Schnaars Blog

Smooth Sounds Ending for Music Games

Catching up with some things I missed over the holiday, one in particular stuck in my head. At PaidContent, in a post about Warner Music’s third quarter earnings report, the headline trumpets CEO Edgar Bronfman’s displeasure with income from video game licensing. On its face, the comment doesn’t mean a whole lot — as a CEO focused on his company’s bottom line, Bronfman was unlikely to describe himself as extremely pleased with the compensation from game publishers, no matter how lavish it may have been.

But underlying this otherwise ho-hum statement seems to me to be the kernels of a real problem for game developers and publishers. Earlier this year, the Rock Band franchise surpassed $1 billion in total sales. That’s a great milestone. What’s unclear is how much of that has come from hardware and original software sales, and how much has come in the form of downloadable content (DLC). At this stage, what is clear is that new units of Rock Band in particular, and music games in general, are not exactly flying off the shelves. While the highly-acclaimed Beatles Rock Band was making headlines and generating all kinds of free publicity only months ago, it’s largely been confined to the used-bin in most video game circles.

In fact, the video gaming press has seemed to largely loose the beat when it comes to music games. While the newest Call of Duty may warrant pages of preview pics, and then columns and columns of review copy, the newest versions of Rock Band and its competitors do not rate, at least not on the scale they had in previous years when they were the darling of the game industry’s eye, and a genuine cultural phenomenon to boot. (As a side note, it’s typically safe to say that by the time the NYT Magazine is running a story on a game, whatever cache the game had has run it’s course in the broader cultural dialogue.)

To be clear though, Rock Band and music games in general do not need broad acceptance by the video game community to remain profitable and artistically viable. The beauty of the original Guitar Hero, which has been carried through all later music gaming instantiations, is that once you have the hardware, you’re set to rock. And with the proliferation of DLC, you’re never at a loss for new challenges.

Here’s where Bronfman’s comments come into play: the true cash cow of these music games is in DLC. The marginal cost of creating a new Rock Band track is, I’d guess, quite low. It requires a team of programmers working within a well defined system to create the actual content, and from there, distribution is virtually free. Publishers can just sit back and watch the dollar signs roll in. I’ll reserve comment on the ethics of DLC for a later date, but what’s important here is that Warner Music (and all other rights owners) represent the great unknown in the equation.

Game publishers have made some sort of pitch to rights holders about the use of their music. My guess is that it includes some form of revenue sharing, perhaps coupled with agreements to push out new or preferred content chosen by the music companies. In this way, Warner could agree to give EA the rights to Taylor Swift’s (note: I have no idea if Swift is with Warner, or if this is something that people who play Rock Band would want to download) hot new jam, but only if EA also gives The Ugly Toad’s (band name only theoretical) under-performing single the Rock Band treatment. Here, game publishers get high valued content at a good price, and music publishers get exposure for a struggling asset. They would hope to convert this exposure into other revenues for the poor, struggling Toads.

What Bronfman is saying, in no uncertain terms, is that the deal has not worked out all that well for music publishers, or at least not as well as game publishers made it sound at the pitch. Clearly, popular music — that is, music that is popular, not just pop music — has helped music game makers generate a princely fortune. The Rock Band crew can, and should, pat themselves on the back about their $1 billion plus in sales, but without the cooperation of music publishers, the next billion is going to be much harder won.

Without knowing a lot specifics, it’s hard to say where to from here. Certainly, game publishers could simply cut rights holders a bigger piece of the pie. Based solely on anecdotal evidence, the idea that exposure to an artist in a music game would lead to increased sales of that artist’s content in other venues seems dubious to me. The fact that Warner Music is expressing such displeasure means that they are probably finding it suspect as well. Clearly, just handing over a chunk of the profits from these games could appease the music publishers, but will game companies swallow that pill?

Alternately, game publishers can increasingly move away from unfriendly music partners. There are options for all parties, and the functions of the market are going to act on each — pressuring music publishers to make deals at rates favorable to the game publishers, while game publishers will be pressured to increase their offers to rights holders to attract the highest value musical content. What may determine success in both cases is the ability to find the right match of price point and overall content quality. Sacrificing some per sale percentage to get into a better game could ultimately mean more total downloads for a particular song, while making the right deal to acquire the about-to-pop single could put a marginal music game on the map in a big way.

The wild card in all this is the consumers’ appetite for music gaming in general. From my perspective, the golden days seem to have passed. So now the key may be finding a niche of popularity. But with the potential for bargaining battles, it will be interesting to see if publishers of either variety of content have the will to keep the music gaming sphere humming along, or if the opportunity costs of trying to work out these kinks will be too much to overcome.