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


 
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Matthew Wilsonhttp://www.businessinsider.com/xbox-one-virtual-reality-headset-will-compete-with-oculus-rift-2014-12 can a xbo even handle doing vr?12/21/2014 - 10:48pm
PHX Corp@Adam802 We'll break out the popcorn in June12/19/2014 - 9:23pm
ZippyDSMleeMaskedPixelante: I'm itching to start it too but I will wait till the patch goes live. >>12/19/2014 - 7:52pm
Adam802Leland Yee and Jackson get trial date: http://sfbay.ca/2014/12/18/leland-yee-keith-jackson-get-trial-date/12/19/2014 - 5:24pm
MaskedPixelanteNevermind. Turns out when they said "the patch is now live", they meant "it's still in beta".12/19/2014 - 5:07pm
MaskedPixelanteSo I bought Dark Souls PC, and it's forcing me to log into GFWL. Did I miss something?12/19/2014 - 5:00pm
Matthew Wilsonhttp://arstechnica.com/tech-policy/2014/12/republicans-may-have-plan-to-save-internet-providers-from-utility-rules/ this is intreasting. congress may put net nutrality in to law to avoid title 2 classification12/19/2014 - 2:45pm
Matthew Wilsonhttp://www.polygon.com/2014/12/19/7421953/bullshit-cards-against-humanity-donated-250k-sunlight-foundation I have to admit I like the choice o organization. congrats to CAH.12/19/2014 - 1:51pm
E. Zachary KnightIf you are downloading a copy in order to bypass the DRM, then you are legally in the wrong. Ethically, if you bought the game, it doesn't matter where you download it in the future.12/19/2014 - 12:06pm
InfophileEZK: Certainly better that way, though not foolproof. Makes me think though: does it count as piracy if you download a game you already paid for, just not from the place you paid for it at? Ethically, I'd say no, but legally, probably yes.12/19/2014 - 11:20am
ZippyDSMleeAnd I still spent 200$ in the last month on steam/GOG stuff sales get me nearly every time ><12/19/2014 - 10:55am
ZippyDSMleeMaskedPixelante:And this is why I'm a one legged bandit.12/19/2014 - 10:51am
ZippyDSMleeE. Zachary Knight: I buy what I can as long as I can get cracks for it...then again it I could have gotton Lords of the Fallen for 30 with DLC I would have ><12/19/2014 - 10:50am
MaskedPixelantehttp://www.joystiq.com/2014/12/19/marvel-vs-capcom-origins-leaving-online-storefronts-soon/ Speaking of "last chance to buy", Marvel vs. Capcom Origins is getting delisted from all major storefronts. Behold the wonders of the all digital future.12/19/2014 - 9:59am
MaskedPixelanteSeriously, the so-called "Last Chance" sale was up to 80% off, while this one time only return sale goes for a flat 85% off with a 90% off upgrade if you buy the whole catalogue.12/19/2014 - 9:37am
E. Zachary KnightInfophile, Tha is why I buy only DRM-free games.12/19/2014 - 9:37am
MaskedPixelanteNordic is back on GOG for one weekend only. And at 85% off no less, which is kind of a slap in the face to people who paid more during the "NORDIC IS LEAVING FOREVER BUY NOW OR FOREVER HOLD YOUR PEACE" sale, but whatever...12/19/2014 - 9:28am
InfophileRe PHX's link: This is one of the reasons the digital revolution isn't all it's cracked up to be. There's also the flip side where Sony can block access to games you've bought if they ban your account for unrelated reasons. All power is theirs.12/19/2014 - 8:52am
MaskedPixelantehttp://uplay.ubi.com/#!/en-US/events/uplay-15-days You can win FREE GAMES FOR A YEAR! Unfortunately, they're Ubisoft games.12/18/2014 - 6:29pm
Papa MidnightAh, so it was downtime. I've been seeing post appear in my RSS feed, but I was unable to access GamePolitics today across several ISPs.12/18/2014 - 6:06pm
 

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