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Guitar Hero Developer on the Auction Block

Harmonix, a former Inc. cover subject, has been losing money and dragging down the earnings of its owner, Viacom, as music games lose their luster.

Are music video games little more than one-hit wonders?

Sales of the games, which allow players to be pretend rock stars, have fallen nearly 80 percent in the past two years, according to the Los Angeles Times. And Viacom announced on Thursday in a financial earnings statement that Harmonix Music Systems – the maker of the insanely popular Guitar Hero and Rock Band franchises – is up on the auction block.

Viacom is selling the company – the subject of a 2008 Inc. cover story – because it's been losing money and dragging down Viacom's earnings for the past several quarters.

"Harmonix has and will continue to create terrific video games, but for us, it is about focus," Viacom CEO Philippe Dauman said on a conference call with investors. "The console games business requires an expertise and scale that we don't have."

Harmonix, which was founded in 1995, posted on the Rock Band forums that the sale "does not affect the ongoing work at the studio as we continue to support our existing franchises, Rock Band and Dance Central. As stated earlier, Viacom is in discussions with several potential buyers and will continue to fully support the business until a sale is completed."

Viacom bought Harmonix for $175 million in 2006, post-Guitar Hero but pre-Rock Band. The media conglomerate never managed to profit from the Cambridge, Massachusetts, video game developer, though. Harmonix had a loss of $24 million on $678 million in revenue in 2008, and lost $87 million on $362 million in revenue in 2009.

Sales of music video games peaked in 2008 at $1.7 billion.

"The misjudgment by publishers was that they thought anyone who bought a music game would keep buying sequels," analyst Michael Pachter of Wedbush Securities told the Los Angeles Times.

Possible buyers for Harmonix include its biggest competitor, Activision, and Electronic Arts, which distributed the Rock Band titles for MTV.

Last updated: Nov 12, 2010


Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.

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