U2’s Business Model
Over the past several years, the music industry has undergone tremendous transformation with a shifting balance of power between artist, labels, consumers, and new players like Apple. The latest move by U2 to collect money from Live Nation highlights the business model shifts occurring in the music industry.
This announcement also illustrates one challenging aspect of deal-making: when constructing a win-win deal between partners, it is important to consider how partners will react to the terms of the deal under various scenarios. At the time this deal between Live Nation and U2, I suspect that both sides imagined a rosy future.
Yet in this current environment, when both ticket sales and stock prices are down, U2 wants their money. This scenario clearly puts pressure on Live Nation. The lesson here: when putting together a strategic partnership, stress test your deal assumptions under worst case conditions, figure out what you can live with, and have a contingency plan. The challenge here for Live Nation occurs if multiple artists decide to exercise their options at the same time, putting further pressure on their stock and cash position.
