"This song is dedicated to Debbie Harry," flinty-eyed Lisa Hsuan purrs into a microphone on the red-lit stage of Hyperion Tavern. It's a cozy dive where patrons drink Coke and beer from bottles and a fading chandelier dangles overhead.
Her tribute is intentionally ludicrous: The 30-year-old veterinarian is about to belt out Call Me, which Harry — fronting the group Blondie — released 28 years ago. Accompanied on fake guitars and drums by three Web programmers who drove in from the refinery-dotted coastal suburb of El Segundo, Hsuan launches in as a smoke machine puffs nearby.
They're playing the video game Rock Band 2, which along with Guitar Hero is rocking bars and living rooms across the country. Many songs' sales have more than doubled after release in one of the games, and well-known bands have started lining up to provide new music direct to the game makers. Now record labels — noticing what they are missing, and struggling as compact disc sales tumble — are looking for a bigger piece of the action.
Although labels get some royalties from the play-along games' makers, they are often bypassed on image and likeness licensing deals, which the bands control and which account for a rising proportion of musicians' income. Meanwhile, the Recording Industry Association of America pegged its U.S. members' sales at $10.4 billion in 2007, down 11.8% from the year before, with a further drop expected for 2008. By comparison, video game sales overall more than doubled this year, hitting $1.9 billion in the 12 months ending in November, according to NPD Group. And they're expected to keep growing.
Aerosmith made more money off the June release of Guitar Hero: Aerosmith than either of its last two albums, according to RedOctane co-founder and president Kai Huang.
"The kind of exposure that artists can get through the Guitar Hero platform is huge," said Huang, who remains RedOctane's president, after it and the Guitar Hero franchise were taken over by Activision Blizzard Inc. in 2006. Rock Band, meanwhile, is made by Viacom Inc.'s MTV Games and distributed by Electronic Arts Inc.
An executive at a major record label, who spoke on condition of anonymity because the negotiations are sensitive, said the stream of income from games to labels doesn't match the traditional business of signing and promoting hot artists. The executive said a typical record company still makes more from a single album that sells 3 million copies than from all its video game revenue combined.
And, though Warner Music Group Corp. Chief Executive Edgar Bronfman Jr. bemoaned the "very paltry" licensing fees record labels get from game makers in August, the labels haven't stopped sending their music to game makers.
That's partly because they lack leverage. Even the largest label, Universal Music Group, controls just a third of the U.S. market, said Wedbush Morgan entertainment analyst Michael Pachter.
"There are literally probably 2 million songs out there, and fewer than a 1,000 were used in these two games combined in these last two years," Pachter said. "If Warner wants to say we'll take our 20% of the market and go away, a lot of bands are going to leave the label if they think they can get better exposure by being on these games."