EA Tries to Go Platinum With Music Label - TheStreet

SAN FRANCISCO -- Getting signed by a major record label is every recording artist's dream. But now some musicians are turning to a new road for success: Video games.

One of them is Dutch-born remix star Junkie XL, whose electronic dance music has been played in clubs, music festivals and a few commercials.

But it is in video games such as sports titles,

Need for Speed: Pro Street

and the

Madden NFL

series that Junkie XL or Tom Holkenborg's music shines.

Last year, after working informally with game companies for years, Holkenborg inked a contract with Artwerk, a music label from video-games maker

Electronic Arts

(ERTS)

.

For Holkenborg it's a nice fit. "Video games is the new radio of electronic music," he says.

Games often help bands get discovered and heard among a demographic that is likely to strongly overlap with their target audience. About 1% to 2% of a game's production budget, which can run up anywhere from $10 million to $50 million or more, is allocated to the soundtrack.

Until now, game companies worked with recording labels or publishing firms to get licensed or original music, often opting for new and independent artists in an attempt to inject fresh, interesting and undiscovered music in their games.

When a track or two from a game gained widespread popularity and found itself used in advertising commercials, for instance, the video-games companies that had helped bring initial attention to the music got no share of the licensing profits.

"EA has been instrumental in breaking new artists, but we have been limited in our ability to grow them," says Steve Schnur, worldwide executive of music and marketing for EA.

So, in March 2007, EA, in partnership with publishing firm Nettwerk One Music,

launched its own

music label to extend its relationship with artists.

With Artwerk, EA hopes to directly sign and launch artists, help them with the digital distribution of their music and offer licensing deals such as a placement in the company's vast portfolio of video games. Artwerk will also profit from the licensing of the music to advertising commercials and other avenues, says Schnur.

Artwerk hopes to help its artists find new outlets for their music and go beyond just CDs or live shows as the primary sales channels for them.

It is a unique experiment. EA's rivals including

Activision Blizzard

(ATVID)

, which has the highly popular

Guitar Hero

music franchise, and smaller players such as

THQ

(THQI)

or

Take-Two Interactive

(TTWO) - Get Report

remain wedded to just creating new games. EA is playing for bigger stakes, an opportunity to become the next star in the entertainment business and not just be another video-game company.

Although Artwerk has a long way to go before it can bring any significant revenue to EA, it's a start. EA already makes tracks available from its best-selling games for purchase on

Apple's

(AAPL) - Get Report

iTunes store.

Artwerk has had a "very successful" first year," says Schnur. We have signed seven artists, which is unprecedented for a video-game company," he says, "and we have used our artists in so much of our real estate."

With CD sales on the decline and recording labels struggling to maintain their stranglehold on a business ravaged by free sharing of music and online download, video-games companies are finding themselves in a strong position with the opportunities they can offer.

"Game companies offer great exposure," says Holkenborg.

"If you are Madonna or a Jay-Z, you are well off with a major record ompany, but for the kind of music I make, it is better to work with a special interest company that has its own audience," he says.

EA decided to venture into the business of music when it found its games were helping shape popular tastes.

Take Australian hard rock band Jet. The group's song,

Are You Gonna Be My Girl

, was first featured in EA's

Madden NFL 04

game and went on to be a part of an Apple iPod commercial.

Another group, Ozomatli, also found one of their tunes featured in

Madden NFL 05

being later used in another iPod commercial.

"You have two bands where the exposure is so significant with the game that they ended up getting used in a pretty broad license," says Schnur.

Other bands on the Artwerk label include Australian band Airbourne, the Norwegian group DataRock, the Montreal, Canada-based Chromeo, the British act Ladytron and a Los Angeles band, First to Last.

Bands want to sign up with Artwerk because of the marketing and real estate that EA can offer. A typical music company will sign a band and then try to create exposure for it, says Schnur. But artists on the Artwerk roster have access to EA's portfolio of products, new releases, advertising and marketing opportunities -- in short, anything that requires music.

Schnur see this kind of relationship between artists and brands as Music 2.0. "In the future, artists will start signing directly to brands," he says. "Right now it seems like a unique idea but in 10 years it will look very typical."

Then a deal would involve a band signing on with a mobile carrier, or a technology company or even a tortilla maker because as Schnur says it, "those brands have real estate."

It's something that K Ishibashi, singer of the Jupiter One group, understands. "Video games have millions of users and that's where many hear our music for the first time," he says. "And they help bring fans out that will pack the houses when we are touring."

In its first year, Artwerk has had to jostle with record companies as they vie for greater revenue from the artists.

"Record companies want to participate in everything," says Schnur. "It's frustrating not just for us but also for the artists."

In industry parlance, it's called the 360-deal wherein a record label instead of just taking a percentage of record sales, takes a percentage of all profits an artist makes including that from licensing.

It's not a move that artists such as Ishibashi are happy with. "You want the most diverse group of agents competing for your interests," he says.

And that's what EA is counting on to make Artwerk an attractive proposition to musicians.

EA, through Artwerk, offers its artists a signing fee and an advance based on royalties it expects from licensing the music. Additional revenue is split based on a percentage that is determined by the clout of the artist.

Already EA has recouped costs on five of its seven bands that signed on with Artwerk, says Schnur. In the next year or so, the company hopes to add another five artists to its roster. "We are keeping it lean and mean," he says.

Junkie XL, or Holkenborg, is the only master recording deal that Artwerk has, says Schnur. Recording is not where EA's interests lies, he says.

And even Holkenborg says he understands that CDs are not where the future is.

"Throwing a CD out there is a very luxurious calling card," he says. "My goal is to get my music out there to as many people as I can, and with video games, I get millions to listen to my music."