Even music industry insiders’ jaws must have dropped when news hit that the pop-legend and world’s most famous Kabbalah devotee Madonna was bolting from her big record label to sign a $120 million, all-inclusive record deal with a concert promoter. And while that’s a whopping sum, the bigger news is what it means for the music business itself.

Trading traditional
The fact that Madonna, who has sold over 200 million albums in her career, is willing to bail out on a traditional record label, in this case Warner Music, is evidence that the music business as we know it is imploding in the face of digital downloads and file sharing.
 
Certainly not music to their ears
In a nutshell, the picture is grim for record companies, which have been stubbornly clinging to a business model many see as outdated. In the past, record companies would sign artists and release the music to rake in their d

ough, while artists signed with concert promoters to tour, sell stuff, and rake in their own dough. But CD sales have been dropping for years—down 18.5% in 2007—while single-track Internet downloads are up 46% as more people opt for single song titles at 99 cents, and not the whole, more expensive album. And that has record labels—and a host of new competitors—wanting in on some of the artist’s other revenue streams.
 
Live Who? A new player makes a risky deal
Enter Live Nation. The Beverly Hills-based company will pay Madonna handsomely for the right to not only release three of her albums, but also promote her concerts and sell her stuff. Live Nation may be getting the whole Madonna enchilada, but many, many people seem to be questioning the financial wisdom of the agreement.
 
The big picture
Whether good deal or bad, it is undeniable that the economics of the music business have changed forever. Just last week, the indie-rock gods Radiohead put their latest album on sale on their own Web site and let customers pay what they want. Yes, even nothing. And we haven’t even broached the pressures of illegal file sharing here. As for Madonna's future? The business savvy mega-star—buff as always—certainly inked a sweet deal and will likely still be packing arenas into her 70s.