Defending Madonna's $100 million deal

Live Nation responds to critics who say the giant concert promoter paid way too much for the material girl, reports Fortune's Paul Sloan.

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By Paul Sloan, Fortune senior writer

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Live Nation execs say investors haven't grasped what their $100 million deal with Madonna (above) is really about.

(Fortune) -- Ever since Live Nation, the giant concert promoter, announced a sweeping 10-year deal with Madonna to handle her albums, tours and merchandize, investors have worried that the company spent too much to lure the superstar away from Warner Music Group (Charts). The stock has fallen roughly 30 percent since the news came out last month.

On Thursday, CEO Michael Rapino and his top executives defended the deal before investors and analysts gathered at the Fillmore New York at Irving Plaza, one of Live Nation's venues.

Judging from the immediate reaction -- the stock closed down slightly Friday -- the Street isn't yet convinced.

The execs didn't offer up exact figures of the deal -- citing a confidentiality agreement with the material girl -- but people familiar with it estimate its value at roughly $100 million for Madonna.

Live Nation (Charts) paid Madonna $25 million in stock as an advance. In addition, according to a person familiar with the terms, Madonna received about $25 million in cash, although Rapino wouldn't confirm this. For each dollar that that comes in, Los Angeles-based Live Nation gets a share and Madonna gets a share that counts against her advance.

Michael Cohl, who runs Live Nation's Artist Nation division and helped broker the contract with Madonna, described the deal as pure partnership and said that any money after that is a basic revenue share, although the splits vary depending on the products. The problem, he said, is that people are viewing the deal as if it's a record deal -- and everyone knows the record business is suffering.

Instead, he said, investors need to realize that the rights deal will be "cross collateralized" across dozens of products -- ticket sales, DVDs, books, t-shirts, clothing lines, streaming videos, private concerts. "Anything you can think of we can do," said Cohl, who runs tours for the Rolling Stones, among other acts.

"Make no mistake," said Rapino. "We are not getting into the record business. We are not building a system to sell 6-inch discs....We're a marketing and distribution company."

Record labels have big infrastructures around the world to get CDs into stores, but Rapino argues he doesn't need that.

He likes to point to the deal the Eagles just did to sell its 2-disc set exclusively through Wal-Mart (Charts, Fortune 500), without having to give a cut to a label. They sold 700,000 in the first week. Whether its Wal-Mart or Starbucks (Charts, Fortune 500) or Victoria's Secret, Rapino said plenty of companies are eager to cut deals to distribute albums.

"Corporate America couldn't be more excited about the demise of the record companies," he said. To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.