Stephen Foley: Warner and Live Nation: The all-singing and all-dancing music group?
US Outlook : The overlap, in terms of promotional activity for stars, is enormous, which means the cost savings ought to outstrip the other bids on the table
Saturday 02 April 2011
Of all the rumoured bids for Warner Music, the record label group which put itself up for sale in January, Live Nation Entertainment's is the one that really might blaze a trail for the music industry.
Where pop stars used to have one company to promote their concerts, another to manage their merchandising deals and a record label to produce and promote their music, these days they are encouraged to sign "360-degree deals" with partners that combine all these. Live Nation plus Warner Music could be the first "360-degree company".
The logic is not hard to follow. Since broadband internet rendered music free to anyone with file-sharing software, artists have to hawk their music for use in commercials and spend ever more time on the road to earn a crust. The recorded music is the loss-leader that gets their fans through the concert venue doors.
In search of new revenues, Warner, whose roster of artists include James Blunt and Bruno Mars, has been pursuing 360-degree deals. More than half its artists now tap Warner to negotiate sponsorships, ticketing deals, and so on.
Meanwhile, Live Nation, which began life as a concert promoter, was the pioneer of those 360-degree deals, although it sullied its reputation by overpaying to tempt stars such as Jay-Z to ditch their traditional record labels. It is also one of the world's most powerful artist management companies, thanks to its chairman, the impressario Irving Azoff, whose charges include Christina Aguilera and Josh Groban. And Mr Azoff has experience running record labels.
The overlap, in terms of promotional activity for stars, is enormous – which means the cost savings ought to outstrip the other viable options on the table.
There are a few snags, though, not least of which is Live Nation's weak financial position. Highly indebted, it may struggle to match attractive cash bids for Warner from private equity. It also may have to team up with a partner who wants control of Warner's music publishing business.
Then there is the competition question. Combining artist management, concert promotion and recorded music is all very well, but Live Nation owns concert venues around the world – and the ubiquitous ticketing system Ticketmaster. Anti-trust authorities in the US and the UK almost blocked the acquisition of Ticketmaster last year; the purchase of a record label would surely generate another expensive regulatory review.
Still, music industry logic persists. If not this deal, then perhaps Live Nation might consider selling Mr Azoff's artist management arm to a group such as Universal or Sony – or even, down the road, to a combined Warner-EMI. That would be a 180-degree turn, for sure, but these are dizzying times.
Economic madness could become reality
A very bad idea is back. The idea is to amend the United States Constitution to mandate a balanced federal budget. Tax income and government spending will have to match from now on, so there will be no more credit card spending for which the nation's children will have to pick up the tab.
That's the populist refrain from the Republican Party's 47 Senators, all of whom are co-sponsoring the plan. But a balanced budget amendment is terrible economics. It effectively means an end to counter-cyclical fiscal policy: when a recession strikes, the federal government would not be able to stimulate the economy by spending more. Instead, it must cut back at the same time householders and businesses are doing the same, making the recession worse. It could condemn the US to a perpetual recession, a depression even.
The ability to fight a recession with federal spending is crucial because there are so few alternative tools. Balanced budget rules are in place in most US states. In the most recent recession, enforced austerity at the state level cancelled out most of the economic stimulus introduced by Congress, and spending cuts continue to contribute to high unemployment.
As if the idea is not bad enough, the Republicans have laced their current proposal with more poisonous pills, such as a ban on spending more than 18 per cent of GDP – below the historical norm – and a provision that will make it harder to raise the national debt ceiling. They do allow automatic exemptions to a balanced budget for war spending, but not for economic firefighting. In other times, Congress would need an unlikely two-thirds majority to override the balanced budget rule.
As it is such terrible economics, the tendency has been to assume it cannot pass. It is hard, after all, to amend the Constitution. Even Republican leaders admit the idea is as much about political posturing as it is about seriously tackling the US's long-term debt crisis. When they vote, as they must, to raise the federal government debt ceiling to avert a catastrophic default by the US, they want to be able to point to other measures to rein in spending.
I would very strongly warn against complacency. Grassroots organisations have been lined up to agitate in support of the plan; Republican governors, including at least two potential presidential candidates, have written in support in the past few days. It could easily become a touchstone issue for next year's elections, with moderate Democrats not wanting to be seen as weak on cutting the deficit.
Also, a similar proposal came within a single vote of passing Congress in 1995, when public fears over the deficit were high but not nearly as high as they are today.
None of this is to argue that Congress does not need to bring the budget back into balance this economic cycle, or to tackle problems such as spiralling healthcare costs. But these huge, vital tasks require a subtlety and courage that hasn't been on show this week.
Say no to blunt instruments.
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