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Wednesday, January 11, 2006

Metal Rockers & Business Structures

In the early 1990s, Korn was known for its blending of heavily metal and alternative into a form of music referred to as nu-metal.  In this century, Korn may be known for a different kind of blending -- namely, a blending of band, promoter, and record label into a new partnership structure.  The N.Y. Times reports that Korn has agreed to share a percentage of its box office, licensing, publishing, merchandise and CD revenue with the music promoter Live Nation in exchange for a payment of roughly $3 million.  In a related deal, the record label EMI paid Korn $25 million upfront for a larger stake in the band's future revenues.  The deals were brokered by the Firm, Korn's management company.  (A recent article about the Firm's fortunes is here.)

This development is another example of new investment vehicles for musicians and other entertainers.  (Larry Ribstein blogged about "Bowie bonds" here.)  The immediate ramifications are unclear.  One promoter believes the deal is simply "a way for the promoter to attempt to monopolize the live entertainment industry and cut out competitors."  Jeff Kwatinetz at the Firm believes the deal has taken "the biggest promoter and one of the biggest record labels and incentivized them to think long term and to think career about our band."  But there also seems to be the possibility that large payments may reduce the artists' incentives; EMI apparently paid the $25 million up front.

Artists have long accused the music industry of taking advantage of them -- Courtney Love sued to get out of her record deal, and Prince scrawled "Slave" on his face during a dispute with Warner Records.  Perhaps this deal between Korn, its label, and its promoter signals a new era of more creative relationships between musicians and the businesses that facilitate their art.

Posted by Matt Bodie on January 11, 2006 at 06:06 PM in Corporate | Permalink


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Did Warner make money on the $80 million REM deal?According to Wikipedia, the band's three albums under the $80m deal have cumulatively sold nine million copies. I don't know what a good average figure to put on price would be, but if you call if $15 per unit, that's $135,000,000 of gross revenue; now, I don't know how much of each sale is actually involved in the recording, production and manufacturing costs, but I'd be willing to bet that if Warner have made money on the deal, they've not made anything like as much as they expected to.

Posted by: Simon | Jan 12, 2006 11:07:09 PM

Well, you might also sell shares in your company just to diversify your risk. My question is: what sort of risk is EMI diversifying? EMI apparently believes that non-recording-related income may be a larger portion of the pie in the future. But as Simon suggests, this may be a situation of a record label throwing money at an established name whose best days may be behind them. Did Warner make money on the $80 million REM deal?

Posted by: Matt Bodie | Jan 12, 2006 10:43:35 AM

While it is hard to imagine anything in which I have less interest than the lastest yawn-inducing musical fad, this doesn't really sound like a new, innovative musical partnership. It sounds more to me as if the band have a serious cash-on-hand crisis and are selling the kitchen sink to resolve it. I mean, if you genuinely believe you have a valuable commodity, why would you diminsh your future returns on it in return for one-off payments? Isn't that the principal premise for selling shares in your company - you do it not because you want to divest yourself of future profits, but because you need immediate capital?

Posted by: Simon | Jan 11, 2006 8:33:06 PM


Robbie Williams's deal with EMI in 2002 predates Korn's by several years, and it sounds from the Times article as though Korn had already struck a similar deal with EMI that presumably the new deal works in conjunction with. According to a Billboard report from 10/19/2002 on Williams's deal, on top of the traditional advance-for-future-recordings part:

EMI has also invested in a start-up company with Williams whereby the major will take a share of other revenue the 28-year-old earns. Wadsworth explains: "The deal allows us to benefit from income streams outside of purely recorded music sales." Those other streams, he adds, include "touring, merchandising, and sponsorship" and songwriting. Williams has a publishing deal with BMG, but Wadsworth says that EMI "will also share in that income."

Viewed together, these two deals (major record label/ major promoter) demonstrate that at least at the top of the music industry food chain, artists and large institutions can work together quite well, though it's not clear that wasn't typically the case anyway. (I'm not sure Courtney Love and Prince are typical of much, really, and Prince more than Courtney Love had established some track record of record sales.) By the time an artist has proven successful enough over the life of one contract to warrant a second, the artist has often acheived an incredibly strong bargaining position. Korn is clearly at that stage; Robbie Williams, because of his boy-band success, was perhaps less so but for whatever reason EMI considered it worthwhile to make that investment.

But the bottom of the food chain, where one-sided contracts (which may or may not be defensible given the amount of capital a label or some other entity, such as a personal manager, might be investing in the artist) arise more frequently, is not likely to be affected by this unless artists are able to bypass the institutions that might exploit them. The Korn deal seems like a creative, enlightened practice intended to rationalize current practices. Direct to consumer distribution and promotion via artist-owned and -operated labels and websites seems far more radical.

And ground control to Professor Ribstein: I'm not sure when Bowie became a full-on capitalist pig (I'll leave that to his ample fan base to parse), but it's been at least a couple of decades.

Posted by: Mark Fenster | Jan 11, 2006 7:45:20 PM

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