You Heard It Here First (Unless It's Wrong, In Which Case You Didn't Hear It Here At All)Let's look at some recent data points. Emphasis in bold is mine.
[The Rock Band-vs.-Guitar Hero competition] does the consumer a disservice. … What we really should be looking at is: what is right for the consumer? I don’t think the consumer wants a format war. We all have our strengths … [but] I don’t think anyone can afford to continue to have this shooting war. The consumer is telling us pretty clearly, ‘we’re interested in playing these games on the platform — make it easier for us.
(MTV Games senior VP Paul DeGooye)
During an EA earnings conference call, in response to the lack of Rock Band games listed in their upcoming titles:
COO John Schnappert responded: “Our deal with Viacom and Harmonics continues through FY ‘11 at that time.
“As you can see from our modelling, we have not included a lot of revenue for distribution next year, but we continued to have talks with them and hope that maybe there’s an opportunity to continue the relationship beyond that.”
Harmonix owner Viacom is looking for a refund of “a substantial portion” of a $150 million bonus to former Harmonix shareholders.
As we go forward, we are continuing to focus more on software than hardware, looking to reduce the cost structure associated with Rock Band, being selective in the music titles that we choose for Rock Band based on their cost.
(Philippe Dauman, Viacmon’s president and CEO)
Speaking to a packed room of game industry executives at the DICE Summit here, Kotick said that not getting together with the Boston-based game developer was a “miss” for his company.
“We had always known (Harmonix) as somewhat of a failed developer of music games … nothing that was commercially viable until Guitar Hero,” he said. So when Activision decided to acquire Red Octane, the owner of the Guitar Hero brand, in 2006, it didn’t even consider working with Harmonix. Instead, it gave game development duties to Neversoft, the studio formerly responsible for creating the Tony Hawk skateboarding games. Harmonix was acquired by Viacom and created competitor Rock Band.
“We really didn’t even think, ‘Hey, we should go to Boston and meet these Harmonix guys and see what they’re up to,’” he said. The world of music games would be very different had Activision partnered with Harmonix, he said: “It would probably be a profitable opportunity for both of us.”
(Bobby Kotick, CEO, Activision)
Here's a quick summary:
1. MTV Games wants the "platform war" to end.
2. EA is unlikely to extend the distribution agreement with Viacom/Harmonix when it expires at the end of fiscal year 2011.
3. Viacom is trying to reclaim $150 million it paid to Harmonix employees based on 2007 performance.
4. Viacom wants to pay lower royalties for music included in Rock Band (3 and 4 combined: Viacom is making much, much less money from music games than they thought they would).
5. Bobby Kotick said that Activision made a mistake not partering with Harmonix.
In particular, why would Bobby Kotick admit publicly that not parterning with Harmonix was a mistake?
Don't think he said this casually, because I don't think Kotick says anything casually, even when it seems that way. To me, Kotick doesn't even mention this unless he's trying to set the table for something. I see two possibilities here:
1. Activision wants to be the distributor for Rock Band games when the EA agreement expires, or
2. Activision wants to buy Harmonix from Viacom/MTV Games.
I know that this is coming from left field, and no one else has mentioned it yet, so I might be crazy (wouldn't be the first time), but Kotick's comment, in addition to the MTV Games comment about ending the format war, seems to create a plausible case for an acquistion. It also seems like Viacom might be sick of the whole business, so maybe they want to get out.
In a business sense, Activision buying Harmonix and essentially controlling the music game platform works as well:
--less pricing competition at retail
--more leverage when negotiating royalty deals with music companies
--asset sharing between games and developers
It just seems like a lot of tea leaves are suddenly in the cup.