Story of the Year: The October Surprise

Illustration by Arthur Giron

To be fair, some record companies are working on an answer. This past year, Warner Music Group began building the suite of services it can offer an artist, buying Irving Azoff's Front Line Management, launching a video production division, and partnering with Violator Management to develop endorsement and licensing opportunities. Back in July, Universal bought the management group Sanctuary, and all the labels have been partnering with cell-phone companies and networking websites to distribute music on platforms that would've been unthinkable five years ago. But the sluggish pace of change may prove costly. While the RIAA was busy suing grandmothers, Live Nation was acquiring or teaming with companies that handle merchandising, ticketing, and Web services, and strengthening their sponsorship, marketing, and production capabilities, making them a more appealing one-stop shop as they look to sign more artists.

"Look at it from the artist's perspective," says Michael Cohl, chairman of Live Nation's Artist Nation division, which will manage acts such as Madonna. "Most make more money from touring than any other area." So naturally, Cohl reasons, bands should trust the company that earns them the most dough to figure out how to manage smaller pieces of their business -- not the other way around.

"The main business of Warner Music is selling music," Lefsetz says. "Wall Street says that business is dead. Do you want to be in business with them or with someone making money, like Live Nation? It's like Smith Corona typewriters saying, 'We're going into the computer business. So rather than go to IBM or Apple, stay with us while we figure out what's going on in that business.' That's nuts."

The threat to labels isn't that Live Nation will scoop up every superstar and leave them fighting over scraps. It's that if Live Nation is successful and its model is emulated by others, this will offer global pop stars -- who had the majors' marketing and distribution machine to thank for their lofty status and were previously assumed to be the one contingent that would continue to benefit from it in the future -- an attractive alternative career path.

But even this isn't the labels' real nightmare scenario. That comes if promising young acts prove unwilling to sign 360 deals. After all, if bands with limited commercial appeal, like Clap Your Hands Say Yeah and Enter Shikari, can make a good living, how long before an artist bypasses labels altogether and becomes a full-fledged superstar? "Rock bands are going to find it easier to do that," says Stern. "You can have the distribution, you can have the machine a good management company has, so you definitely don't need the label."