Jay-Z: Music's $150 Million Man

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Kevin Mazur / WireImage / Getty Images

Jay-Z performs during the "Heart of the City" tour on March 22 in Miami

In a $150 million deal certain to rock what remains of the record industry, Jay-Z has announced plans to depart Def Jam records and give the totality of his creative output — from songs to touring revenue to un-hatched entrepreneurial ideas — to concert promotion behemoth Live Nation. As Jay-Z told the New York Times, which broke the story on its website last night, "I've turned into the Rolling Stones of hip hop."

Jay-Z is not the first A-list recording artist to leave a traditional label for a truck full of Live Nation cash. Madonna announced a 10 year, roughly $120 million deal in 2007, while U2 revealed a 12 year touring and merchandising partnership earlier this week. Still, luring Jay-Z is a major coup for the publicly traded Live Nation. He is not only one of the world's top-selling rappers and concert draws, he's a former record company president. "If the [ex] president of Def Jam decides it's time to get off the sinking ship," says a producer who has worked for Jay-Z, "everyone else is going to start figuring out how to follow."

Live Nation is expected to furnish Jay-Z, born Shawn Carter, with $5 million in seed money annually for his own label, publishing arm and management company, with significantly more funds available for future acquisitions and expansion. He will also receive a $25 million upfront payment and $10 million per album for a minimum of three albums over the next decade.

Given the trajectory of Jay-Z's record sales — 2003's The Black Album sold 3 million copies while 2007's American Gangster barely cracked 1 million — he would have been crazy to turn down the deal. But how sane is Live Nation? Last year the company reported a $12 million loss, and even the most optimistic projections for Jay-Z's sales and entrepreneurship would make it tough for the company to recoup its investment.

But the key to the company's strategy is live performances. Despite the stagnation of record sales, the concert industry is booming. Last year revenues were up 8% to $3.9 billion, and Live Nation is in perfect position to expand its market share. Eight years ago, Live Nation, then a part of Clear Channel Communications, struck a deal with Ticketmaster that gave Ticketmaster exclusive rights to sell most of Live Nation's 30,000 nationwide events. That deal, which accounted for nearly $200 million in revenue in 2007, expires in 2008, and Live Nation's own ticketing system, already the third-largest in the United States, is prepared to ramp up. With top grossing pop (Madonna), rock (U2) and rap (Jay-Z) acts in its stable, the company certainly won't be short on inventory.

Having a single company control so much of the live music market is almost guaranteed to mean one thing: ungodly ticket prices. In 2007, the cost of two seats to see Phil Collins and a re-united Genesis warble Mama was around $400, while two of the best seats for Jay-Z's current 28-date Live Nation tour with Mary J. Blige go for $500.00. Anti-trust laws prevent Live Nation from selling more than 10% of its own tickets, but at those prices, 10% adds up fast. For consumers, the pain could be acute. But for Jay-Z, it's a wonderful morning to be in the music business.