"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."
Artists from Nirvana to the Red Hot Chili Peppers have seen sales of their music more than double after being released on the games. Some bands are featured on special editions — like Aerosmith on Guitar Hero this year and, soon, The Beatles with MTV Games — and last month, The Killers released two new songs on Guitar Hero the same time their latest album came out.
"It's a way to save the music industry," said Grant Lau, a 40-year-old bar worker who started the play-along night at the Hyperion three years ago for a friend who owns the bar.
Lau points out the games protect artists and recording companies from piracy because buyers have to own the console equipment to enjoy new music, which they must purchase through sanctioned game sites or on special game-formatted discs.
"You actually have to buy the music," he said. "You can't just rip it and put it on (file-sharing site) Limewire."
The addictive play-along games are a cross between karaoke and open-mike night. Players hear an approximation of a song and try to match colorful visual cues by pressing buttons on a guitar-like plastic game controller, pounding touch-sensitive rubber drums and singing into a specialized mike. Successful performances sound quite like the originals.
"As soon as you play it, you like it a lot more, and then you buy it," said Tan Doan, a 26-year-old Web developer from Long Beach. While playing Rock Band at the Hyperion every Wednesday, he discovered The All-American Rejects, got hooked on the band and then bought its CD.
A new feature on this October's Guitar Hero: World Tour allows users to create new songs and upload them for others to play, making the platform a place to discover music, as well as compose it.
Seeing more than 65,000 original songs uploaded so far, RedOctane's Huang predicted that music video games will "become the biggest platform for music distribution in the world."
"We still have great relationships with most of the (music) industry. We continue to really benefit each other," he said. "At the end of the day it's about creating a great game for the users. We'll figure this stuff out."
This holiday season is expected to bring even stronger game sales and, by extension, a still greater boost for the featured musicians.
Through November, some 22 million units of Guitar Hero had sold in the U.S. since its launch in October 2005, along with 5 million units of Rock Band since its debut in late 2007, according to NPD Group. The release of Guitar Hero: World Tour in October could boost revenue for the franchise some 40% over last year, according to analysts. At $189, the latest Guitar Hero costs nearly twice as much as last year's version because it comes with a drum set and a microphone. The newest Rock Band—Rock Band 2— costs the same with all the peripherals.
"They're selling out," said Cowen & Co. analyst Doug Creutz, who noticed resellers on Amazon.com charging a premium of up to $85 over the regular price for the full kit. "In the U.S., supply is a lot tighter than they were anticipating."
The predecessor, Guitar Hero III: Legends of Rock, raked in $750 million between fall 2007 and this fall.
The revenues don't stop there.
Users have downloaded game-playable songs more than 55 million times, some free but most around $1.99 each, since the games launched, and new titles come out each week.
Promoters have even brought the game into the real world with a Rock Band Live concert tour.
Concert tracking magazine Pollstar said 2,900 fans paid $25 to $36 each to rock the Event Center at San Jose State University on Oct. 11, one stop on a 26-stop tour by four bands — Panic at the Disco, Dashboard Confessional, the Plain White Ts and The Cab — who performed between renditions of songs played by local Rock Band contest winners.
"The tour was designed for our MTV audience," said Paul DeGooyer, MTV's senior vice president of electronic games and music. "It got a very good reception. In all respects, it points the way forward for Rock Band to take its place in the musical ecosystem."
The games' appeal is clear for the amateur who aspires to a higher musical calling.
Alex Morsy, a 26-year-old Web developer who played backup last month at Hyperion on a number of tunes, said the games fulfill his interest in playing music notwithstanding his lack of talent.
"I'm tone deaf," he said in a break between songs. "I tried learning piano one year but I totally sucked at it. I'm not very musically inclined, so this is fun."