The firms deserve a bigger piece of the profit from music
titles, Warner CEO Edgar Bronfman Jr. says.
By
Michelle Quinn and Alex Pham Los Angeles Times August 18, 2008
Many music
industry executives facing a CD sales slump love the sound of Guitar
Hero and Rock Band.
The video games have millions of followers who memorize every
note of
songs so they can jam along -- and they often buy the original version
of their favorites. In addition to the publicity, the record labels get
licensing fees from the game publishers.
But not all music industry executives are singing
"Hallelujah."
Edgar Bronfman Jr., chairman and chief executive of Warner
Music Group,
recently grumbled that the record labels deserved a bigger piece of the
spoils from the games' success.
"The amount being paid to the industry, even though their
games are
entirely dependent on the content that we own and control, is far too
small," he said during an Aug. 7 earnings call.
Bronfman suggested that he wanted Warner to be less a
supplier than a
partner. "If that does not become the case, as far as Warner Music is
concerned, we will not license to those games," he said.
The recording industry has long complained that it doesn't
receive its
fair share of the proceeds from successful businesses built on music,
such as MTV, the iPod and the iTunes store.
Apple Inc.'s products and MTV were "ecosystems [from which]
people
other than the recording industry have derived the majority of value
created," Bronfman said.
Such tensions often arise when new business models sprout in
the
digital world, said Colin Sebastian, an analyst with Lazard Capital
Markets.
"Music publishers see music-based games as a growth
opportunity in an
otherwise struggling music business, and they're trying to grab as much
of that growth as they can," he said.
There is a lot of money at stake. Sales of music-themed games
should
hit $1.5 billion this year and grow as much as 35% next year, according
to analysts' estimates.
But there are a lot of hands in the cookie jar, including
those of game console makers such as Microsoft Corp. and Sony Corp.
Guitar Hero, which costs $50 to $100, is published by Santa
Monica-based Activision Blizzard Inc. Since its debut in 2005, the game
has sold 20 million copies and generated more than $1 billion in retail
sales.
MTV Networks published Rock Band in 2007. The $170 game comes
with a guitar controller, drum kit and microphone.
Both games involve mastering "playing" a song before moving
to the next level.
The game publishers pay the record labels about $10,000 for
the rights
to re-record a song and up to about $25,000 for master recordings by
the original artist or new releases, according to executives close to
the negotiations. They spoke on condition of anonymity because the
terms are confidential.
More recently, music companies have sought a royalty of 4 to
8 cents for each copy of a game sold.
Labels also sometimes see a resurgence of older music. "Same
Old Song
and Dance," a 34-year-old Aerosmith tune, saw a 446% jump in downloads
on iTunes and other online stores in the two months after its release
on Guitar Hero 3, according to Tim Riley, vice president of music
affairs at Activision Blizzard.
In some cases, sales of the game version of a song outsell
those of the
real thing. In the week after releasing its single "Saints of Los
Angeles," Motley Crue sold 47,000 copies of the Rock Band version for
Xbox 360 while selling just 10,000 copies of the original song as a
digital download.
"We get the content, and they get a financial royalty and the
promotion and exposure for their bands," Riley said.
Music industry executives declined to comment publicly. Some
privately
expressed surprise that Bronfman had spoken out, but said they too
wanted better deals with game makers.
In a prepared statement, Warner said it had "enormous
respect" for the investment and creativity of game publishers.
"We hope that our partners in the gaming space appreciate not
only the
value of their own contributions but also those of the recording
artists, songwriters, record labels and music publishers on which their
games are significantly based," the company said.
Laura Martin, a senior media analyst at Soleil Securities
Group, said
she expected to see "more of the economics shared with the content
creators."
But IDC analyst Susan Kevorkian said the "major music labels
need to
reposition themselves as proactive players in developing digital music
businesses rather than victims. They have a lot of power."
Not as much as they once had. The games have moved from niche
to phenomenon, and musicians want in.
"The number of people interested in being associated with the
game is
probably a thousand times more than we can get into the game," Riley
said.
