Can Video Game Tunes Help Save Warner Music?

There was piece of news that came out on Wednesday, but covering it then would have been about as valuable as gold to a dead man.  In the midst of a correction (or meltdown or whatever you call the selloff) no one cares about a music company that has been caught between a rock and a hard place.  But now that the dust has somewhat settled, there is something that could generate a boost for Warner Music (WMG-NYSE).  There is no doubt that CD sales have been eroding and no doubt that music publishers have been fighting to keep control over their content. 

This week Warner Music signed a pact with Microsoft (MSFT-NASDAQ) where the company will administer and license music compositions owned by Microsoft.  You have to consider that this includes the music from games such as the Halo franchise, Fable, Age of Empires, and many more.  In truth, one game maker will not make a dent even if it is Microsoft and Master Chief.  But if you take this one step further you could end up with an entirely new revenue stream for Warner if they go out and lock up the other game publishers with the same agreement.  Video game tunes and music compositions are currently very difficult to purchase and this could bridge that divide.

Warner currently on its site lists music by Movie/Stage/TV, Songwriter, publisher, lyrics, artist and Label.  This will add several thousand music compositions for an entirely new music category in their offerings.  If Warner Music can go out and seize a dozen other gaming contracts, this could be an incremental new revenue stream that comes with minimal partnership and download costs.  It could be an enormously profitable business segment that contributes right to the bottom line.  They can advertise on all the major gaming sites for probably $1 million per year and would be able to generate many profits.

The trick is that they have to do it.  We are after all talking about Warner Music, and they are not exactly known currently for doing everything right.  The company is in a real catch-22 right now and it will take time and much effort just to maintain its current position. 

If you don’t think video game music can be a huge add-on, think again.  Video game sales have caught up to movie sales.  This is a huge industry.  Last summer the Houston Symphony featured an event that was probably the ONLY way they could have brought in floods of kids and young adults: It featured the MUSIC OF VIDEO GAMES.  This was a huge hit.  Many of the compositions are actually great classical music that can even cross over to non-gamers.  If you haven’t heard the music intro for the Halo2 video game just know that you are missing a phenomenal symphonic score.  So, this isn’t a guarantee for the company but it’s definitely a potential start.

Jon C. Ogg
March 2, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.