A group of former Harmonix shareholders have filed suit against Viacom, alleging that the company attempted to skip out on paying specific performance-related bonuses. The shareholders, who include Harmonix founders Alex Rigopulos and Eran Egozy, say that Viacom played fast and loose with costs after the early success of Rock Band in order to avoid paying the bonuses.
According to the complaint Gamasutra obtained, the earn-out formula should’ve been 3.5 times any gross profit in excess of the $32 million earned in 2007, with no cap. The group is looking to "recover damages arising from Viacom's manipulation of these earn-out payments by diverting opportunities from Harmonix for its own benefit in breach of the implied covenant of good faith and fair dealing that inheres in Viacom’s contract with Harmonix."
The first Rock Band title, distributed by Electronic Arts, sold quite well, surpassing $1 billion in sales in the United States through March of 2009. Viacom correctly paid shareholders $150 million for earn-out payments in 2007, but neglected to do the same for 2008. In fact, this year Viacom stated that it believed that it was “entitled to a refund of a substantial portion of amounts previously paid.” Finally in early November, it was reported that Viacom was looking to sell Harmonix.
The compliant suggests that Viacom knowingly made decisions that would lower the overall earn-out payment to Harmonix.
"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],” alleges the complaint.
Instead Viacom supposedly inked a deal with EA to force the publisher to purchase ads directly through Viacom’s other media outlets like MTV Networks.
So another video game legal battle begins. IndustryGamers will keep you abreast of further proceedings.
Update: Gamasutra now has word from Viacom, which denies the allegations of the ex-shareholders. Viacom says that it actually gave the shareholders every opportunity to receive favorable payments. The company says the shareholders should blame their representative, Walter Winshall.
“Viacom fulfilled its contractual obligations and our actions were completely appropriate and consistent with the terms of our agreement with Harmonix shareholders and the interests of our shareholders," reads the Viacom statement. "Mr. Winshall made a decision to spurn our early proposals, which were highly favorable to the stockholders he represented. He failed to get the unjustified windfall he hoped for and as a result damaged those shareholders, who are obligated to repay amounts already received. "
"Having failed in his game, he is attempting to rewrite the contract and history with false and irrelevant claims, no doubt to protect himself from the very unhappy stockholders he represents.”
