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Analysis: Habbo, Music and the Record Labels
/ November 6, 2007 10:10 am

It is not just file-sharing kids and single moms that the record labels have to worry about if they continue their head-in-the-sand approach to the digital world. The artists themselves are increasingly losing faith in the labels. Prince freed himself from record labels years ago. Paul McCartney, Radiohead and Nine Inch Nails have followed. Even the Material Girl, Madonna, appears to be splitting with her major record label. And still the labels are choosing to leave what could potentially be a lucrative new revenue streams from Virtual Worlds such as Habbo Hotel on the table.
 
Madonna said she was drawn to the all-encompassing deal reportedly worth $120 million over 10 years with concert promoter Live Nation, because of the changes the music business has undergone in recent years, in spite of owning her label Warner Bros. Records another studio album and a greatest hits album.
 
"The paradigm in the music business has shifted and as an artist and a business woman, I have to move with that shift," Madonna said. "For the first time in my career, the way that my music can reach my fans is unlimited. I've never wanted to think in a limited way and with this new partnership, the possibilities are endless."
 
Could U2 be next? Justin Timberlake? Coldplay? AP posed the question in a recent article entitled “Are Record Labels Dead?” published on CNN.com.

At conferences such as our latest Digital Music Forum West, the label executives say that they are focused on new innovative ways of monetizing music. But, in reality, do they walk the walk?
 

Teemu Huuhtanen, President N. A. and EVP for Habbo business at Sulake (the company that runs Habbo Hotel, one of the world’s most popular virtual worlds for teens online) knows the situation all too well.

His company has spent years developing an advanced platform for selling virtual goods online and the Habbo users are already spending millions of dollars per month using it to buy virtual furniture and other stuff.

Every survey that Sulake has conducted show that music is the number one interest for Habbo’s 13-16 year old teen demographic and Sulake’s platform is ready for selling music.

So, for some time now, Mr. Huuhtanen has been trying to strike a deal with the record labels to sell, or at least feature, some of their most popular artists’ music in Habbo Hotel.
 
The labels do recognize the importance of following the kids to their favorite online hang-outs and allowing their artists to do live chats and promote themselves in Habbo Hotel.
 
So you would think that the labels would jump on the opportunity to monetize the promotion they are already doing in Habbo.
 
But, so far, the labels won’t allow it.

The rights issues are too complicated and, at the current level of compensation that the labels ask for, it makes no business sense for Sulake anyway.

“Habbo users want the ability to support and identify themselves with their favorite bands or recording artists inside our virtual community,” says Mr. Huuhtanen. “We are continuing to work with the major record labels on the issue of digital rights and compensation to provide our user base what they are asking for – a way to purchase in Habbo songs and digital goods licensed by label artists.”
 
Right now, Habbo users from all around the world can only listen to amateur songs that the users have done by themselves, using a music-mixing application called "Trax".

But I have no doubt that Mr. Huuhtanen will find a progressive label to cut a deal with sooner or later. With both traditional customers as well as the artists turning their backs on the traditional record labels and their brick and mortar products, they have everything to win by striking a deal with Habbo.

The question is, who will be first? It is amazing to me, especially with the success of selling ring-tones for cell phones in mind, that labels are not yet trying out what could be a great new way of distributing music. Sure, the possible revenues from virtual worlds are not going to make up for the decline in CD sales, but the labels can't afford to leave a cent on the table if they want to stay in business.

Joakim Baage


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