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More than a song

Record labels and artists deserve a bigger piece of the action from video games and online music.

August 19, 2008

Twenty-seven years after MTV aired its first music video, the network's phenomenal rise still haunts the music industry. Record company executives treated the fledgling network like a radio station, supplying free videos in the hope that the airplay would boost sales. Four years later, MTV's owners sold it to Viacom for about $690 million ($1.4 billion in today’s dollars), leading rueful label executives to resolve never to let another billion-dollar business be built from free music.

The Internet and microchip-powered consumer electronics have created a new set of opportunities to capitalize on the public's demand for music. At the same time, however, file-sharing networks, blogs and other sources of free music have thrown into question the value of music online. So instead of embracing the new opportunities together, labels, artists and entrepreneurs have often scrapped over the licensing fees and royalties that online businesses must pay for the music they distribute.

Recent complaints by Warner Music Group Chairman and Chief Executive Edgar Bronfman Jr. and Pandora founder Tim Westergren illustrate this tension. Speaking to Wall Street analysts last week, Bronfman said Warner wasn't getting paid enough by the creators of the successful music-based video games Guitar Hero and Rock Band. The former is published by Activision Blizzard Inc. of Santa Monica, the latter by (wait for it ... ) MTV Networks. Westergren told the Washington Post last week that Pandora, an extremely popular online radio service, will soon have to close unless labels and artists agree to a lower royalty rate. A federal panel imposed sharply higher rates last year, and the fees will consume almost three-fourths of Pandora's advertising revenue this year, he lamented.

Bronfman's irritation is common among the labels, just as Westergren's concern is among webcasters. Labels and artists clearly benefit from having a new partner in the video-game industry and a healthy, diverse roster of webcasters. Unfortunately, the industry's problem in the short term -- collapsing CD sales -- makes it harder for labels to focus on their long-term interests. And as in any nascent business, simply having good ideas and attracting a big audience won't guarantee that a start-up can pay its bills. It would help matters if the music industry stopped resenting the occasional jackpot struck by risk-taking companies with new music-powered ventures. But labels and artists have the right to seek as much as they can for the use of their works, even if they end up setting too high a bar for some companies to clear.

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