Guitar Hero headbangs out $100 million

Activision SEC filing reveals hefty acquisition cost for RedOctane, developer of the popular headbanger simulator.

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Last week, Activision reported its earnings for the quarter that ended on June 30, 2006. After the report, company CEO Bobby Kotick fielded queries from analysts, who tired to glean information from the report. One question brought a revelation that many gamers will find welcome: Activision is planning an "all-new Guitar Hero" game, with the next appearing in its 2008 fiscal year, which runs from April 1, 2007, to March 31, 2008. Guitar Hero II is due to hit PlayStation 2 consoles later this year.

Now, it appears that Activision will have to release many more Guitar Heroes to recoup the acquisition cost of the game's developer, which it bought earlier this year. Buried deep in the 10-Q form the company filed with the Securities and Exchange Commission is the price it paid for RedOctane, the developer of the award-winning PlayStation 2 series. Suffice it to say, the Sunnyvale, California-based studio did not come cheap.

Activision's report summed up the deal with an elaborate sentence. "On June 6, 2006, we completed our acquisition of 100% of RedOctane, Inc. (RedOctane) for an aggregate accounting purchase price of $99.9 million including transaction costs, consisting of $30.9 million in cash and 2,382,077 shares of Activision common stock valued at approximately $30.0 million based upon prevailing market prices, and $39.0 million payable in Activision common stock within two years of the closing date, which is recorded in other liabilities." (Emphasis added.)

Besides the aforementioned sum, Activision may also have to shell out another chunk of change if future Guitar Hero games rock retail. "In the event the net income of the business over a certain period of time exceeds certain target levels by certain amounts, certain former shareholders of RedOctane will be entitled to an additional amount of up to $51.0 million payable in shares of Activision common stock."

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