Rock Band Network Creates New Industries Entrepreneurial musicians and programmers should benefit from these exciting new markets.

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Can Anything Turn Slumping Music Game Sales Around?

Music videogames like "Rock Band" and "Guitar Hero" have tapered off after huge growth in 2008 and years prior.

But a new platform that lets musicians and labels upload and sell more songs to play along with could potentially boost user interest (and spending) again.

Last night, Harmonix launched the open beta of Rock Band Network, a radically new way for music game content to be produced and distributed.

The network allows users to program their own songs into Rock Band, then upload them for sale as downloadable content for between $0.99 and $2.99 per song. Harmonix will give content creators a 30 percent cut and keep the rest. (The opposite of the Apple iPhone app store pricing split, where Apple takes a 30 percent cut and gives content creators 70 percent.)

This is a big development in music gaming. Falling revenue for the genre over the past few years clearly demonstrates that gamers aren't going to pony up for new software, let alone new plastic instruments, as often as the industry once expected.

Downloadable content, on the other hand, could be a big potential source of revenue. And as Rock Band Network effectively crowd-sources content-creation, the number of available songs will skyrocket.

There is, however, a catch: turning songs into video game content is hard work, requiring technical expertise and a lot of man-hours. Even once a user is fully trained, the lowest estimate we've ever heard for the time spent per song is 20 hours, with most estimates coming in at 40-60.

Rock Band Network is a huge opportunity for musicians, but many, especially the unsigned masses that are likely to be most interested in the opportunity, simply won't be able to handle the task of programming songs themselves.

As a result, an industry has sprung up to perform the task for them. One is Bay Area-based WaveGroup , one of the companies that worked on Rock Band Network through the closed beta and is now selling its content, including tracks by Steve Vai and Widespread Panic.

WaveGroup has been working in music games for years, programming content for Guitar Hero and Rock Band. But CEO Will Littlejohn thinks that Rock Band Network will become a huge business for the company. Indeed, he is betting heavily on the network's success; whereas most companies charge a flat-fee up front to program songs, WaveGroup enters into a partnership with musicians, making its money -- or losing it -- on the back end.

Littlejohn says he isn't clear yet how many times a song will have to be downloaded for the company to break even, but said "it won't be within a few months" of a track being added. As with traditional music distribution, WaveGroup's profits will likely be hit-driven, with the company losing money on many of the unknown bands it takes on. This is the part of the business that most appeals to Littlejohn, who says "it's exciting working with unknown bands" that are so excited about the prospect. "Who wouldn't want to be in a video game? It's the coolest thing."

Not everyone sees it that way, however. Jeff Price, CEO of Tunecore , a digital distribution company that treats distribution as a service industry, told us "I think back-end models are disgusting." As it has done elsewhere, Tunecore will charge a flat fee for its work on Rock Band. But while Tunecore can put an entire album on iTunes for around $40, putting one song on Rock Band Network will cost artists $1,000.

That could be prohibitive for many unsigned acts, but Tunecore's model has crushed it elsewhere in digital distribution, so it will be interesting to see which catches on in this space. In any case, both CEOs are convinced that Rock Band Network is going to be huge, and lasting.

Which raises the question: where is Activision with Guitar Hero's response?

Publicly, the company has been dismissive of Rock Band Network, but we've heard rumblings that Activision is working on its online strategy. It had better be.

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