Wedbush Morgan analyst Michael Pachter strongly disagrees with Warner Music's chief exec, who earlier today claimed that music labels are getting the short end of music licensing deals for games like Rock Band and Guitar Hero.
Pachter told Edge on Thursday, "[Warner Music chief Edgar Bronfman] misses the point that there is significant value added by Activision, and his comments reflect his lack of understanding about the business."
Bronfman said Thursday that the music industry isn't seeing enough of the money being generated by hugely successful rhythm games like Rock Band and Guitar Hero, which feature songs by big name name acts.
The exec said in an earnings call, "[In games] the actual royalty derived from the use of a song or the royalty derived from the download of a song remain, in my estimation, far below what their true value is," adding that licensing fees are currently "paltry."
Warner licenses music to both Harmonix's Rock Band and Activision's Guitar Hero franchises.
Pachter suspects that Warner Music makes about as much money per iTunes song sold as it does per song in a rhythm game--about 65 cents.
iTunes songs cost 99 cents per download, while Rock Band and Guitar Hero songs cost about $2 per download.
"I think that Mr. Bronfman’s characterization as 'paltry' is his reaction to the
percentage royalty paid, as it is one-half the royalty rate paid on iTunes.
"However, his flip comment disregards that the songs downloaded on Guitar Hero are
not songs--they are videogame files with an embedded sound track.
"The value of the music is near zero without the game file, and nobody downloads Guitar Hero content to play on their iPod."
Bronfman also stated that if licensing deals don't improve in Warner Music's favor, "as far as Warner Music is concerned, we will not license to those games."
But Pachter questioned whether or not the exec has much room to call any shots. "The other thing I find interesting is Mr. Bronfman’s distorted view of his leverage in this matter. Activision isn’t operating a music download service where consumers get to choose whatever they want; instead,
Activision is selecting which songs will be available, since they require modification (conversion into a game file).
"Thus, Activision can select songs not published by [Warner Music], so Mr. Bronfman should rethink his negotiating leverage."
Pachter also noted how games like Guitar Hero and Rock Band can actually rekindle interest in bands, and suggested Warner Music analyze whether or not increased recorded music sales correlate with an act's appearance in videogames.
Nevertheless, Bronfman wants a bigger piece of the pie before it's too late. He said that the music industry allowed itself to miss out on value created when MTV launched 25 years ago and when Apple launched the iPod five years ago. "What we need to be very careful of is that the recorded music industry and the music publishing industry do not allow an ecosystem to occur where we are not properly compensated," said the exec.
"That, I think, is the state that we're currently in with Activision and Harmonix."
