Was Bono's back the straw that broke Live Nation?

Billionaire chairman Barry Diller quits as concert revenues slump

Madonna, Jay-Z and U2 hailed it as the saviour of the music industry. Desperate investors hoped it would prove you could still make money in an era of rampant music piracy. Concert-goers might have winced at soaring ticket prices, but it seemed they would continue to flock to its venues. A cadre of the most powerful moguls in entertainment dreamed of recasting the industry and making a fortune.

But something has gone terribly wrong at Live Nation, and clashing egos and boardroom ructions have burst on to the public stage with all the pyrotechnics of a Lady Gaga concert. With ticket sales slumping, and the share price down 40 per cent in a matter of months, executives are feuding about what to do with a global company whose business covers everything from promoting tours, running concert venues, and managing artists to putting out records and selling tickets.

Barry Diller, a veteran entertainment industry executive (whose pay totalled $1.1bn over the last decade, making him the second best-paid boss in corporate America), has quit as Live Nation's chairman, less than a year after engineering its controversial mega-merger with Ticketmaster, the concert-ticket retailer that he owned.

Madonna and Jay-Z were among the superstars lured by Live Nation into signing "360-degree deals" where the company would help them record music, organise tours and sell merchandise – the full package that artists need to make money as CD sales fall. Madonna's deal was rumoured to be in the $100m range, Jay-Z's even higher. It was a business model that would confine old-style record labels to the dustbin of history, Michael Rapino, Live Nation's founder, predicted.

Except that concert-ticket sales have taken a sudden dive, sending the company into crisis. Industry watchers say income from summer concerts is down more than 15 per cent, and Live Nation itself was forced to admit it would miss its profit forecasts. Even worse, U2 lead singer Bono had to have emergency back surgery this spring, forcing the cancellation of a world tour that would have been a guaranteed banker for the company.

Mr Diller has clashed with Mr Rapino for making what Mr Diller said were unrealistic claims about how quickly the company could turn new artists into megastars, and there has also been tension between the chairman and his long-time business associate Irving Azoff, one of the most powerful agents in the music business, whose roster of stars includes Christina Aguilera and Guns N' Roses.

Mr Diller played down rumours of boardroom rifts yesterday, while confirming his intention to relinquish the chairmanship. "I have always said, since the merger of Ticketmaster and Live Nation, that I only planned to stay as chairman through the transition and integration of the two companies. It's been almost a year and I informed the board today that while there was no rush, the board should start the process to appoint a new chairman."

Ben Mogil, a financial analyst at the investment bank Stifel Nicolaus, says the bottom line is that artists are touring far too much – and Live Nation will have to take them off the road and renegotiate their deals so that future Madonnas and U2s expect less money upfront.