The following report is courtesy of Antony Bruno from Billboard/Reuters:

When you contrast the financial struggles of the music industry with the skyrocketing success of the videogame market, it's no surprise record labels are ready to play hardball on future music licensing.

The latest data from NPD Group find that U.S. videogame sales totaled more than $9.5 billion through the first seven months of 2008, a 35% jump from the same period last year. And in a recent report, UBS analyst Ben Schachter credits music games like Rock Band and Guitar Hero III as a critical factor in that success -- responsible for 15% of game sales so far this year and 32% of the industry's year-over-year growth.

As such, it's hard to blame Warner Music Group chairman/CEO Edgar Bronfman Jr. for wanting a bigger slice of that pie. During a conference call with Wall Street analysts to discuss the label's fiscal third-quarter operating results last month, Bronfman lambasted the "paltry" per-song licensing fees labels get when making their content available in music games and warned that Warner would stop licensing to them if the model did not change.

His comments were a tacit admission that the labels, like many others, completely underestimated the potential of the music games market, and as a result struck a bad deal. The industry settled for a standard soundtrack licensing approach that provides a royalty based on unit sales for any music included in the game at purchase and a percentage of each downloadable song bought afterward -- which amounts to far less than the 70% split labels get from iTunes.

The massive success of these games and their financial impact has labels rethinking their approach. They now want a partnership more akin to how sports leagues like the NFL license their players' likenesses and other assets to games like Madden NFL, which, depending on the deal, provides upwards of 30% of total revenue.

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