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Let The Bodies Hit The Floor!

This is what happens when you kill the goose that lays the golden egg -- everybody, including the good people, has to suffer.

Earlier this year, I reported that Viacom was suing Harmonix for money back from bonuses, $150 mil total.  Thanks to last year's Christmas rush, when Activision was flooding the market with music games, the following of games like Rock Band (Harmonix) and Guitar Hero (Neversoft) has shrunk major.  You can pick up a Beatles Rock Band bundle for less than $50, and that was before Christmas clearances.

See, Rock Band had two SKU's that year, regular Rock Band and Beatles Rock BandBRB was overpriced in a recession -- retailers offered the game and controllers for about $160, almost $100 less that BRB with special Beatles-related controllers.  Guess which one people bought.  Activision, meanwhile, had SKU's for Guitar Hero World Tour, Band Hero, DJ Hero, and other gimmick games like Tony Hawk's The Ride.  Because these things are so large, they take up more shelf space.  In other words, multiple items that sold better could have gone on the shelf space and warehouse space held by all this crap.  Retailers were pissed.  Gamers were burned out.  Boom boom, out go the lights.

Now, downloadable content is still doing great and pulling in plenty of cash.  However, Activision realized their error too late and scaled back things for this year and drastically cut down on DLC.  Harmonix, meanwhile, saw themselves sued by Viacom.  Viacom bought them to make Rock Band, cost $175 mil, things were great initially, and the Harmonix crew got bonuses.  Viacom wants the money back.

Harmonix is now in the news twice.  First, Alex Rigopulos and Eran Egozy, the two MIT grads who founded Harmonix back in 1995, are leading the other initial shareholders of Harmonix in suing Viacom.  When Viacom bought Harmonix, there was a profit earn-out agreement.  Rigopulos and Egozy claim Viacom manipulated costs to keep from paying.  The complaint mentions the expiration of the EA contract.  EA handles distribution of Rock Band for a fee.  The complaint says that, instead of negotiating for reduced fees, Viacom basically gave EA an advertising deal on all its various networks (MTV, Nickelodeon, etc.) for 2008.  The fees EA collected would be reduced in 2009, which was when the earn-out period for Harmonix expired.  "Although a reduced 2008 EA distribution fee would have increased Harmonix's gross profit and operating profits in 2008, Viacom realized that every $1.00 of distribution fees that Harmonix saved during 2008 would require Viacom to pay an additional $3.50 of earn-outs to the [ex-shareholders]."  They are asking for relief in the equivalent of earn-out payments had EA's fees been reduced in 2008, the value of EA's advertising commitments, and $13 mil currently held in an escrow account.

A month and a half ago, Viacom started shopping for someone to buy Harmonix off of them.  That has now happened.  Columbus Nova, LLS, a NYC-based investment firm, has an affiliate called (drum roll) Harmonix-SBE Holdings LLC.  Terms of the sale were not disclosed.  Bottom line:  Harmonix is a private company again for the first time since 2006, and the sale will not affect DLC for either Rock Band or Harmonix's current hit, Dance Central (for the Kinect on the XBox360).

I hope things work out, Rigopulos and Egozy are swell guys.  Harmonix has already downsized earlier this year, so here's hoping things are smoother from now on.

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