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Lady Gaga (A)
“Let’s get everyone in a room to discuss what to do,” said Troy Carter, manager of up-and-coming pop star
Lady Gaga, to his assistant as he walked into his Santa Monica office. It was September 2009, a week after the
MTV Video Music Awards (VMAs) ceremony that had seen Gaga win a coveted Best New Artist award and that
had featured a spectacular performance of her hit song Paparazzi—ending with the singer-songwriter,
covered in fake blood, dangling from the ceiling—but that had also led to the unraveling of Gaga’s carefully
crafted touring plans.
At the VMAs, hip-hop artist Kanye West—with whom Gaga had planned to co-headline a high- profile arena
tour—had crashed the stage just as the first award of the night, for Best Female Video, was presented to
Taylor Swift. West had cut the teen singer off, grabbing the microphone from her and protesting in support of
singer Beyoncé , thereby stunning many music industry insiders and causing dismay among television
audiences around the world. Coming on the heels of several other controversial actions by the rapper, the
ensuing media storm prompted West to take a break from the music industry—and withdraw from the tour
that had taken months to plan.
Seated with Gaga at the award ceremony, one row behind Beyoncé , Carter had quickly realized that revisiting
the touring plans might be necessary—and that it would be quite a challenge. Gaga had much going for
herself: her first and only album, The Fame, had already yielded three hit songs; she was signed to famed
producer Vincent Herbert’s Streamline Records, a subsidiary of leading record company Universal Music
Group; and she had captured the imagination of fans—”little monsters,” as she liked to call them—in person
and through online social networks. However, Gaga was relatively inexperienced: she had only emerged on
the scene in October 2008, as a supporting act for New Kids On The Block—a former boy band beyond their
glory years—and had only headlined a tour of small clubs with a capacity of a few thousand people at most, a
far cry from the 20,000-seat arenas planned for the tour with West.
Carter knew that continuing the tour but doing so solo would be a huge risk: developing artists typically did
not take on arenas, and a failure to draw fans could seriously hurt Gaga’s brand. However, scaling back the
tour or even canceling the idea altogether would have disadvantages as well—among other drawbacks,
recouping the $4 million that Gaga and her team had already invested would be difficult with a smaller-scale
tour, revising the tour could jeopardize the promotion of her upcoming second album The Fame Monster, and
the team likely had only a few short weeks to rework their stage production. Making matters even more
complicated, Carter would also have to consider the implications for Gaga’s partners in the venture, including
the concert promoter Live Nation and the William Morris Endeavor agency. What was the best course of
action?
The Music Business
In 2009, the music industry primarily relied on income from two activities: first, selling recorded music in the
form of individual songs or albums and, second, selling live music in the form of tickets to concerts.
Recorded Music
By some estimates, the recorded-music business was an $8.5 billion industry in the U.S. (see Exhibit 1 for
general trends in recorded-music revenues, and Exhibit 2a for the bestselling artists in recorded music in
2008). Physical sales had fallen markedly since the early 2000s, while digital sales had grown to be a $1.6
billion share.1 Further declines of physical recorded-music sales were widely expected, as several brick-andmortar music retailers were struggling and mass merchants dedicated less shelf space to music. Digital
outlets such as Apple’s iTunes store and Amazon had seen strong growth: tellingly, iTunes—accounting for
roughly three quarters of all digital music sales—had overtaken Walmart to become the largest seller of
recorded music.
Artists and labels Popular artists tended to have an exclusive contract with a record company (or “record
label”). Under the terms of such a record contract, artists usually committed to creating four to six albums’
worth of music, while the label agreed to manufacture, distribute, and promote that music. Beginning artists
could expect an advance—intended to cover living and other expenses—in the range of $200,000 to
$300,000; superstars sometimes received up-front fees of $1 million or more. Once their advances and other
costs incurred by the label had been fully repaid, artists also received royalties, which typically ranged from
around 15% of sales for new artists to 20% of sales for superstars. A label could deduct a wide range of costs
from artist royalties, including those related to recording albums, producing videos, covering tours, and radio
promotion. As a result, even if an album sold hundreds of thousands of copies, artists could owe their label
thousands of dollars in unrecouped royalties—in fact, given the low success rates in the industry, most artists
never recouped their advances.
In return for their efforts, record labels received a share of sales. A typical album contained 10 to 12 songs,
was usually priced between $10 and $15, and provided a record company with roughly $8 in revenue. After
paying artist and publishing royalties as well as manufacturing, promotional, and marketing costs, the label
was usually left with $3 to $4 in profit on an album. Individual tracks typically sold for $0.99 or $1.29 each,
yielding a similar profit share for the label.
Labels’ activities Four large (so-called “major”) record companies dominated the global recorded-music
industry: Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI Group. Each had
many different labels: Universal, for instance, covered the flagship label Interscope Geffen A&M as well as The
Island Def Jam Music Group and Universal Motown Republic Group, among others. Led by famed music
producer Jimmy Iovine, Interscope’s roster included some of the biggest names in music, such as Eminem,
Mary J. Blige, the Pussycat Dolls, The Black Eyed Peas, Timbaland, and U2. Collectively, the four major record
companies accounted for more than 90% of the U.S. recorded-music market; smaller, independent (“indie”)
labels generated the remainder.
Major labels could offer their artists a full range of services: artist and repertoire (“A&R”), sales, promotion
(which primarily involved arranging for music to be played on the radio), marketing (increasingly through
digital outlets such as Facebook, Twitter, and YouTube), publicity, production (including manufacturing,
printing, assembling, and shipping of physical recordings), finance, and business affairs. 2 The major record
companies had large portfolios—as many as 300 to 400 artists— and often staged elaborate marketing
campaigns before and around the launch of their artists’ albums. They were often quick to abandon artists
who failed to gain traction in the marketplace: major labels could terminate dozens of underperforming
artists in a given year.
Because her label Streamline Records was a subsidiary of Universal, Gaga could benefit from the company’s
resources. “In any given week, any one of our departments, from A&R to business affairs, will spend some
time on Gaga. We have a couple hundred employees, but our head of pop-music marketing can spend the
better part of her day on Gaga,” said Steve Berman, Interscope’s president of sales and marketing.
In recent years, driven by the declining market for recorded music and seeking to better capitalize on their
artist-brand-building activities, record labels increasingly pursued relationships with their artists that went
beyond participating in recorded-music sales only. Almost all new artists were signed to expanded
partnerships—so-called “360 deals”—that enabled labels to share in all of an artist’s revenue streams,
including recorded-music sales, concert-ticket sales, merchandising, commercial licensing, and sponsorships
and endorsements. Gaga was signed to Streamline Records on such a deal. “Our idea with these deals is that
we invest so much time and energy into creating the artists’ brands that we should participate in the different
income streams that we help develop,” said Berman.
Live Music
By 2009, annual revenues from touring exceeded $4 billion in the U.S. (see Exhibit 1 for trends in live-music
revenues, and Exhibit 2b for the top-grossing touring artists that year).
Promoters Promoters played an important role in facilitating concerts: in exchange for a fee, they booked a
concert venue, paid to advertise the concert, and supervised the overall running of the concert. Promoters
could operate locally, nationally, or internationally. Live Nation and AEG were two of the most prominent
international promoters: they had the scale and resources to take on entire tours, meaning a series of
engagements in various cities or even countries. 3
“The traditional way in which promoters and artists work together is for a promoter to pay the artist to play
in one or more venues, and for the artist to enlist a team that produces the tour—the artist effectively hires
the trucks and the busses, the crew, the supporting musicians, and the dancers, and pays for the hotels and
the travel. That is the norm,” said Arthur Fogel, chief executive officer of global touring at Live Nation, the
world’s largest concert promoter and owner or operator of dozens of venues worldwide. Live Nation had
introduced a new model by signing superstar acts, including Jay-Z, Madonna, and U2, to long-term “360-like”
deals that gave Live Nation a significant share of concert ticket sales and other revenue streams (such as
merchandising and sponsorship) in exchange for eight-figure payments.4 More recently, Live Nation had
championed the idea of “net deals” in which artists earned a percentage of net income and promoters were
responsible for all costs.
Touring deals Touring arrangements largely depended on the caliber of the artist: 5






• New and niche artists usually had the choice to play either as a headliner in a club—a venue with a
capacity of anywhere from 100 to 1,500 people—or as the opening act on an established artist’s tour.
In return for their performance, most artists received a fixed fee ranging from as little as $250 to as
much as $5,000 per night, or a share of admission revenues. However, the costs of such tours often
exceeded the revenues they generated: the minimum cost of putting an artist and some supporting
band members on the road, playing a maximum of five shows per week, could easily amount to
around $10,000 a week.
• Mid-level artists had the power to headline small venues seating upwards of 1,500 people to
amphitheaters seating as many as 6,000 to 8,000 people. Artists playing the small venues could make
around $5,000 a night in fixed fees; those playing amphitheaters as much as $50,000 per night,
depending on the pricing of tickets. In some cases, mid-level artists could receive a share of revenues
or profits, possibly accompanied by guarantees against those shares ranging anywhere between
$10,000 and $25,000 per show.
High-profile artists, instead of being paid flat fees, tended to receive guarantees against a percentage
of the net profits of a show. Major artists in arenas—venues with a capacity of 12,000 to 20,000
people—could receive guarantees in the range of $100,000 to $500,000 per night, sometimes as high
as $1,000,000. The artist typically received 85% of the net profits, with the promoter pocketing the
remaining 15%.a
In these deals, gross sales were defined as ticket sales minus selling costs, taxes, and facilities
charges. From the gross, the promoter deducted his expenses, including rent of the facility,
advertising, personnel (such as cashiers, doormen, ushers, cleaners, and stage crew), equipment
rental, transportation, and insurance. Those expenses could quickly add up, often making the final
take for artists much smaller than the overall revenues might suggest. Major artists frequently sold
multiple nights in the same venue, leading to substantial cost savings, for instance in terms of
equipment moves, set-up times, and venue rental fees. “Artists and promoters mitigate risks by
taking on more dates in one venue,” said Carter.

Agents Less central to a myriad of activities than their counterparts in the film industry, agents in
the music industry were involved almost exclusively in booking concerts and other live personal
appearances, and perhaps commercials, tour sponsorships, and television appearances. They did not












participate in records, songwriting, or merchandising. Agents usually received a 10% commission for
their efforts; their take on concerts was sometime as low as 5%. 6
Initially represented by Paradigm, Gaga had signed with William Morris Endeavor (WME), one of the
leading talent agencies, in April 2009. In return for their services, WME received a percentage of
Gaga’s gross profits. “We are a part of Troy’s cabinet of advisers,” remarked agent Marc Geiger, a
senior vice president at WME, about his role in “team Gaga.” He added: “Troy sees her as a multiplatform artist. He is trying to launch a global superstar with a career that spans decades.”
The Role of a Manager
Managers were tasked with successfully directing the career of an artist: their responsibility covered
both overseeing an artist’s day-to-day business affairs and setting a long-term strategy for the artist’s
professional activities, including recording music and touring. The role of managers could encompass
a large variety of duties, some similar to the kinds of tasks that agents, promoters, accountants, and
public-relations people might undertake. The role also differed depending upon an artist’s career
stage: a manager’s responsibilities often grew as an artist’s career took off.7
“I am the hub for all activities. I think of myself as the air traffic control center—just without the
terminals,” said Carter about his job. “The reality of being a talent manager is that I risk my job every
week,” he added. “Lady Gaga trusts my decisions. We are about breaking boundaries, which means
we do something different when we have a chance—we don’t just do what worked last time, or what
was successful for someone else. But if something doesn’t work out, it is my responsibility.”
In return for their services, managers could be compensated in a large variety of ways. They usually
collected 15% of an artist’s gross earnings (that is, before any expenses were deducted), with the
commission sometimes being capped at a certain percentage of an artist’s net income. In some
settings, managers could work for a fixed salary—perhaps a multi-million dollar salary, in the case of
superstar artists. Terms historically were anywhere between three and five years. 8
High-profile artists, instead of being paid flat fees, tended to receive guarantees against a percentage
of the net profits of a show. Major artists in arenas—venues with a capacity of 12,000 to 20,000
people—could receive guarantees in the range of $100,000 to $500,000 per night, sometimes as high
as $1,000,000. The artist typically received 85% of the net profits, with the promoter pocketing the
remaining 15%.a
In these deals, gross sales were defined as ticket sales minus selling costs, taxes, and facilities
charges. From the gross, the promoter deducted his expenses, including rent of the facility,
advertising, personnel (such as cashiers, doormen, ushers, cleaners, and stage crew), equipment
rental, transportation, and insurance. Those expenses could quickly add up, often making the final
take for artists much smaller than the overall revenues might suggest. Major artists frequently sold
multiple nights in the same venue, leading to substantial cost savings, for instance in terms of
equipment moves, set-up times, and venue rental fees. “Artists and promoters mitigate risks by
taking on more dates in one venue,” said Carter.

Agents Less central to a myriad of activities than their counterparts in the film industry, agents in
the music industry were involved almost exclusively in booking concerts and other live personal
appearances, and perhaps commercials, tour sponsorships, and television appearances. They did not
participate in records, songwriting, or merchandising. Agents usually received a 10% commission for
their efforts; their take on concerts was sometime as low as 5%. 6
Initially represented by Paradigm, Gaga had signed with William Morris Endeavor (WME), one of the
leading talent agencies, in April 2009. In return for their services, WME received a percentage of
Gaga’s gross profits. “We are a part of Troy’s cabinet of advisers,” remarked agent Marc Geiger, a
senior vice president at WME, about his role in “team Gaga.” He added: “Troy sees her as a multiplatform artist. He is trying to launch a global superstar with a career that spans decades.”
The Role of a Manager
Managers were tasked with successfully directing the career of an artist: their responsibility covered
both overseeing an artist’s day-to-day business affairs and setting a long-term strategy for the artist’s
professional activities, including recording music and touring. The role of managers could encompass
a large variety of duties, some similar to the kinds of tasks that agents, promoters, accountants, and








public-relations people might undertake. The role also differed depending upon an artist’s career
stage: a manager’s responsibilities often grew as an artist’s career took off. 7
“I am the hub for all activities. I think of myself as the air traffic control center—just without the
terminals,” said Carter about his job. “The reality of being a talent manager is that I risk my job every
week,” he added. “Lady Gaga trusts my decisions. We are about breaking boundaries, which means
we do something different when we have a chance—we don’t just do what worked last time, or what
was successful for someone else. But if something doesn’t work out, it is my responsibility.”
In return for their services, managers could be compensated in a large variety of ways. They usually
collected 15% of an artist’s gross earnings (that is, before any expenses were deducted), with the
commission sometimes being capped at a certain percentage of an artist’s net income. In some
settings, managers could work for a fixed salary—perhaps a multi-million dollar salary, in the case of
superstar artists. Terms historically were anywhere between three and five years. 8
traction proved difficult: “We could not get it played on pop radio,” said Carter. “Mainstream radio
stations told us it was too much of a dance song for them.” “Dance music simply was not on the air in
Top 40 Radio. Radio stations were saying no to such music,” added Bobby Campbell, Atom Factory’s
vice president of marketing. “We only had around ten people working on Lady Gaga. With a new
artist, it is sometimes hard to get the label to pay attention to a new artist, which makes getting on
the radio even harder,” he remarked.
To overcome the problem, Gaga began touring small venues relentlessly. “We didn’t follow the typical
pop-music launch path with Gaga,” Carter explained. Instead, Carter followed a rap-music release
plan, which aimed to build a fan base through grassroots efforts centered on booking seven to eight
shows per week—sometimes two to three performances per night—in different clubs, for months on
end. “This is not what pop artists usually do,” said …
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