Music Games Aren't Child's Play

Hey, Sony (NYSE: SNE) BMG! Are you there, Warner Music (NYSE: WMG)? Listen up, or you'll be out of business in five years. The music industry is changing very swiftly right now, but you can still stay relevant thanks to a bunch of kids flashing plastic guitars just like switchblades.

Electronic Arts (Nasdaq: ERTS) and Viacom (NYSE: VIA) are pushing the boundaries of guitar-based gaming with Rock Band 2. Activision's (Nasdaq: ATVI) Guitar Hero series has exploded from nothing three years ago to a $1.6 billion franchise today. If the RIAA tracked video games like it does record sales, Guitar Hero 3 alone would be about 12 times platinum today -- about even with Bon Jovi's Slippery When Wet and ahead of the Beatles' Sgt. Pepper's Lonely Hearts Club Band.

It's no wonder, then, that bands both big and small are falling all over themselves to make an appearance in the next iteration of these hard-rockin' games. Promotion opportunities like that just don't come along every day. And this is just the first baby step on a much longer journey.

Warming up the crowd
When Rock Band 7 and Guitar Hero 9: Intergalactic Tour hit store shelves in five years, they will look very different from the simplistic versions we have today. I don't care about fancier graphics or new gameplay features, because the current crop get these minor details right already. The future games will also be fully feathered music publishing platforms.

In 2013, when a kinder, gentler Metallica releases the Green Album (with the hit single "The Forgiven"), the concept of a CD album will be a mere afterthought. Wal-Mart (NYSE: WMT) will have fallen off the top-10 list of the biggest music sellers. Physical media will have become nothing but a way to squeeze a little bit of money out of the diehard fans who like to hug CD cases with lyric sheets. On the other extreme end of that spectrum, casual fans will just go to Apple (Nasdaq: AAPL) iTunes or one of its rivals to get digital copies of their favorite cuts off Metallica: Green. No fuss, no muss, no filler tracks allowed.

And straddling that span with a toehold on both sides, there are the guitar games. This could soon be the biggest music publishing platform of all.

The main event
Creating game versions of every song will be standard operating procedure, and each game will dwarf the roughly 100-song track list in Rock Band 2. Here's why:

• The labels love it because piracy is almost impossible when you're downloading music in tightly controlled, proprietary formats from central servers.
• The fans have come to expect an interactive experience that no CD could ever deliver.
• Established artists can reach new, unexpected audiences: Where would a modern teen hear Foghat or Cream today without the guidance of a popular video game?
• New artists have a marketing channel that reaches millions of pretty darn dedicated music enthusiasts.

It'll be a balancing act between running a mass-market music store on the one hand, and wrapping it in a compelling gaming experience on the other. But after a few iterations, these companies will get it right. The music industry will never be the same again, with Activision and EA (and maybe a few upstarts besides) guarding the toll booths on the new publishing pathways.

The after-party
Some rockers see this virtual gold mine materializing before their eyes, while some are less enthusiastic. Swedish rockers Kent don't expect to get rich on their involvement in Guitar Hero: World Tour, band manager Martin Roos tells me. It's more of a fun side project for them, but they were happy to jump aboard when their label, Sony BMG, asked permission. 

Bertis Downs of REM is "psyched to reach a different group of people" with a three-pack of downloadable songs for the same game and a golden oldie in the main setlist. And Lars Ulrich of Metallica told MTV this spring that "the people at Guitar Hero and Activision are rapidly becoming our best new friends in the world." Guitar Hero: Metallica is due by March 2009, according to SEC filings.

You can smell the wind of change already. Prince and Radiohead are giving away songs for free. Up-and-comer KT Tunstall thinks that music sales are just a tool to get people into her live shows. And plastic guitars are leading kids to new and old music, a stronger connection to their favorite songs, and the occasional real instrument.

Hey, bring it on. I'd take Saxophone Hero or Symphony Orchestra 2 as well. These guys are onto something big.

Further Foolishness:

• Guitar Hero 101
• It's the End of Publishing as We Know It
• Entertainment Stocks: Growth and Defense