Rock Band developer's founders suing Viacom
Alex Rigopulos and Eran Egozy among Harmonix ex-shareholders who claim multimedia giant manipulated costs to prevent bonus payouts.
This year began with media giant Viacom revealing it was seeking a "substantial" refund of the $150 million in bonuses it paid to the shareholders of Harmonix, developer of the Rock Band games. Now, 2010 is ending with Harmonix filing suit against its soon-to-be-former owner, claiming it manipulated costs to evade payments due to the studio's shareholders under a profit earn-out agreement.
According to a copy of the complaint obtained by industry site Gamasutra, a group of the initial shareholders in Harmonix, including cofounders Alex Rigopulos and Eran Egozy, accuse Viacom of manipulating the earn-out payments by "diverting opportunities from Harmonix for its own benefit."
Among those opportunities was a chance to renegotiate fees with Electronic Arts, which distributes the Rock Band games. Instead of reducing the fees--and thereby increasing profits, which would lead to larger earn-out payments for Harmonix--Viacom allegedly arranged for EA to buy millions of dollars' worth of ads on Viacom's various networks in 2008. The suit contends that the EA/Viacom deal would then reduce EA's distribution fees in 2009, after Harmonix's earn-out period had expired.
According to the suit, "Although a reduced 2008 EA distribution fee would have increased Harmonix's gross profit and operating profits in 2008, Viacom realized that every $1.00 of distribution fees that Harmonix saved during 2008 would require Viacom to pay an additional $3.50 of earn-outs to the [ex-shareholders]."
Saying that Viacom's actions have "damaged" the former shareholders, Harmonix is asking for the equivalent of the earn-out payments it would've received had the EA fees been reduced in 2008. Also, it is seeking the value of EA's advertising commitments, as well as $13 million currently held in an escrow account.
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