Former Harmonix Shareholders Sue Viacom

December 22, 2010 -

Former Harmonix shareholders filed a lawsuit against Viacom last week, accusing the company of trying to find a slick way to get out of paying performance-based bonuses. According to a lengthy Gamasutra report, the group includes Harmonix founders Alex Rigopulos and Eran Egozy, as well as other early funders of the Boston-based developer. The group claims that Viacom is manipulating costs after the initial success of Rock Band to avoid a potentially giant earn-out payment.

The complaint stems from a 2006 acquisition deal that has soured over the past four years as the Rock Band franchise began to wane in popularity. Viacom acquired Harmonix in September 2006 for $175 million and the promises of bonuses based on the company's performance. According to the complaint, the earn-out formula was supposed to be 3.5 times any gross profit in excess of $32 million earned in 2007.

The group is seeking to "recover damages arising from Viacom's manipulation of these earn-out payments by diverting opportunities from Harmonix for its own benefit in breach of the implied covenant of good faith and fair dealing that inheres in Viacom's contract with Harmonix."

The Rock Band franchise generated over $1 billion in sales in North America through March 2009, according to Viacom. Viacom sent Harmonix's shareholders $150 million for 2007 earn-out payments for 2007, but set aside over $200 million, according to SEC filings. Nevertheless, the company has never paid any money for the 2008 earn-out. In financial statements starting in 2010, Viacom claimed that it was entitled to a "refund of a substantial portion of amounts previously paid" despite not publically stating why.

The issue of earn-out payments has been referred to arbitration. The agreement covered the years 2007 and 2008, based sales and profits from the Rock Band franchise during those periods.

Obviously, the relationship between Harmonix and Viacom is no longer amicable, as evidenced in Viacom's public statements that it wanted to sell the Rock Band maker. Viacom CEO Philippe Dauman claimed recently that "the console game business requires an expertise and scale that we don't have."

However, there is more funny business that the group claims Viacom engaged in after the acquisition. It claims that Viacom tried to find ways to reduce the aforementioned payments to Harmonix shareholders, such as "a negotiation of the EA Partners distribution agreement in the middle of the earn-out period. The group alleges that Viacom "decided to forego the opportunity to reduce EA's distribution fees during 2008 (or in any other way enhance Harmonix's net income or Gross Profit for 2008), and instead demanded benefits for itself (rather than Harmonix) in exchange for allowing EA to continue distributing Rock Band."

The benefits Viacom sought from EA, according to the suit, included a multi-million dollar ad deal with Viacom's MTV Networks and other Viacom media outlets, a reduction in distribution fees beginning in 2009 (after the group's earn-out period) and "acceleration of 2009 payments to 2008."

The group contends that EA would have been flexible with the fees after the success of Rock Band, and that a lower distribution fee from EA would mean higher profits and higher earn-out bonuses for the group.

Finally, there the matter of a $13 million dollar escrow account put aside for legal disputes at the time of the merger. The group alleges that the funds in that account should be released because all of the lawsuits filed against Harmonix and its products have been settled or resolved. Harmonix shareholders claim that three days before the end of the agreement to release the escrow, Viacom sent "an Indemnity Notice in which it stated that it was providing notice of claims for indemnification."

Source: Gamasutra


 
Forgot your password?
Username :
Password :

Poll

Will the FCC preempt state laws that limit municipal broadband services?:

Shout box

You're not permitted to post shouts.
Andrew EisenYes, the Wii U upscales but rendering in a higher resolution looks a hell of a lot better.08/01/2014 - 10:35pm
Andrew EisenIt's pretty. Lots of videos of it floating around. Just search "Xenoblade dolphin" and you'll find them.08/01/2014 - 10:32pm
ZippyDSMleeThe WII upscales tho. Matthew: It might be becue cartoonish desings do not age as fast as presudo realisim.08/01/2014 - 10:29pm
Matthew WilsonPeople who have run the Mario Galaxy games on a emulator have said they look better then most xb1/ps4 games when upscaled, so it would be interesting to see a upscaled version of Xenoblade08/01/2014 - 9:24pm
Andrew EisenHeck, it would probably sell better to newbies anyway. Even with its awesome art direction, the game looked dated when it came out years ago. I imagine an SD version would be a tougher sell.08/01/2014 - 8:55pm
Andrew EisenBecause it would be cool, would serve the game's fantastic art direction well and encourage people who've already played it to buy it again.08/01/2014 - 7:42pm
ZippyDSMleeWhy bother with an HD relese just repack the damn thing and promote it since it will play on the WIIU anyway....08/01/2014 - 7:04pm
Andrew EisenPlus, with Nintendo carrying the Wii U almost all by itself, it could help plug one of the unfortunately inevitable release schedule gaps.08/01/2014 - 3:23pm
Andrew EisenAn HD re-release would be cool though. It's a great game (and quite the looker, especially when up-rezzed) and more people should play it (the game had a limited release at a time when the Wii was all but dead an buried).08/01/2014 - 3:21pm
E. Zachary KnightSo no, people are not going to need to play the Wii game to undstand or enjoy the Wii U game.08/01/2014 - 1:27pm
E. Zachary KnightFrom what I understand, the two games have as much to do with eachother as Final Fantasy and Final Fantasy 2.08/01/2014 - 1:26pm
MaskedPixelanteIt's my secret hope that Nintendo announces Xenoblade HD to be released in the leadup to Xenoblade Chronicles X, or at least a mass market version of the first game so that people aren't going into this one blind.08/01/2014 - 12:40pm
PHX CorpI'm going to do a test stream later today, if anyone is intrested07/31/2014 - 2:40pm
Andrew EisenYes, I'm such a big Nintendo dork that I read Nintendo's quarterly financial reports.07/31/2014 - 2:09pm
Andrew EisenCool tidbit - Mario Kart 8 sales account for more than half of total Wii U software sales for the last quarter even though it was only available for the last third.07/31/2014 - 2:09pm
Andrew EisenStill a pretty cool promotion. Unfortunately for me, I'm not interested in purchasing Mario Kart 8 and I already owned or didn't want any of the free games on offer.07/31/2014 - 1:43pm
Andrew EisenInteresting that EU had 10 games to choose from while North America only had four.07/31/2014 - 1:41pm
MaskedPixelanteIt certainly worked, I probably would never have bought Mario Kart 8 if it didn't come with a free copy of Wind Waker HD.07/31/2014 - 1:14pm
Andrew EisenI imagine will see similar promotions like "Buy Mario Kart 8 get a download code for one of these specific games" but almost certainly not for all of its (however you would define) biggest releases.07/31/2014 - 11:24am
MaskedPixelanteI wonder if Nintendo is going to be doing "buy one get one free" promos for all their biggest releases going forward.07/31/2014 - 10:48am
 

Be Heard - Contact Your Politician