It's a dark time for the music industry. And that's not just because of the Black Eyed Peas' latest album.
Global record sales dropped 7.2% last year, due largely to huge declines in some of the world's biggest markets—the U.S. (down 10.7%) and Japan (down 10.8%). Physical sales around the globe plummeted 12.7%, somewhat expectedly. And digital sales, which rose 9.2% in 2009, still aren't enough to stop the bleeding (many say even digital sales are starting to slow, or worse, stagnate).
Apple and iTunes alone aren't a panacea—the iTunes Store only grew 1.1% in the U.S. last year. But apps, simple little games and interactive doohickeys that loop smartphone users into artists' worlds or let them play along to songs, could open up multi-billion dollar app store to record labels. They're already positioning themselves to take advantage.
"We are no longer just a record company—we are a music entertainment company," says Amanda Marks, executive VP of Universal Music Distribution. "App development is a further step in this process—another product where we can grow an artist's audience and develop new revenue streams." Universal is focusing mainly on artist-branded apps. Take Riddim Ribbon, for example, the Black Eyed Peas' version of Tap Tap Revenge. After a 3rd-party developed the app, Universal realized it could create revenue by licensing content for the game. So in addition to all of the screen-tapping to Will.i.am beats, Universal has been monetizing Justin Bieber's tremendous popularity (especially on Twitter) by attaching his name to a similar app—Justin Bieber Revenge. Of course, many others have done the same thing. "There are a number apps in the store that throw his [Bieber's] name on even though he has no association," says Marks (e.g. Justin Bieber Brain Games, Justin Bieber Bieberpedia, Justin Bieber Concentration, Justin Bieber OBSESSION). Why? "Because he is the hottest property du jour."
Universal also scored big with Six-String, an in-house $4.99 guitar app that lets users strum along with songs from the label's huge catalogue. Participating artists range from Bon Jovi to Tom Petty, and users can download additional tracks for 99 cents each. "We are making money from in-app sales of content," Marks explains, "[But] the biggest revenue stream so far is premium apps."
And Universal isn't the only label to take advantage of the app store. A recent article in Billboard highlighted the industry's early forays into music apps. The best example is Warner Bros. & Artifical Life's "Linkin Park: 8-Bit Rebellion!," which came out this week for $4.99 on the iPhone and iPad. "8-Bit" is an action game "from the imagination of Linkin Park" where users play alongside members of the band. Users fight through various levels and can eventually unlock an exclusive track by Linkin called "Blackbirds." When asked whether Universal would follow suit and start releasing songs (or even singles) through apps, potentially with a big price mark-up, Marks hedged. "Up until this point, Apple has not permitted music to be included in apps." Linkin Park's independent publicist whose company has worked with artists such as Maroon 5 and Avril Lavigne said Linkin Park's was the only app they were working with at present.
The potential for the music industry's success in the app store hinges on whether development can remain cost-effective. Currently, relying on third-party developers and licensing deals is perhaps the most financially viable model. The AutoTune app "I Am T-Pain," for instance, was a joint effort by Smule and the artist himself (apparently). "I came up with the idea like six months back when I saw other artists with applications at the App store," T-Pain told Billboard in September. "So I went to the applications people, got with Smule and told them we had to make an application that will blow all these other apps out the water." And Smule did end up blowing the other apps out of the water, selling at last count well over 300,000 copies—about the amount of unit sales it takes to score a No. 1 record these days.
It's a safe bet that record labels are watching closely the performance of Linkin Park's app (and how it spurs record sales), perhaps planning to develop their own apps down the line. Until then, they'll have to rely on licensing deals like those with "Tap Tap Revenge," other 3rd-party developers, and revenue from in-app purchases like Six-String. According to Billboard, apps like Linkin Park's cost up to $50,000 to develop (the developers themselves say the figure is "significantly higher," although they wouldn't say specifically, citing non-disclosure agreements with Apple). Is that worth the potential revenue and expanded awareness for the band? Not enough to start a revolution in the music industry, let alone an 8 Bit Rebellion.