Is Azoff The Music Industry's Next Idol & Lefsetz Asks; Who's Going To Win The Music Business War?

NEW YORK/LOS ANGELES (CelebrityAccess MediaWire) — The Motley Fool wrote “The next time that Aerosmith jams to "Walk This Way" or Christina Aguilera belts out "What a Girl Wants," don't be surprised to see IAC/InterActiveCorp CEO Barry Diller going "ka-ching" backstage."

The WSJ.com is reporting that IAC is acquiring musical artist management firm Front Line.

The move makes sense, as a way for IAC to grow its Ticketmaster concert-promoting and ticket-selling arm.

The WSJ says that “In a bid to expand its already considerable influence in the live-music industry, Ticketmaster parent IAC/InterActiveCorp is acquiring a significant stake in one of the biggest artist-representation outfits, Front Line Management, according to people familiar with the matter.”

“IAC is buying out private-equity firms Thomas H. Lee Co. and Bain Capital Partners LLC, which provided initial funding for Front Line's buying spree, plus about five talent managers who hold equity positions in the firm. Another partner, Warner Music Group Corp., isn't selling what was described in a public filing last year as an 8% stake in the management firm, for which it paid $9 million.”

Front Line was started in January 2005 by two of the most prominent managers in the music industry, Irving Azoff and Howard Kaufman, whose clients include Christina Aguilera, Neil Diamond, Jimmy Buffett and Aerosmith. The two men quickly and quietly rolled up the operations of 40 other major managers, including representatives for Tim McGraw, the Dixie Chicks and Brooks & Dunn. Front Line also owns FEA Merchandising, which makes T-shirts and other memorabilia for dozens of clients including Wolfmother and Seal.

The music industry is scared. It sees falling CD sales. It sees new artists breaking out on social networking sites and American Idol.

If there is any surprise to IAC coming out the winner here, it's that one of the remaining major record labels didn't get to Front Line first. In fact, Fortune magazine reported last month that Warner Music Group was in talks to acquire Front Line.

The Motley Fool writes “Despite its name, Front Line is the last line of defense in a struggling music industry. Folks may not be buying CDs the way they used to — and digital music sales have only partly offset the decline — but there is still strength in live concert performances and artist merchandise. Artist management firms typically get a piece of that action.”

Live Nation posted a 13% spike in quarterly revenues last week. Live Nation also posted a loss for the period, and the top line gain was the result of a massive shopping spree. However, live events should continue to hold up well. Whether music fans are consuming their music through CDs, iTunes, music-subscription services, or pirated downloads, there is still an attraction to catch popular acts on stage.

IAC knows it. Ticketmaster was one of the brightest spots in the company's first-quarter report. Ticketmaster transaction revenue soared 26% to $309.9 million for the period. Operating income at Ticketmaster inched up just 10% higher, but bellyaching labels would love to get in on that kind of growth.

The WSL also reported that “Ticketmaster already controls the ticketing inventory for the vast majority of prominent concert and sporting events, but it has come under assault in recent years, as online concerns such as StubHub have challenged its long-held dominance by reselling tickets. An ownership position in a company that directly represents artists could give IAC a leg up, by creating a close alliance with dozens of prominent performers."

"Front Line also has been aggressive in moving into new business areas on behalf of clients, such as "VIP" concert ticketing and unorthodox relationships with retailers, such as one recently struck between the Eagles and Wal-Mart Stores Inc., in which the classic rockers sell their music directly and exclusively via Wal-Mart, without the participation of a record label."

IAC's competitors for the Front Line acquisition included Warner and Live Nation Inc., the world's largest concert promoter, which has vied with Ticketmaster for influence in the concert business.

Bob Lefsetz Asks; Who's Going To Win The Music Business War?

It certainly won't be Sony, or BMG. Sony wants out of the music business. As does BMG. Unfortunately, no one can meet their price, so they're holding for now. But they want to get out. Oh, there's an expansion into music publishing, but no non-traditional ventures are being contemplated. It appears they're going to run the ship until Clive Davis dies or becomes too frail to work, then they're going to freak out. As for Rick Rubin's recent deal with Columbia? If only you could sell CDs, if only online weren't about singles. If only revenue were growing instead of collapsing.

Then there's Universal Music. With the biggest market share, operating in a vacuum. Doug Morris and Jimmy Iovine wanted to be innovators at the turn of the century, with the Farm Club and PressPlay, but after being burned they've changed strategy. Now it's all about the check. They're sitting upon a huge copyright asset, if you want to distribute music in the new world, you've got to go through them, and you've got to pay for the privilege. Planning for the future, insuring their place in the coming landscape? Not really an issue. Especially since the OWNER of the operation wants out, but like Sony and BMG can't find anybody to sell to, not at a reasonable price.

Then comes EMI. EMI has Ames, but not much else. Roger Ames knows where every dollar in a record deal is buried. He's what Warner needs. But EMI does not have the assets of Warner. EMI is in survival mode.

And then there's Warner. Unlike his compatriots owning major labels, Richard Parsons decided to get out, he didn't want to weather the storm, he wanted his money now, before the asset went down in value even further. So, the company was sold to private equity interests. Although Warner is embracing digital strategies, there's no overall music business play. Oh, they want to strong-arm their artists into giving them rights, but there's no desire to truly get into the touring or management businesses. Hell, their interest in Azoff's company was just sold to Barry Diller.

Irving Azoff. Is it now his time? Is this his David Geffen moment? Now that DreamWorks has failed, now that Geffen is a billionaire without portfolio, is Irving plotting to take over the music business?

Well we read that Jeff Kwatinetz was taking over the music business. But Firm clients come and go, as do their managers, Jeff's always striking up innovative record deals that generate no heat. His moment appears gone.

And then there are our friends up north, Terry McBride and his Nettwerk crew. They're the ones talking innovation, but that's all in service to their artists, they're managers through and through. As are their east coast counterparts at Q Prime. Cliff and Peter experienced a debacle in venue ownership, they've now got Snow Patrol and Jimmy Page, but they're hands-on managers, they're not interested in the tectonic plates, tilting the world at large.

But Michael Rapino is.

Michael Rapino is younger than most of the household names. He hasn't made his fortune yet. This is his time to make a move. He's sold what doesn't interest him, and bought what does. He's got not only Trunk, but MusicToday. And suddenly, he's in ticketing.

But isn't that the domain of TicketMaster?

The coming music story is how new players akin to Microsoft will enter the sphere and eat up market share. Computer-savvy tots with their ears to the ground, who know what the public really wants. No deals will be made with majors, if there are record companies at all, you presently don't know their names. But these acts WILL have to play live. And who will control that arena?

Yes, right now we've got a giant struggle over the live business. Who will be the gatekeeper, who will cash the check. The record companies are also-rans. And the online distributors? With licensing so complicated, on such onerous terms, smart money is staying out, there's no movement in that world, it's been ceded to iTunes.

But in the physical world, we've got a jockeying for position heretofore unseen.

And it all comes down to Irving.

Is Irving just in it for the check? Or does he want the power?

Who knows. But if you want to know what happens in the future, watch him.

Irving assembled a management powerhouse to neutralize the labels, to prevent them from dictating to him. FRONTLINE'S policy would be of equal weight to the label's policy.

But you've got to look back further. To AEG. Irving Azoff built AEG. By resuscitating ConcertsWest. Eventually Irving sold his interest to Anschutz, and Randy Phillips took the day to day reins, but Irving's got a special place in their board room. He's entitled to favors. And he returns favors. That Live Nation doesn't get.

But Live Nation needs Irving's acts. Irving's partner Howard Kaufman has kept the sheds alive for years. Albeit at high prices, but you've got to have SOMEBODY to bring in the customer.

Can you say Def Leppard/Journey? Can you say Chicago/Earth, Wind & Fire/this year's oldie? Can you say Fleetwood Mac?

Michael Rapino cannot afford to piss off Irving Azoff. Now more than ever, Irving's got the biggest stable of acts, and concert promotion is all about the acts.

But now Irving has made Rapino's life even worse. He's gotten in bed with the thorn in Rapino's side, TicketMaster.

Oh, there's been a link forever. With the name Larry Solters. Yes, Irving's positively old school, he knows it's about relationships, and information, and he's got both.

So now what?

Well, IAC/TicketMaster bought the Thomas H. Lee/Bain stake. But Warner's still got a piece of Frontline. Is this significant? Well, maybe to the point that Irving's got a special relationship with Warner. At least until he gets frustrated and makes their life hell.

But it's Irving who controls the landscape now. Suddenly, Irving's a linchpin in Warner, Live Nation, IAC/TicketMaster… Suddenly, the brilliant poker player has more cards than anybody. How's he going to play them? What does he WANT?

Warner, Live Nation and TicketMaster are fighting for their lives. Good idea to line up with TicketMaster, kind of like Sirius buying Howard Stern. If Rapino sells his own tickets, TicketMaster is fucked. But if Irving's in between, does TicketMaster keep its deal?

And Irving controls the only thing that counts. The talent. It's not like movies or TV, you can't create a new roster out of thin air.

Maybe Irving just wants a check. He's certainly sold for a price in the past. Or maybe he wants to control the business. If not in name, then reality.

One thing is clear. The wagons are circling, we're in the final throes of consolidation. Everyone thought it was about the labels, but really it's about the gig. Who controls the gig. Right now, Irving Azoff controls the gig.

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