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Yeah, yeah, yeah: Viacom wants back bonus paid to Rock Band maker [Updated]

February 12, 2010 |  1:29 pm

BeatlesRockB

Viacom Inc. has decided it gave a little bit too much help to its friends at video game developer Harmonix Music Systems.

After losing money for the third consecutive year on its Rock Band video games produced by Harmonix, Viacom is moving to take back a "substantial portion" of a $150-million bonus it paid in 2008 to the company's former owners.

Viacom waded into the music video game business in 2006 by paying $175 million to buy Harmonix, which leaped from obscurity by producing the first Guitar Hero game. After Harmonix developed Rock Band for its new owners in 2007, Viacom paid the studio's former shareholders a $150-million "earn-out" bonus based on its performance.

In a Securities and Exchange Commission filing Thursday, Viacom said it now wants much of that money back.

"At December 31, 2009, we believe that we are entitled to a refund of a substantial portion of amounts previously paid, but the final amount of the earn-out has not yet been determined," the company said in the filing.

A spokesman for Viacom declined to elaborate. Harmonix Chief Executive Alex Rigopulos referred questions to a spokesman, who also declined to comment.

With sales for the high-profile release The Beatles: Rock Band coming in at an underwhelming 1.7 million units worldwide last year, the music game series dragged down profit for Viacom's MTV Networks division by 4 percentage points, the conglomerate's chief financial officer, Tom Dooley, said on a conference call with analysts after the release of its quarterly earnings report Thursday.

In a research note, media analyst Michael Nathanson of Bernstein Research estimated that the "current trend" of losses for Rock Band has been between $50 million and $100 million per year.

Before the release of The Beatles: Rock Band in August, MTV Games general manager Scott Guthrie said he expected the company's video game business to be profitable in the fourth quarter.

"It certainly was a challenging year in 2009, you know, for the video game industry in general and certainly for our Rock Band franchise," Viacom Chief Executive Philippe Dauman said on the conference call.

Also this week, game publisher Electronic Arts revealed that its deal to distribute Rock Band games for MTV would expire soon and that it was planning to cut back on handling games for other companies. An upcoming version of Rock Band featuring Green Day will be the last title released under the current deal.

"We are in discussions to evaluate future distribution relationships," Dooley said on the call.

Viacom isn't the only company having trouble in the music video game business. Activision said in its quarterly earnings report Wednesday that it sold 35% fewer Guitar Hero-related titles last quarter than a year earlier.

Activision said it would release just 10 versions of its music games this year, down from 29 in 2009.

The Santa Monica game company, which laid off about 200 employees Thursday, is hunkering down and focusing on games for the hard-core players willing to spend their bottom dollar on games.

Mike Griffith, head of Activision’s publishing business, summed it up during a conference call with investors by saying, “In 2010 we’re anticipating further declines in the music genre overall as the casual consumer proves less robust.”  

[Corrected at 3:16 p.m.: An earlier version of this post said that after Harmonix developed Rock Band for its new owners in 2007, Viacom paid a $150-million "earn-out" bonus to the studio's principals.The principals constituted a minority group of the former shareholders.]

-- Ben Fritz

Times staff writer Alex Pham contributed to this report.

Image: The Beatles: Rock Band. Credit: MT V Games

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