The end of the CD is the end of the record business. How do big companies make money off music?

First it was Madonna then it was U2, Jay Z announced that he will leave Def Jam for Live Nation. Live Nation is a company that is essentially replacing the record company. Traditionally, recording artists would make about $1 for every album sold (bigger names got a bigger piece of the pie). The rest goes back to the record company to recoup their costs for printing, shipping, promoting albums and the rest of course is profit. But what happens when people stop buying albums? Of course the downslide of record sales has been happening for years. The behemoth record store Tower Records is no longer and aside from some amazing independent chains which are seeing a resurgence since the big shops are more or less dead (aside from Wal-Mart which is selling albums and demanding a drop in price) and the record industry has become more or less impotent.

This is where Live Nation comes in. They are offering big acts huge contracts for the rights to their music, but they are also taking a big chunk of every aspect of the artists life. They are getting a piece of the tour, merchandise and other revenue generated. The NY Times reports in tomorrow’s paper (online now) that Jay Z is the newest act on board. With a $150 million deal, Live Nation becomes an even larger player in the music (not just the record) business. How long before record labels follow? Can they adjust their business model to compete in the changing market? Do they have a choice?

From the NY Times:

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 nightclub

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