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iPhones, Videogames, and the New War for Music Royalties

by: Julia Boorstin August 20, 2008 | about stocks: ATVI / VIA / WMG    

Julia Boorstin

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If you're a music lover, you'll fall for Pandora, an online music service that allows its 1 million daily listeners to custom-create the equivalent of a radio station tailored to their taste.

It's remarkably easy: You plug in a favorite tune and it finds others like it -- tunes you've never before heard. It attracts 40,000 new customers a day and it's one of the top 10 most popular applications on Apple's (AAPL) iPhone. Sounds successful, right?

Not quite. Last year a federal panel demanded that Web radio stations double their per-song performance royalty, while traditional radio doesn't bear the weight of such fees. This new rule will make Pandora's fees 70 percent of its projected $25 million 2008 revenue, which means the company is teetering on the verge of shutting down.

And then there are the music-themed videogames: Activision's (ATVI) Guitar Hero Game, or Rock Band from MTV Networks (owned by Viacom (VIA)). The music publishers are now demanding a bigger piece of the $1.5 billion in sales of music-themed games this year, a number expected to grow as much as 35 percent in 2009.

Edgar Bronfman Jr., CEO of Warner Music Group (WMG), has long been complaining that his business doesn't get adequate revenue from successful music-based businesses. (Sure, the music industry would get a bigger piece of iTunes if THEY'd invented it.)

But back to videogames: Game publishers pay record labels roughly $25,000 for master recordings and $10,000 for the right to re-record a song.

But now the music companies also want a royalty of 4 to 8 cents for each copy of a game sold. After all, Guitar Hero sold 20 million copies, over $1 billion in retail sales. Think about all the songs on the game, and how much that would mean to music companies, which are particularly hurting right now. (Of course, it's not all bad: The music labels also benefit from the boost in music sales they get when a song is featured in a video game.)

But with precedent firmly established, it could be hard for the likes of Warner Music Group to get its demands heard.

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This article has 2 comments:

  •  
    Aug 20 09:16 PM
    Years ago I worked in the music industry and was so disgusted by its cut-throat and blood-sucking attitude that I decided to move into the gaming world. I see things didn't change. They should try to innovate and find new ways to bring music to people, to make it interesting and easily available instead of weeping all the time...
    Reply
  •  
    Aug 21 10:07 AM
    A Man and his family goes to a out for a high class 4 course meal at the best cook house in town. Its a toss up between two incredible places one on either side of the broad walk. One serves top quality products freshly imported with vegetables and herbs home grown. known for its impeccable service and incredible dedication to surrounding its clients with an top notch security and warmth second only to a grandmas home cooked meals back home. Affordable and always ready to try something exciting and new with a flair for sparing no expense for the entertainment and over all experience of its would be clients.

    The other is a highly reputable place of Impeccable history, with an incredible list of achievements and culinary awards from years of dedication to the excellence of fantastic meals and service. Unfortunately this place relies on its historical achievements ,Service has become drab and slow ,the meals arent quite what they used to be and the lack luster nights of entertainment are at best a tad dry and should be avoided. Yet the boss of this establishment turns a blind eye to the current situation at hand , known for his flamboyance and decor draws them in like flies to a spiders nest. With no new ideals or ideas ,disgruntled underpaid and creatively starved employees and an unchanged menu that has long since lost it " Crowd pulling spice" Clients leave disappointed and as to do the great employees that made this place so great ..The choice become obvious .

    You cant fool all the people all the time. Eventually all the talk fizzles out and it boils down to what you have to offer a hungry public. Obviously Universal has figured out that incredibly simple equation. Happy clients,well payed employees , high quality material and a dedication to the IMPROVEMENT of the Entertainment industry . Its not about controlling the music industry guys.ITS about adapting and servicing a hungry public who deserve to get value for money and quality for the hard earned dollar bill .You gotta pay to play gentlemen.

    WAKE UP !!!
    Reply
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