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10-K Watch: Viacom: Harmonix’s Possible Rock Band Earnout Bounty: $208.7 Million In ’07

Buried within Viacom’s (NYSE: VIA) 10-K annual report filed yesterday with SEC is an interesting and elusive number: the earnout that the developers of Guitar Hero and Rock Band will get over the next two years. In October 2006, the parent company Harmonix was bought by MTV Networks for $175 million plus earnouts on top of it based on the performance of its game franchises. (As our reader Simon Carless points out below, while Harmonix developed both, it no longer owns Guitar Hero; these numbers are for Rock Band, released last November, with downloads of song packs exceeding expectations.) More after the jump…

Viacom has recorded its total liabilities on the earnout for the year 2007 and 2008 as $208.7 million, and here’s how it is accounted for: “To the extent financial results exceed specific contractual targets against a defined gross profit metric through 2008, former Harmonix shareholders will be eligible for incremental earn-out payments with respect to the years ended December 31, 2007 and December 31, 2008. At December 31, 2007, a liability of $208.7 million has been recorded in Other liabilities on the Consolidated Balance Sheet for the expected earn-out payment. We expect to have a final payment with respect to the year ended December 31, 2008 done in 2009.” What this means is that they will be paid up to $208.7 million in 2008, and likely more in 2009.

Alex Rigopulos and Eran Egozy founded Harmonix in 1995. Guitar Hero was released in 2005 (now owned by Activision/Redoctane), and its big bet with Rock Band was released with EA last fall. The company’s games are the cornerstone of MTVN’s game strategy, in which it plans to invest $500 million over the next two years.

Staci adds: Both Guitar Hero and Rock Band have some music releases coming up that should boost sales: next week’s Rock Band download includes 6 classic Grateful Dead tunes for $2 each or $10 for the package; the company and the band plan to release 18 master tracks in all over the next few months. Guitar Hero is coming out with a $60 Aerosmith edition in June.

One Response to “10-K Watch: Viacom: Harmonix’s Possible Rock Band Earnout Bounty: $208.7 Million In ’07”

  1. Simon Carless

    Rafat, the Guitar Hero franchise is owned by RedOctane – bought by Activision, although Harmonix was the original developer. So Viacom has the Rock Band franchise but no financial part of the Guitar Hero one. Probably worth clarifying, though the above isn't flat-out wrong or anything.