that a company in the music industry cannot survive off a single revenue stream. That is, simply promoting concerts or selling CDs is not something that will keep a company afloat anymore. So, from that perspective, your praise of Live Nation makes sense. However, you commented that Clear Channel's dominance in the radio field has led to the promotion of a lot of bad music. No arguments from me there. But what does not make a lot of sense is why one instance you think that heavy-handed corporate control of an allegedly artistic pursuit or medium is bad, but in the other it is acceptable. Granted, Madonna, U2, and Jay Z have already established themselves and have the clout to retain creative control. But what about new artists that might be pushed into a 360 model, only to find themselves cranking out product to serve the needs of Live Nation? How is that going to lead to anything other than more bland music and manufactured "artists"? Your interest in the business end of it and your contention that 360 deals are the way of the future is a valid argument to make, in terms of the need for the music industry to make money in the current market. However, one imagines that if Madonna, U2, or Jay Z had been operating under 360 degree deals from the start, rather than from a position of power, they would hardly have the power and recognition that they currently enjoy. Rather, they would be like the one-hit-wonders that you complained about in a market where the bottom line is first, and artistic development second.

Live Nation's 120 million Bet: Breaking Down Madonna Deal
Comment:
Thank you for your comments in this issue. You take a straightforward approach to the Madonna deal with Live Nation, questioning is that is potentially a money-loser, as Madonna makes a great deal of money up front, and has minimal obligations under the contract. One imagines that Live Nation has constructed a deal that requires such things, but you point out that even so, albums will still lose money under the terms of the deal. Live Nation could still attempt to make money by landing Madonna songs on every single television show and movie that is produced in the next decade, and by selling Madonna perfume, but the money involved there is not likely to be enough to cover the money that Live Nation paid up front already. What seems to me to be the real impetus behind Live Nation signing deal with Madonna, though, is the ability to sucker new artists into similar deals (but which terms much more favorable to Live Nation) by telling up-and-comers that all the big name stars are in 360 deals contracts. Madonna is essentially immune from Live Nation's efforts at control, but young talent, eager for a shot at the big time, may be too willing to jump at the chance to turn over a huge chunk of their tour money to Live Nation, just to open up for a much bigger, more established band. Live Nation may simply be taking a bath on the Madonna deal to, as you point out, try to snow investors, and gain more control over the music business.

Movie Industry : Relocating American movies elsewhere

The advent of globalization opens the door for Hollywood major studios to relocate film production overseas, and the trend is accelerating exponentially. This suggests that in terms of production cost, the competitive advantage of American film industry is waning. According to the Directors Guild of America and Screen Actors Guild, a U.S runaway production which is filmed in another country is to achieve lower production costs. The average American film production cost ranges from $90 to $100 million. As cost reduction becomes imperative, major producers choose to shoot their films in a country that offers lower production cost. Based on report by Center for Entertainment Industry Data and Research in 2006, the number of theatrical releases filmed in the U.S dropped from 127 in 1998 to 99 in 2005. From these statistical figures, it is suggestible that for many reasons, the domestic film industry has lost its competitive advantage to other countries.

It is proven that shooting overseas significantly reduces production costs. The Canadian government's program of tax rebates and incentives, combined with lower production costs and a favorable exchange rate, can reduce a film's budget by about 25%. China is another emerging site for U.S Runaway production. Quentin Tarantino's Kill Bill was shot in China, while Miramax filmed one of its World War II picture on the Shanghai Film Studios. The production cost in China was one-eight of the estimated U.S production cost. Therefore, from the amount of production cost saving, foreign film industry has the better competitive advantage. Subsequently, it is necessary to examine the negative impact of a U.S runaway production in terms of financial and job losses. In 2005, the U.S market share of production dollars on theatrical releases "plummeted" from 71% in 1998 to 47% and the decrease in U.S production of theatrical releases represents a cumulative loss to the U.S economy of $23 billion. In terms of job losses, according to Monitor Report, in 1998 more than 20000 full time jobs in film industry were lost. These figures indicate that due to the decline on f its competitive advantage, a significant segment of American film industry suffers. The economic causes behind a runaway production range from lower wage rate, lower rental rates for sound stages and equipment, advantageous foreign exchange rates, governmental tax incentive and subsidies. The most obvious competitive advantage of the foreign film industry is the cheap labor cost. For example, the minimum weekly salary of an assistant director in Canada is $2,927, while in the U.S it is $3,285. In Romania, labor cost can be 80% cheaper than American labor. According to one film executive, a driver working on a movie in LA can earn as much as $470 a day, while in Bucharest the daily rate for the same job may be as low as as $9.52. Moreover, the competitive advantage of foreign countries is beyond just providing the daily crews of the film production. For example, a number of Indian companies were hired to work on the visual effects and animation shots for major Hollywood productions like Spiderman 3, Cars, and Lord of the Rings. The total cost in the U.S is estimated to be $100 million to $175 million, while in India it ranges from $15 million to $25 million.

It is undeniable that the mass exodus of Hollywood production in a foreign land suggests that the American film industry cannot manufacture goods and services that can compete with the global standard. Whether it is the cheap labor, or the fiscal policy, it is only logical that major studios would resort to another country when it comes to production cost. However, it is important to note that the complexity of a film industry goes beyond mere production cost. The creative force behind the film, the state of the art technology needed to produce a movie that would mesmerize the audiences, the capital availability to spend $200 million on a single film, and its global distribution network and publicity machinery that can get its movies into theaters worldwide, all suggests that the competitive advantage of American film industry as whole remains unchallenged. In fact, shooting overseas for the sake of cost reduction only proves that the people of the highest rank in the industry know how to capitalize the opportunity offered by globalization. Runaway production is just one example of how Hollywood capitalizes global force at the expense of its domestic industry. The incorporation of global cinematic style through the use of international directors, choreographers, and actors, and the remake of best-selling foreign movies, also saliently exemplifies Hollywood's competitive advantage as a giant industry that has the capability to capitalize globalization. As the advent of runaway production suggests that one element of American film industry is waning, it is ultimately done for the sake of expanding its global hegemony.