Viacom's been impatient with the music game genre's massive contraction for some time, blaming challenges for disc-based retail in general for its lower sales over the year.
Now the media giant says it will sell Boston-based Harmonix, creator of the Rock Band franchise and Kinect's Dance Central, reclassifying the studio as a "discontinued operation."
Viacom subsidiary MTV paid $175 million plus a potential hundreds of millions in performance-related pay for Harmonix in 2006, when games like Guitar Hero were beginning their ascent to explosive popularity.
But when consumers came under increased economic pressure during the global downturn, high-priced peripheral-equipped titles became more prohibitive.
Further, many users acquired the necessary instrument controllers with the first wave of music titles, so even brisk sales of sequels at the stand-alone disc price produced year-over-year revenue declines.
Finally, once music games were largely perceived to have reached market saturation, their revenues shifted from retail to add-on content like tracks, albums and other DLC.
This means Harmonix can't play quite the same role in revenue generation for media giant Viacom any longer. In the company's third fiscal quarter, sales rose 5 percent to $3.33 billion, while profits were up 7 percent to $461 million.
Earlier this year, the company blamed revenue declines on lower sales of Rock Band, following The Beatles: Rock Band's much quieter-than-expected launch.
Viacom even said in February it would try to reclaim some $150 million in target-based compensation it had paid to Harmonix -- bonuses it gave the developer for hitting Rock Band sales targets. Although by that time the franchise had achieved over $1 billion in sales, the significant change in music game sales led the parent company to try to seek a refund on those earnouts.
By summer's end, Viacom had warned that it was considering writing down Harmonix's value, claiming the studio's $300 million goodwill -- an amount among the net value of an acquisition -- was overstated due to the genre's 'softness' and could be re-adjusted.
Although no details were revealed on potential buyers for the franchise, Harmonix said on its community forums that it'll continue its own business as usual. "This morning’s announcement does not affect the ongoing work at the studio as we continue to support our existing franchises, Rock Band and Dance Central," said company rep John Drake.
"As stated earlier, Viacom is in discussions with several potential buyers and will continue to fully support the business until a sale is completed," he added.
The real question is what is Viacom actually selling? The talent or the IP? Selling Harmonix does not automatically mean that Viacom is actually going to sell the "Rock Band" and "Dance Central" brands or the continuing royalty streams from sales of the previously released games. There are also several patents that the founders of Harmonix obtained prior to the sale to Viacom that might be retained by Viacom. Taking those pieces of IP out of the deal might make this less attractive to potential buyers.
IMO, the best fit would be Apple. They have large installed sales base in iTunes and new devices could itegrate game play features (e.g. Apple TV) that build on Harmonix expertise with rhythmn based games which would be appealing to those consumers. Will they do it? Who knows, might depend on what Viacom is willing to give up.
This is the perfect move for Viacom if you assume continued softness in the music game sector. You don't have to pay Harmonix performance bonuses, you get a decent revenue stream from DLC, and you can milk the franchise for all it's worth before the fad disappears entirely by keeping the franchise trademarks.
I expect Harmonix to announce serious layoffs, as they have no reason to staff up if they aren't making weekly DLC anymore.
that's really unfortunate that music games have died down so much in popularity. i wish i could have gotten my game out much earlier. i had the prototype done 2 years ago, but personal intense involvement with my mom's late stage alzheimer's healthcare was interrupting my constantly so i wasn't able to finish it until now.
for a different take on Rock Band 3's Pro Mode, one that requires NO expensive extra controllers, please try my game. you can download the WHOLE game for free, and Pay What You Want if you like it.
IMO, the best fit would be Apple. They have large installed sales base in iTunes and new devices could itegrate game play features (e.g. Apple TV) that build on Harmonix expertise with rhythmn based games which would be appealing to those consumers. Will they do it? Who knows, might depend on what Viacom is willing to give up.
I expect Harmonix to announce serious layoffs, as they have no reason to staff up if they aren't making weekly DLC anymore.
for a different take on Rock Band 3's Pro Mode, one that requires NO expensive extra controllers, please try my game. you can download the WHOLE game for free, and Pay What You Want if you like it.
at http://PlayRealNotes.com