In Era of Dwindling Sales, a Megadeal for Jackson’s Estate
http://www.nytimes.com/2010/03/22/business/media/22jackson.html
By JOSEPH PLAMBECK
Published: March 21, 2010
Could Michael Jackson break the music industry’s megadeal jinx?
Throughout the 1990s, as CDs flew off the shelves, record labels routinely signed big artists to multimillion-dollar recording contracts. Some of it was vanity: labels paid a premium to keep a big-name artist rather than risk a few wisecracks in the press for letting a star go to a rival.
And despite the precipitous drop in album sales in the last decade — about 50 percent fewer albums were sold in 2009 than in 2000 — major deals continued apace, often with bad endings. Mariah Carey’s five-record, $80 million deal with EMI in 2001 lasted one record before the label paid the singer $28 million to get out of the contract.
“If you went back 10 or 20 years ago, you could afford to do a deal that was a little outrageous,” said Russ H. Crupnick, a senior entertainment analyst at the NPD Group, a market research firm. A label’s midlevel acts could sell enough albums to cushion the financial blow. But as the number of platinum-selling albums has dwindled, from 179 in 2000 to 45 in 2009, the labels have little padding left.
“These days, it’s hard,” Mr. Crupnick said. “You can’t afford to be as generous as you might have just to have a name on the roster.”
Nevertheless, early last week Sony’s Columbia Epic Label Group, which worked with Michael Jackson for more than 30 years, announced a deal with the pop star’s estate worth up to $250 million, perhaps the largest in history.
Under the deal, Sony will release 10 projects — probably a combination of albums, DVDs, live theater or even a video game — by 2017. The new contract also extends Sony’s rights to Mr. Jackson’s previous recordings.
For the Jackson estate, the deal will help alleviate a large debt load, at least $300 million when he died, built over time by the artist’s unfettered spending. But for Sony, the deal appears on its face to be a big bet in a slumping music industry, particularly since the agreement gives the company the rights to his recordings, but not a cut from merchandise or publishing, and only limited rights to his likeness.
“Obviously the deal has a super headline number. What I thought I would see after that is likeness rights,” said one consultant to the music labels, who requested anonymity to protect his relationships in the industry. “I was surprised when I read that it is only about records and licensing.”
Despite the limited rights and the spotty record track record for the largest record deals, Sony is confident it will come out ahead with its Jackson contract. The company points to Mr. Jackson’s global commercial success, which is shared by only a handful of legacy acts, including Elvis Presley. The movie “Michael Jackson’s This Is It” has grossed more than $260 million globally, almost 75 percent of which came from outside the United States, according to Box Office Mojo, which tracks movie sales. In addition, more than half of the 31 million Jackson albums the company says have been sold since his death in June are from outside the United States.
And if the deal is a boon for Sony, it would be another sign that superstars — both dead and alive — still rule the industry, perhaps more than ever, despite proclamations that the Internet may help level the playing field.
Last year, Michael Jackson sold 8.3 million albums in the United States, nearly double the albums sold by the second artist in line, Taylor Swift, according to Nielsen SoundScan. The Beatles ranked third. And last week, a new album of previously unreleased tracks from Jimi Hendrix, who died in 1970, was the fourth-best selling album.
According to research conducted by Will Page, the chief economist at PRS for Music, a nonprofit royalty collection group in Britain that represents artists and music publishers, the gap between the hits and the niche is wider on online music sites than at traditional retailers.
In his look at We7, a music streaming music service in Britain, 5 percent of the millions of available tracks accounted for 90 percent of the streamed songs. In traditional stores, he said, 20 percent of the available inventory accounted for 80 percent of the sales.
What that means, Mr. Page said, is “the value placed on a proven catalog of an artist like Michael Jackson goes up, as it can stand above the increasing amount of noise in the market.”
Several executives at other major labels scoffed when asked about the deal, saying their companies had learned the lessons of the past. And if that recent past is much of a guide, an executive’s job can be at stake if results are not quickly realized after a big deal. In 2006, Andrew Lack was ousted as chief executive of Sony BMG (now Sony Music), in part for pushing through a recording deal with Bruce Springsteen that cost more than $100 million.
In 2007 and 2008, Live Nation signed a handful of artists to so-called 360 deals, in which the company takes a portion of the revenue from album sales, concerts and merchandise. Madonna and Jay-Z, for example, each signed 10-year, nine-figure deals with Live Nation.
It was not long, though, before the company backed away from signing new artists. Along the way, the company’s chairman and its biggest proponent of speeding up the signing of artists, Michael Cohl, left in 2008.
David C. Joyce, an analyst at Miller Tabak, said that he expects that the Madonna and Jay-Z deals “will turn out to be low double-digit margin returns over their 10-year lives.” But investors were wary of the deals at the time — Live Nation stock dropped sharply after the signings but has moved upward in the last year as the company stopped adding new artists and merged with Ticketmaster.
Mr. Crupnick said that Sony’s Jackson deal could be even more successful. “I think in this particular case, the deal makes quite a lot of sense, both for Sony and for the estate,” he said. “There are incredibly few artists these days who can continue to create revenue streams the way Michael Jackson can.”
The amount of new material Sony will have to work with is unclear, since the estate is still making its way through the large trove of unused material kept by Mr. Jackson. Sony says there are at least 60 unreleased songs, some of which will be used for an album that the company plans to release in November.
A DVD compilation of his music videos is also in the works, and a Cirque du Soleil show using Mr. Jackson’s music, similar to the “Love” show in Las Vegas that uses Beatles music, has been reported as a possibility.
“Few brands can be continuously reinvented and re-established and reach broad demographic groups,” said Charlie Walk, a former president of Epic Records, a Sony label. “Michael Jackson can do just that.”
