Artist Nation Is Born

Live Nation’s signing of an all-encompassing deal with Madonna worth an estimated $120 million was old news by the time it was officially announced October 16th. But buried in the hoopla that comes with all things Maddy is the simultaneous unveiling of the backbone of the deal.

The 360-degree deal is a first of this scale in the industry, but Live Nation is seeing to it that it won’t be the last with the creation of Artist Nation, a new global division under the stewardship of Michael Cohl.

Madonna’s signing provides a blockbuster showcase for the initiative that has been bandied about for some months but for which few details were known.

While everyone else was talking about Maddy, industry watchers were wrapping their heads around the deal’s structure – which Live Nation CEO Michael Rapino and his team clearly believe is a revolutionary model of unified rights management for recording artists in a post-label environment.

Artist Nation will partner directly with artists to manage their rights, build fan bases and tap into a massive consumer database of consumers to form direct marketing relationships with fans – which in turn help grow the revenue streams that recoup the upfront cost of Madonna-sized contracts under the program.

For example, Madonna’s deal calls for her to be paid roughly $120 million over 10 years, while Live Nation recoups the cost of the contract through sales of tickets, merch, concert films and DVDs, digital distribution of Madonna’s post-Warner Bros. Records output and other ancillary revenues.

Essentially, Madonna gets her $12 million per year, while Live Nation has to earn the rest, Rapino told CNBC’s "Fast Money" cable TV financial program. And that’s where Artist Nation comes in to service the deal.

Cohl, who has longstanding relationships with many of the world’s biggest-selling touring artists including The Rolling Stones, becomes chairman and CEO of the new division.

"Artist Nation works for the direct benefit of the artist to better market their music across all their diverse businesses to extend their fan base," Cohl said in a statement. "Our company can leverage Live Nation’s many assets in order to help artists reach their fullest potential and deliver the ultimate experience to the fan. … In order to execute this, Artist Nation has put together a superstar team in every area of the music chain."

Artist Nation, headquartered in Miami, has a streamlined structure and employs more than 300 staff worldwide to work with more than 500 artists. It comprises five divisions: recorded music, merchandise, fan sites and ticketing, broadcast/media rights, and sponsorship and marketing.

New acquisitions, including that of Anthill Trading as announced October 17th, continue to bolster the company’s merchandising infrastructure that includes Trunk Ltd. and MusicToday.

In the ticketing division, Ultrastar and MusicToday provide the umbrella for artist fan clubs and Web sites including those for The Rolling Stones, The Police, Dave Matthews Band, Kenny Chesney and hundreds more.

Under broadcasting and media rights services, Artist Nation provides artists the means to produce and distribute live audiovisual projects through in-house studios capable of producing not only live concert CDs and DVDs, but delivering them to 3G mobile phones. Live Nation studios have already delivered more than 1,000 such recordings and 250,000 downloads.

Artist Nation’s media rights division will develop and contract rights in all forms of distribution, including television, home video, Internet, mobile, radio, digital cinema and other emerging channels, according to Live Nation.

In terms of sponsorships and marketing, Artist Nation’s alliances group offers long-term partnership programs with Live Nation’s existing local and national sponsorship groups and more than 200 salespeople.

It also provides a Tour Design component that offers audio and visual production, post production, international design and development, graphic design, and marketing and creative services.

So, while Madonna brings home a nice annual "salary," she’s also able to take advantage of a full-service, in-house enterprise and control the rights to her future through the Artist Nation initiative – and make a little scratch for Live Nation while she’s at it.

In fact, Live Nation expects the Madonna deal on its own to generate a "financially sound" return for shareholders and spark growth by attracting other artists as the marriage "unlocks the value of the ‘Madonna Music Business,’" according to the statement.

The agreement, inked on October 11th, also makes Madonna a major Live Nation shareholder. In addition to the global deal, Maddy will receive more than 1.17 million shares of Live Nation stock worth an estimated $25 million and an $18 million signing bonus.

"Madonna is a true icon and maverick as an artist and in business," Rapino said in a statement. "Our partnership is a defining moment in music history. I am thrilled that Madonna, who is now a shareholder in our company, has joined with us to create a new business model for our industry.

"Bringing all the varied elements of Madonna’s stunning music career into the Artist Nation and Live Nation family moves her future and the future of our company into a unique and extraordinary place."

Given the longevity of popular music’s biggest stars, from Sinatra to the Stones, Rapino believes Madonna will provide return for shareholders for years to come, as the deal lasts well into the diva’s AARP years.

"Sinatra was still selling out concerts in his 80s," Rapino said during a conference call, and reiterated to CNBC.

And Rapino threw down something of a gauntlet when asked if the Artist Nation model is intended to challenge traditional record labels.

"Absolutely. The concert is now moving to the middle of the circle for the artist. The artist is now looking for the live show and everything that can be done around the live show," he told the cable TV financial program.

"We believe that the Madonna fan who is buying a $200 concert ticket is in our database and we have a direct relationship with them. We think we can sell them a 99 cent download, or a $14 [record] or a $22 T-shirt. The ticket is now the center of the transaction."

It’s not an idle boast. With control of e-commerce and digital distribution, Live Nation is able to corral a huge database of information about every fan who buys a ticket or T-shirt, which potentially means having the fans’ undivided attention when there is music, DVDs, exclusive content or even ringtones to be sold.

The announcement signals the beginning of the end of Madonna’s long relationship with Warner Music Group, to which she reportedly owes one greatest hits and one studio album on her current contract.

After that, Madonna belongs to Live Nation lock, stock and barrel – save for her valuable catalog, as WMG reminded them in a terse statement.

"We congratulate Madonna on her future plans. She is one of the remarkable artists of our time," the statement said. "We are also honored to own her catalog of recordings from the past 25 years, as well as to manage her library of songs for an extended period of time.

"From all of us at Warner Music Group, we thank Madonna for a valued and enduring partnership."