Viacom hits Harmonix stockholders with $131 million suit

Media conglomerate seeking to recover funds it claims to have overpaid as part of bonus-based payout to Rock Band consortium.

Viacom purchased Rock Band-creator Harmonix for a reported $175 million in 2006, but it didn't take long for the media megacorp to regret that decision. The rhythm game genre proved to be a bubble, and Viacom has since early 2010 been seeking to reclaim a substantial portion of the $150 million in performance-based bonus payouts made to the original stakeholders in Harmonix.

The Shake Down isn't likely a move that'll appear in Dance Central 2.

With those stakeholders largely stonewalling Viacom's efforts, the media corporation is shifting the field of battle to the courtroom. On Friday, Viacom filed suit against a host of Harmonix stakeholders in the US District Court for the state of Delaware as part of its effort to reclaim $131 million in performance-based compensation it claims to have overpaid.

According to a copy of the suit, which was obtained by The Hollywood Reporter, the overpayment resulted from contractual earn-outs that were paid on a preliminary basis. These earn-outs were to be "equal to 3.5 times the amount by which gross profit exceeds $32 million in 2007 and $45 million in 2008."

Based on this contractual agreement, Viacom states that it made an initial calculation of $149,770,149 for the 2007 earn-out payment. That disbursement occurred in September 2008.

However, by June 2009, Viacom determined that it had overpaid on these bonuses, revising the actual payout amount down to $17,942,169. The company said that it advised stockholders of this revision in advance, stating also its intention to reclaim the excess $131,827,980 it made in payments. These efforts, however, have so far gone rebuked, thus precipitating the legal action.

For their part, Harmonix's stockholders believe Viacom actually owes them more than the $150 million that Viacom has already paid out. Late last year, the group sued Viacom claiming it manipulated costs to evade payments due to the studio's shareholders under the profit earn-out agreement.

In late 2010, Viacom unloaded Harmonix to a private holding company for a nominal $50 and the presumably much larger assumption of all debts associated with the company. The studio is currently at work on Dance Central 2.

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41 comments
MrHatnClogs
MrHatnClogs

THAT'S WHAT YOU GET VIACOM FOR PULLING DOWN OUR VIDEOS ON YOUTUBE YOU BASTARDS!

z50macdaddy
z50macdaddy

Oh here we go again, another lawsuit against a gaming industry.

InnerSenses
InnerSenses

People may hate on the rhythm genre, but I will be very upset if Harmonix ever stop making rhythm games. Rock Band, Amplitude and Frequency are among my favourite games of all time! If the rhythm genre is dead then I'm a necrophile. DON'T JUDGE ME!

jhpeter
jhpeter

Viacom looks a scammer to me. The force is with you, Harmonix.

jamesh-42
jamesh-42

Taking those numbers, a $17.9 million payout would correspond to $37.1 million gross profits for 2007, while the $149.7 million payout would correspond to $74.8 million gross. So Viacom is trying to claim that they overestimated the gross profits by a factor of two. That seems quite hard to believe: gross profits don't include any of the expenses in production, so getting the estimate that wrong seems a bit suss (especially since the estimate was made after the close of that period).

Mr_arizona
Mr_arizona

So Viacom mistakenly gave $131 million in bonuses? Who in their company looked at this before hand and gave it the green light? If I were you I'd pull my stock from a company who mishandles $131Mill.

bschroth
bschroth

I hope this doesn't sink Harmonix. They seem like a great company to work with/for.

Shadow_Fire41
Shadow_Fire41

@evilbanana7 probably, Scientologists are the worlds biggest idiots.

CFritzRun
CFritzRun

Viacom should pair up with Activision, that way I can consolidate my hatred.

evilbanana7
evilbanana7

i wonder if everyone at viacom is a scientologist :P

mrzero1982pt2
mrzero1982pt2

no one told viacom to pay them that much for a successful game. if that was so, activision would have paid infinity ward.... WAIT.... they did, then fired them.

blackace
blackace

That's money has probably been spent already. They aren't going to get that back. Why would you pay our bonuses before the profits rolled in? Dumb*****!! They should have researched the market better. They definitely overpaid for Harmonix. It's an expensive lesson learned by Viacom.

grungeman91
grungeman91

Viacom is nothing but a bunch of d**ks anyways.

CCGR_Pheonix
CCGR_Pheonix

Well, best of luck to Harmonix. Screw Viacom.

Rottenwood
Rottenwood

Please, Viacom. Any two-bit blogger on the Internet could've told you that the rhythm genre was a fad bubble waiting to pop, but you got on board anyhow. You don't get to demand your money back because you spent it poorly. Harmonix held up their end of the bargain (if MetaCritic is to be believed) and delivered good solid rhythm games; the demand simply dried up. How many plastic guitars did you think people were willing to buy?

Jessica_M_C
Jessica_M_C

[This message was deleted at the request of the original poster]

firehawk998
firehawk998

What Viacom is doing is just simply pathetic. I am not surprised they have pulled moves like this in the past.

ItchyIsVegeta
ItchyIsVegeta

This is almost as stupid as Viacom suing Youtube for showing more music videos than MTV....

Thuganomic05
Thuganomic05

Well if Viacom wins, I say we start pulling this at gas stations... "Yeah... I see gas is currently $4.00/gallon... when it should really be $1.50 - so if you don't mind. I'll take that back in cash please. No? SEE YOU IN COURT!!!"

91210user
91210user

That's so cruel that I almost enjoy it. Those stockholders think that the buyout meant they run away with the money. Yeah, Viacom should sue them for it and get the money back!

MJ12-Conspiracy
MJ12-Conspiracy

Viacom is a shifty company, they do a lot of crap that isn't right and pass themselves off like they are angels all the while suing anyone they don't agree with...or that they lable as copyright infringers like they've done with Youtube members. Honestly when Viacom dropped Harmonix their stake in the developer is meaningless, "oh we wanna su cus we didn't make enough money off Harmonix boo hoo" Grow up D-bags life isn't all fuzzy happy rainbows and a pot of gold at the other side, you have to work for what you get and honestly you guys always take the low road and fail......Your just as bad as Activision.

candlejack000
candlejack000

So if i buy a Paramount movie (which is owned by Viacom) for $30, watch it and decide that it is only worth $20, could I demand that Viacom give me my $10 back?

shakensparco
shakensparco

I wish it was easier to find the bad guy in these court battles.

decoy1978
decoy1978

So.... they are suing because Harmonix didn't make them... ENOUGH money?

bradocki
bradocki

This is so stupid I won't comment about it... Oops I just did it!!!! ;)

phillkillv2
phillkillv2

Man. I really hope they make it through this bull. I swear I'm tired of all of these lawsuits... They should have pulled the Sony move. Good luck Harmonix. I enjoyed Rock Band with my friends.

hawaiian8
hawaiian8

do you have a receipt for that?

JohnF111
JohnF111

So Viacom wanted a quick cash-in and ended up buying a worm infested apple, looks good on the outside but give a week. Tough luck guys but you get what you pay for.

metroidhunterx
metroidhunterx

Wait... Viacom sold Harmonix for 50 dollars?! I knew I should have taken that 30 dollar-and-a-pack-of-gum offer they were giving me.

PixelAddict
PixelAddict

What happened to the phrase "Buyer beware"...? They paid it, they regret it, but they have no recourse. Viacom is being silly. Did the Vikings sue Brett Favre for his mediocre season last year? Nope. They knew the risk, they paid the price. Move on, Viacom.

Arthas045
Arthas045

That happens when you get mixed with these clowns they are the greediest group around the TV.

comb5
comb5

$131 million dollar suit? That's really expensive. If I paid that much for a suit I wouldn't be trying to hit people with it, I'd be wearing it on very special occasions and getting it dry cleaned.

Unholy123
Unholy123

Hah Buyer beware Viacom you bet on the wrong horse and lost don't get all whiney and expect the court to line your pockets because you messed up... last I check being stupid and overpaying for something wasnt a crime

Paul2004
Paul2004

Gnarl said it all for me (Overlord 2) "Couldnt happen to a nicer chap !" . Viacom is grabbing a straws and is now trying to bully them outta their cash, you bought the company knowing the risks and now you wanna reclaim the cash you paid....dont you know its not refundable :P ?

Novemberfreeze
Novemberfreeze

this is the ultimate sore loser move. nothing but disgust towards these guys now.

Freezezzy
Freezezzy

You played the market, Viacom, and you lost. Get over it.

XeonForce
XeonForce

Sounds like seller's remorse to me. Viacom dropped Harmonix like a sack of potatoes and only after the success of Dance Central do they scramble around and look for excuses as to why they got screwed? Pretty low...