by Howie Cockrill
In late April of this year, I wrote a three-part “Spotlight” article on Live Nation, exploring in depth the massive steps being taken by the concert impresario to secure its primacy not just in the live events market, but also in pretty much every ancillary market you can imagine.
One strategy Live Nation used in this business blitz was to identify major-player executives in both its core markets and its areas of expansion, and to bring them into the Live Nation fold.
Michael Cohl was one of these major-player executives.
Brought on in May, 2006, when Live Nation bought a controlling stake in Cohl’s Canadian-based Concert Productions International (“CPI”), Cohl was promoted to Chairman of the Board of Live nation in February of 2008 – just 5 months ago. He also headed the new Live Nation Artists division an is the largest single shareholder
Since coming aboard at Live Nation, the 60 year old Cohl has arguably been the prophet and the punching bag for the ever controversial 360 Deal, signing $120 and $150 million deals with Madonna and Jay-Z respectively.
And according to the Wall Street Journal , Cohl had as many as 15 more such deals waiting in the wings, including Shakira.
Cohl cemented himself in the upper echelon of promoters when, in 1989, he beat out rival Bill Graham for the concert, sponsorship, merchandising, radio, television and film rights to the Rolling Stones’ “Steel Wheels” tour.
At Live Nation, Cohl wanted to pursue exactly this type of one-stop-shop rights catalog for major performers, and with Korn, Madonna, Jay-Z, U2 and the Jonas Brothers climbing on board – he was accomplishing just that in his short stint with Live Nation.
But the tide at Live Nation seems to have turned against Cohl’s aggressive business strategy, in the form of Live Nation CEO Michael Rapino.
Rapino has urged a more cautious pace in offering 360 Deals to artists for a number of reasons, not least of which being the overall sluggish economy and the topsy-turvy music industry.
Additionally, since Live Nation signed the $120 million deal with Madonna in October, 2007, Live Nation’s stock has plunged a whopping 44%.
The bottom-line consequences of Chairman Cohl’s strategy has created increasing friction between him and CEO Rapino, reportedly resulting in a full-scale feud between the two.
Whether it was a feud or fundamental disagreement, the result was the same.
On June 20th, Michael Cohl “transitioned to a consultant role” with Live Nation. And it was because the two could not come to an agreement over the pace of Cohl’s 360 Deal strategy.
The setting for all of this drama is of course the 21st century music industry, which is undergoing a face-lift to put it mildly.
With CD sales down 10 to 20% each year from the previous year, significant ROI pressure is being put on live events and associated merchandise.
However, as Ethan Smith in the Wall Street Journal notes:
The combination of businesses is risky, however, in part because profit margins in concert promotion are perilously thin, and a bad tour could undercut the overall value of a package deal.
So where do things stand for Live Nation and Mr. Cohl now?
In a Live Nation press release, Rapino made reference to Cohl’s “vision and guidance” and his “immeasurable” contributions to the formation of Live Nation Artists.
He also thanked Cohl for “agreeing to stay with the company as a consultant.”
Of course, what other choices does Cohl have in this situation?
Cohl’s employment agreement prohibits competition with Live Nation.
According to the WSJ, the non-compete term is 8 years. TicketNews says 10 years.
While some non-compete agreements may be unenforceable, employers typically find alternative ways to prevent a former employee from becoming a competitor – often by enforcing strict “confidentiality” provisions governing intellectual property, client lists, and financial information.
Presumably Cohl was in a position to receive all of this kind of information he needed, which would be very valuable in a business competitive environment.
Not that there won’t be some zeros on Cohl’s W-9 form.
According to TicketNews, Cohl will receive a lump sum payout of $4.5 million for 4 years of consulting.
Nevertheless, Rapino asserted in the press release that Live Nation is still committed to the 360 Deals it already has, while at the same time taking a “disciplined financial approach.”
In other words, Live Nation is slowing its roll on 360 Deals.
Meanwhile, Cohl does not seem to be disavowing or undercutting his work at Live Nation Artists; in fact, his statements in the press release could belie a feeling that he’s always been right.
I am extremely proud of what we have accomplished thus far at Live Nation Artists. We have built a division whose current strategy we believe is set to unlock great value for our shareholders and our artists.
Whether or not Cohl will repurchase his formerly owned CPI from Live Nation (which he sold to in 2007 for $123 million in Live Nation stock and $10 million in cash) is still in question.
However, as of July 18th the value of his stock was down 7.6% to $94 million. On July 20th, the day his departure was announced, Live Nation stock dropped another 9%.
Hopefully Cohl will still be able to get free tickets to any show he wants, or at least take advantage of Live Nation’s new “Skip the Line” promotion.
The debate between Cohl and Rapino largely brings up issues about the implementation of 360 Deals - namely the pace.
Is Rapino's circumspection a throwback to the established industry's indecision and missteps over the past 2 decades? Is Cohl then the bold cowboy innovator - buying rights first and crunching numbers later?
Or perhaps Rapino's decision is an example of measured, belt-tightening business judgment - the kind that the industry will need in the coming years.
More likely is that Rapino's caution and Cohl's daring are endemic of the larger issues nagging the music industry in the digital 21st century.
As usual, the question is clearer than the answer: whether now is the time to spend money on new artist deals in order to make money, or whether now is the time to slow down, reevaluate and focus on existing deals.
This runs parallel to Starbucks ramping up their music and entertainment division and now pulling it all back. Even their head of entertainment left his position. An interesting time for the music industry - seems like there's a rush for one idea to stick and if it doesn't - everyone points the finger.
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