Video Games: Will The Beatles Rock MTV?

Before packed stadiums this summer, Paul McCartney, musician, is also playing the role of pitchman. Behind him on stage, animated images from a soon-to-be released video game called The Beatles: Rock Band are beamed onto giant screens. As McCartney plugs the game to his fans, some concert venues are letting Fab Four wannabes try it out at special kiosks.

Executives at MTV Networks, which will introduce its latest video game venture in early September, couldn't be happier with the promotional push by Sir Paul. And the stakes couldn't be higher for corporate parent Viacom (VIAB). No media company has felt The Great Recession's impact on video game sales more than MTV, where the two-year-old Rock Band has dragged down the entire business in recent months.

Still, that is not deterring MTV from moving ahead with one of the highest-profile game launches ever by a traditional media company. The culmination of nearly three years of planning, The Beatles: Rock Band is unprecedented for how smoothly negotiations went among Beatles, Beatles' widows, and music outfits to create the game. And its debut will mark the first time the stubbornly analog Beatles have agreed to let their tunes be sold in a digital format. Betting on the enduring appeal of The Beatles, a major marketing blitz is under way to reach both boomers and their kids.

Rock Band allows players to use plastic replica instruments to jam as a virtual band as they follow notes, lyrics, and animated rockers on a screen in front of them. Gamers can get updated versions by buying new software. How well the Beatles version of Rock Band sells in these tough times may go a long way toward determining Viacom's commitment to gaming as it looks beyond advertising and cable distribution fees for new sources of revenue.

Certainly, the $30 billion-a-year video game market in the U.S. still offers prospects, despite the recent downturn. "Big media companies have been in and out of video gaming for years," says Chris Marangi, an analyst at money management firm Gabelli. "What is attractive now is being able to have a recurring revenue stream. They see that through offering new software. It's not selling the razors, but the razor blades."

Optimistic executives say Rock Band can have the same effect on music that MTV videos did when the channel launched 28 years ago. "We showed people how to experience music in a new way," says Van Toffler, the head of games, music, and movies at MTV. "Rock Band, too, allows people to interact with music in a whole new way."

In 2006, Viacom purchased Harmonix Music Systems, the company that would create Rock Band. Sales of Rock Band worldwide have since topped $1 billion, according to some analysts' estimates. At the same time, the game became a viable competitor to rival Guitar Hero.

But the slump in video games this year has hurt Rock Band, prompting MTV to lower prices for the video game's hardware—the instruments. And the margins in that business were already thin compared with those on sales of the songs and software. MTV executives now say they want to focus more on software sales. Despite how Rock Band pinched earnings recently, Viacom CEO Philippe Dauman says he is committed to the game, describing the Beatles version as "an extraordinary musical experience and a work of art."

The idea for a Beatles game came to be during a serendipitous lunch hosted by Planet Hollywood founder Robert Earl on Parrot Cay in the Caribbean over the Christmas holidays in 2006. MTV's Toffler, a huge George Harrison fan, for the first time met Harrison's widow, Olivia, and son, Dhani, then 28. When Toffler complained about a sleepless night, Dhani said he had been up all night, too—playing Guitar Hero. Toffler told him MTV had just bought a company that was working on a game in which you could use more instruments, not just guitar.

Dhani suggested it would be cool to launch a Beatles version of that game. Toffler then set up a meeting between Dhani and Harmonix co-founder Alex Rigopulos. Soon Dhani was approaching The Beatles' publisher, Apple Corps, about the idea. McCartney, Yoko Ono, and Ringo Starr got on board, offering their input—even down to how the images of the Beatles should look in the game animation at various stages of their career, from Liverpool's Cavern Club, to the Ed Sullivan Theater, to Shea Stadium, to the Apple Corps rooftop.

Customized instruments are being offered as part of the game, including Paul's Höfner bass, John Lennon's Rickenbacker 325 guitar, George's Gretsch Duo Jet guitar, and Ringo's Ludwig drums. Forty-five digital songs will be offered initially, including the entire Abbey Road album, which will be embedded in the game files—meaning the songs can be listened to only when you're playing the game. Taking this first step into digital, though, could signal that The Beatles might finally be warming up to the idea of making their music available for downloads at such venues as iTunes (AAPL).

The game's launch was cleverly set for 9-9-09, as in Revolution 9 from The White Album. The marketing so far has included MTV posting the game's animation on YouTube (GOOG) to creating Facebook and Twitter accounts to offer news updates. Also on Sept. 9, music company EMI will release on CDs the entire Beatles catalog digitally remastered, yet another sign The Beatles may be ready for downloads.

But what will clearly be the biggest attention grabber is a TV commercial that will begin airing soon, set to the song Come Together. The spot will bring to life the iconic Abbey Road album cover, using archival film footage of the photo shoot. The ad will show The Beatles walking across Abbey Road, and computer-generated wizardry will have a gaggle of Rock Band fans following behind them.

For years, Viacom has operated gaming businesses at other units like Paramount and Nickelodeon, but the emphasis these days seems to be squarely on MTV. Top executives from game publisher THQ (THQI) and Sony (SNE) were recruited earlier this summer to boost MTV Games, and developers are starting to work on new games in partnership with Hollywood producer Jerry Bruckheimer. For now, however, Viacom is betting the lasting legacy of a band that broke up 40 years ago will be able to defy the economy and revive MTV's gaming strategy.

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