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THE LEFSETZ LETTER: One On One With Michael Rapino

Sitting on the black leather couch in Michael Rapino's office I was reminded of Steve Jobs' legendary reality distortion field. How in his presence, the world looks just a little bit different, how it seems to favor him, how you're powerless in the face of his presentation. That's how it is hanging with Michael Rapino. Hours later, after this man from Thunder Bay finally stops laying out his story, you're on board, you believe he has the answers, you're with him.

The music business is controlled by old farts. Who remember going to the Fillmore night after night and getting high with all the players, bonding in the rock and roll circus. It's just that the rock and roll circus ain't what it used to be, it's a shadow of its former self.

Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

The major labels keep merging and firing and rejiggering to balance their books, to cope with a future they're completely unprepared for. Those acts that survive, who people want to see, depend on their live business to sustain them. The tour used to be an advertisement for the record, now it's reversed, the record just heightens awareness, so people will go see you in concert, and you can make real money.

Enter Robert Sillerman. This carpetbagger instantly took the business from the dark ages into the present. Used to be that the country was comprised of fiefs, the captains of which all promised fealty to one king, Frank Barsalona. It was a medieval system. A very profitable medieval system. But suddenly, touring had a national landscape, an INTERNATIONAL landscape, and all the old farts were freaked out. But they shouldn't have worried too much, for Clear Channel Entertainment was run by their brethren, old farts too. It was business as usual, except for the fact that there were a lot more zeros involved. Those buildings had to be filled. And the agents and managers knew this. And suddenly, the price of talent, and concomitantly ticket prices, went WAY UP!

Michael Rapino thinks this would have happened anyway. He trots out show statistics, illustrating that the number of dates at Clear Channel amphitheatres actually DECLINED over the last five years. But I don't buy it. I know agents and managers. They were filled with glee. They knew they held the promoters hostage. They were raking it in.

And then the world started to crash. Clear Channel's numbers were less than stellar and attendance was down. So Michael Rapino tried to fix the business. But the old farts wanted no part of it. They wanted their money, or else they'd take their talent to AEG or HOB or whomever would pay the freight. They'd teach Michael Rapino a lesson. And he learned. Rapino is no longer on a mission to bring the sellers in line. He's just gonna pay the going rate and make his profit elsewhere.

I asked him why the stock was so high.

Michael said Live Nation had no debt. And then he started spinning his yarn.

The labels are screwed, Wall Street knows this. But they see this talent, and a welcoming audience. SOMEBODY'S got to reside at this nexus. Why can't it be Live Nation?

Live Nation is no longer in the concert promotion business. Oh, don't get me wrong, that's the ESSENCE of the company's business, it's all built on selling 60 million event tickets a year. But that's not where the company plans on making its MONEY!

Rapino wants to be in business WITH the acts. To help them maximize income. By selling merchandise, by filming shows and distributing them, by leveraging his relationship with concertgoers to the advantage of talent. And selling food and ancillary elements at the show and on the Web to these same patrons.

Let's go back to the beginning.

Those 60 million tickets sold. That's more than the NBA and the NFL and the NHL combined. The only entity that sells more ducats than Live Nation is Major League Baseball, which issues 74.4 million tickets per year.

Everybody in the U.S. carps about Live Nation's amphitheatres, that they're a dying business. But, they're only twenty percent of Live Nation's gross. Live Nation promoted 9,000 events worldwide last year. Furthermore, although there are some loser outdoor venues, ones in Boston and elsewhere are home runs, they do phenomenal business and the public loves going there.

Yes, Rapino knows about his public. He's trying to inject science into the ticket-selling equation. He had Irving Azoff in his office the day before. Michael showed Irving his research demonstrated that after $40, demand for Christina Aguilera tickets declined substantially in Seattle. Should tickets cost the same in each market? Is anybody else asking these questions?

But let's go back to the statistics.

AEG a true competitor? Well, AEG only promoted 987 shows last year to Live Nation's 9,054. AEG's revenue was less than one third of Live Nation's. Live Nation sold 32.5 million concert tickets. AEG sold 6.8. As for House Of Blues? They did 2,898 shows. And 6.3 million tickets. And 250 million in gross ticket revenue. And now those numbers are Live Nation's.

Now you're crying monopoly. I hear you. But, if it weren't Live Nation, wouldn't it be somebody else? And why did Live Nation buy HOB? TO OWN MORE MID-SIZED VENUES! Because that's where the profit is. In the small halls. There are superstars, and then a ton of mid-level acts. The key is to maximize this revenue in the middle. And then grow the acts, i.e. artist development, which certainly the labels are not doing. Furthermore, there are the thousands of club shows Live Nation does. Which fuel the concert business fire, even if they oftentimes lose money.

Okay, okay, let's look at the negative. Where are tomorrow's superstars? Where's the wealth of new talent? NOWHERE TO BE FOUND! Not in the States anyway, overseas…there's a lot of burgeoning talent.

And that's the play here, that's where the growth is here, the WORLD! Wall Street likes that Live Nation owns and/or manages a plethora of venues. And that it's expansionist. And, there's a lot of territory out there, and a lot of far-flung promoters who would like to be in business with the outfit that promotes U2 and Madonna.

And speaking of those acts, and the Rolling Stones, you come to Michael Cohl. That's the model Rapino wants to employ. Pay the acts a ton of money and then maximize their revenue. By selling high class merchandise, VIP tickets, rebroadcasting shows, live ringtones? If you think this is just about putting on a show, you've missed the point. Live Nation's money is going to come from what they do with all those people who come to the show!

The goal is to establish an ongoing relationship. Like their "grasshopper" plan. Buy three sets of tickets to an amphitheatre and the computer will generate an e-mail allowing you to upgrade from the lawn to unsold hard seats closer to the stage for only ten bucks per person. Don't come to a show all year after attending one the season before? The computer will e-mail that you can come FREE!

It's amazing what you can do with data.

And Rapino is mining data. He's hired a slew of young Silicon Valleyites to run his digital side. They don't come from the b.s. live show infrastructure, they're not hobbled by what's come before, they're a fountain of ideas, and they live in the PRESENT!

As does Rapino. He realizes people have to believe in Live Nation. So he's put feedback buttons on the Web. To allow people to complain. And he sometimes answers some of the hundred e-mails a day himself. That's what people want, answers. Furthermore, the GM at very building now has the power to make things right, up to $10,000. Rapino isn't a guy who's worried about the way it used to be, he wants his customers to believe in Live Nation, FEEL GOOD about Live Nation, and people haven't felt good about promoters since…Bill Graham?

Oh, it's not all rosy. How the hell did we get to the point where tickets are a hundred bucks and people hardly go to a show, the average concertgoer attending a show a year and seventy percent of the public NEVER going? I don't buy Rapino's responses. That we were undervaluing the experience and we've got to support production. Production is b.s., if the music's there, there doesn't even have to be a backdrop. It's just as a business we've convinced the public to expect to see a live representation of the music video and the acts are over the top and greedy. But is that RAPINO'S fault?

Live Nation has outfitted most of its venues with recording/TV equipment. Depending on the complication of the shoot, for somewhere between $3,000 and $6,000 you can film a show. And sell all or parts to Verizon V Cast or DirectTV or… Sure, it doesn't replicate the in-person experience, but not only does it generate revenue, it makes people WANT to go to the show.

The music business is a thug business. And the touring business is thug squared. It's all about intimidation. It's about tribal loyalties. It's not about facts so much as relationships. Relationships are important, but they've trumped business. The label thugs have been so busy trying to protect their monopoly they've left tons of money on the table, not having monetized P2P, authorized a legal way for more people to own more music for a lower aliquot per track price. Their brethren in the concert business have just been concerned with the guarantee. Which is like a computer without software or peripherals. Hell, a lot of the money is IN software and peripherals. Rapino is concerned with this penumbra. And I don't see any of the old guard making any noise about this. Rapino doesn't want to screw you, make you take less money. He doesn't want to overcharge the public, he just wants to put on a GOOD SHOW! He realizes the acts hold the cards, so he wants to MAKE FRIENDS with them instead of being an adversary.

Oh, don't e-mail me that he's tough, he most certainly is. And don't complain about specific offers. God, take the offer from AEG instead. Or the casino. That's what made Rapino realize he couldn't control prices. Because any act that could do 1,000 tickets a night could play the casinos for a SHITLOAD of money. Is Live Nation really the PROBLEM or is it a possible solution?

The old days are done. It's just that a lot of the old players still have power. But Michael Rapino was lucky. He wasn't around in the sixties OR the seventies. He's just too young, not even forty. He's living in the twenty first century. He wants to deal with twenty first century realities. When seemingly nobody else does.