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Summary:

This is becoming a core music industry argument: Music labels want to get paid when people use or listen to their music. Other parties think…

imageThis is becoming a core music industry argument: Music labels want to get paid when people use or listen to their music. Other parties think the labels need to better appreciate new distribution models as opportunity to promote their music. The labels counter that promotion is great, but they still need to get paid. And so on, and so on, and so on. This debate continues to play out in one hot area, music-based videogames, like Rock Band and Guitar Hero. The labels want to get paid more for the music used in these games. The game publishers counter that these games provide a great promotional avenue for the tracks. In a recent interview with the WSJ, Activision (NSDQ: ATVI) CEO Bobby Kotick hinted at taking it further: “We compensate artists and publishers extremely well. There are millions and millions of dollars that are being made and paid. There’s a misunderstanding of the value we bring to the catalog. What happens to your catalog in digital downloads? What happens to your merchandise? What happens to your ticket sales? When you look at the impact it can have on an Aerosmith, Van Halen or Metallica, it’s really significant, so much so that you sort of question whether or not, in the case of those kinds of products, you should be paying any money at all and whether it should be the reverse.” To back this up, he argues that gamers don’t really care what songs are in the game — just that the game is fun (that’s probably true to an extent, but overall, people mainly like to rock out to the songs they’re familiar with).

The real problem, it seems, is similar to the tension between labels and Apple (NSDQ: AAPL). It’s not that the labels aren’t getting a fair rate (necessarily), but they’re tired of seeing all these other companies engaged in high-margin, rapid growth businesses based on music, while their core product stagnates. This may be a fair concern, though it’s hard to see them lawyering their way into the promised land.

– Meanwhile, if you need further evidence of these games’ ascendancy, this week Wal-Mart announced it would be the exclusive purveyor of a new AC/DC Rock Band pack. The agreement was reached between the retailer, MTV, and AC/DC’s label, Columbia Records. Both the label and the band will be compensated for sale of the discs, which will be priced at $40, compared to the normal $60. Note that AC/DC already has a deal to sell its CD exclusively through the retailer. What’s the lesson here? Sure, part of it is that a band and a label can have a direct stake in a Rock Band disk, so that’s good (though this wouldn’t work for the vast majority of bands). The other lesson: Just like with the rest of the industry, the Wal-Mart (NYSE: WMT) exclusive holds some allure, even for a video game.

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  1. This whole battle is insane. If music creators want the royalties and streaming/distribution sites have to shut down due to the high costs, wouldn't that be bad for the creators? The whole paying to be streaming is a bit ridiculous as the promotion is invaluable. I have purchased several albums from music I've heard on Myspace/Pandora.

  2. technically it wouldn't hurt them as much as we think. People would probably go back to CD's and other forms of media that the record labels will put forth. They would much rather have everything go back to the way it was. More profit for them.

  3. Having played both Guitar Hero 1 and 2 as well as Rock Band I know I've ended up purchasing a few songs I hadn't heard before myself. But thats really anecdotal.

    I think Joseph has it nailed. Record labels had such a long history of making bank that they are, have been, and will continue to react violently against the further commoditization of their product. But getting back to what they had isn't really going to happen.

    Kind of sad really. For them anyway.

  4. I can't but think that if the labels hadn't had there heads in the sand for so long about digital music they would be in more control of these new services.

  5. Joel McLaughlin Friday, June 12, 2009

    That is just craziness… Anyone have updates on this situation? I wonder what the end result was.

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