The $300 Million Comeback: Irving Azoff Teams With MSG's James Dolan to Create Intriguing Music Company

Irving Azoff has done it again. He has just parlayed his bevy of big-name acts like the Eagles and Christina Aguilera into another big-money deal, this time as part of a new joint venture with MSG Entertainment called Azoff MSG Entertainment (AMSGE).

Azoff and business partner Howard Kaufman began rolling up management companies in 2005, funded in part by stakeholders and initial Front Line Management backers Thomas H. Lee and Bain Capital Partners. Lee and Bain got out and then Ticketmaster parent company IAC increased its stake. Azoff had investors, but he really only sold to Ticketmaster in 2008, the same year Ticketmaster spun off from IAC. Ticketmaster acquired the minority equity stake in Front Line, then held by Warner Music Group, for approximately $123 million in cash. In 2010, Front Line was subsumed into the $2.5 billion merger of Live Nation and Ticketmaster.

The privately held AMSGE will consist of Azoff Music Management's existing artist management firm alongside other businesses still in development, including publishing, TV production, and live event and digital branding. The James Dolan-led Madison Square Garden Co. (MSG) is paying Azoff Music Management $125 million for a 50% stake in the joint venture and has also agreed to provide a $50 million line of credit, giving the deal a total valuation of $300 million. The funding will be key as Azoff and Dolan hinted strongly at ambitions to build parts of the new company through acquisition.

The non-compete constraints of Azoff's exit deal with Live Nation won't be a factor after 2014. He remains arguably the best closer in the music biz, and it wouldn't be a surprise to see some of the Artist Nation companies once aligned with him come back onboard when they're contractually allowed to do so.

While many will focus on his expected expansion of the artist management roster, probably rebuilding the Front Line Management network and leveraging MSG's live industry leadership, the most intriguing element of AMSGE is a new music rights business that could shake up the business significantly, particularly for those in the digital music space like Spotify and Rdio.

The new global music rights division is a performance rights organization -- a 90% interest in a music publishing venture run by CEO Randy Grimmett and COO Sean O'Malley. The division is about "the acquisition, development, licensing and exploitation of copyrighted works for the purposes of music publishing, co-publishing, licensing, administering, developing a musical library and acting as an agent on behalf of such works," according to an announcement.

This sounds like a publishing house, but Azoff calls it a "boutique" PRO for "what we feel has been an underserved group of very important writers out there," he says. "ASCAP and BMI have hundreds of thousands of members. We'll probably have 100." In terms of leverage, clout trumps sheer numbers, Azoff believes. "It's about how much market share those 100 control, and returning the ability to those 100 to control what happens, especially with their digital licensing." Industry sources, who have been aware of the plans, say the model will not be too dissimilar to SESAC's more focused model, which allows the PRO to pay a higher royalty share to its artists.

Due to the fact that ASCAP and BMI operate under a consent decree, they have less control over the royalty rates they can charge digital services on behalf of songwriters. SESAC is a privately held business and able to charge higher rates. Some major publishers like Sony/ATV have withdrawn their songs from the PROs in order to negotiate better rates directly from services like Pandora. An even more focused PRO with major songwriters and the aggressive clout of Azoff will be a game-changer.

At the very least, AMSGE is a new animal in its broad scope, and one that could make a lot of noise as an immediate major player. "Everybody in the business whines, 'There's no place to go. There's only three record companies and Live Nation and AEG,'" Azoff says. "Hopefully, people will think of us as a place equal to one of those [companies] to come [to us] with a great idea or a great project."

So in the end, AMSGE is in the idea business, and has the leverage and resources to bring ideas to reality. This is also a "venture capital play" from MSG's perspective. Dolan says the company will be acquisitive "using the assets of both Azoff Music Management and MSG and a bunch of cash." As Azoff puts it, the new entity is "putting out a sign that says, 'Come see us if you've got a great idea, because we have the management ability and financing ability, and we're looking for great new businesses.'"