As an Activision Blizzard (NASDAQ: ATVI) shareholder, I'm extremely gratified by the unqualified success of the Guitar Hero franchise. However, I'm none too happy about statements made by Warner Music Group (NYSE: WMG) CEO Edgar Bronfman Jr. who believes that Activision Blizzard should be paying more to license the songs. When I first heard about that, I admit, I became a bit worried. After all, if the publisher has to pony up a higher amount of cash to the music industry, then there could be pressure on the stock.
Well, I'm glad I caught a blog post by Eliot Van Buskirk for Wired over at Portfolio.com. Looks like Activision Blizzard CEO Robert Kotick isn't taking too kindly to those in the music industry who suggest his company needs to share a higher percentage of the spoils. He basically told Bronfman Jr. to chill out, suggesting that the impact of his software platform on music sales for artists that are contained within it almost argues that the publisher shouldn't pay a dime to the music industry.
The shareholder in me says "right on, Bob!" In this digital age, the music industry needs all the help it can get in promoting its artist roster. Gone are the days when consumers opened their wallets for physical CDs. That aspect of the music industry is dying in favor of the iTunes model that powers Apple (NASDAQ: AAPL) and its iPod empire. Therefore, I agree with Buskirk's assertion that the boat shouldn't be rocked here. Music companies should just accept the licensing structure as it exists, look at it as a loss leader if they feel that's what it is, and just be satisfied with the ancillary promotion they receive.
Yet, I'd be less than truthful if I said I didn't understand where Bronfman Jr. was coming from. Indeed, I am a media-sector kind of guy and I do love the idea that content libraries can be leveraged to drive shareholder value. Bronfman Jr. is simply trying to get the most money that he can for his content. He wants to ensure that it is perceived as valuable. After all, if games such as Guitar Hero and Rock Band, the latter of which is produced by Viacom (NYSE: VIA) and distributed by Electronic Arts (NASDAQ: ERTS), becoming increasingly popular, then Warner Music Group needs to act on behalf of its shareholders' best interests.
It's like Disney (NYSE: DIS). Disney has gotten into battles before with cable companies over its content, demanding higher fees per subscriber for the right to place its cable channels on a given system's lineup. I am a shareholder of Disney, and although I did see both sides in that case as well, I obviously appreciated that Disney was standing up for me.
At the end of the day, though, the music industry should back off. I'm obviously biased, but I think Warner Music Group and other businesses dependent on the marketing of tunes to the youthful demographics need to allow Activision Blizzard and Viacom to profit as handsomely as possible so that they will continue to pump money into each new iteration of its games and make them as technically advanced as conceivable. It's not like Bronfman Jr. has to shoulder the development costs. Then again, he'd probably argue that he was in fact doing that by essentially giving away his content for less than what he believes it's worth.
Value is in the eye of the beholder, I guess. I hope this doesn't turn into an all-out war. But I'm glad Activision Blizzard's CEO is injecting some cool rhetoric into the skirmish on behalf of shareholders. Hey, Warner Music Group's stock hasn't been as strong as Activision Blizzard's stock the last few years, so I'm sure there's a little bit of ego-clashing going on here as well. At any rate, this should be an interesting one to watch.
Disclosure: I own Activision Blizzard and Disney; positions can change at any time.
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