Court backs Harmonix shareholders, not Viacom

The Delaware Supreme Court says the original shareholders of video game maker Harmonix Music Systems Inc. are entitled to a $299 million payout from the Cambridge company’s former owner, the media giant Viacom International Inc.

Viacom purchased Harmonix in 2006 for $175 million and agreed to pay more if the company hit certain financial benchmarks.

At the time, Harmonix was riding high. The company had invented the popular music video game “Guitar Hero” and followed up with another hit title, “Rock Band.” By 2009, sales of various “Rock Band” games had passed the $1 billion mark.


As part of the purchase agreement, Viacom paid $150 million in bonuses to Harmonix shareholders because of the high sales. But Walter Winshall, who represented the Harmonix stockholders, insisted they were owed considerably more. Winshall and Viacom submitted the dispute to arbitration by a team of accountants.

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Meanwhile, demand for music video games was collapsing, and Viacom’s once-promising investment in Harmonix had become a bust. In 2010, Viacom sold Harmonix to a group of investors that included company cofounder Alex Rigopulos.

Viacom also tried to recover some of the bonuses it had paid.

Winshall and the Harmonix stockholders not only rejected Viacom’s demands for repayment but insisted that the giant media company owed them still more money. In December 2011, the arbitration accountants agreed, ruling Viacom owed the shareholders a further $383 million.

Viacom paid $87 million including interest in 2012, but balked at paying the rest.


Instead, the company filed suit in the Delaware Court of Chancery, arguing the arbitrators had failed to consider important terms of the original purchase agreement.

The Chancery Court came out on the arbitrator’s side, as did Delaware’s highest court with its ruling this week.

In an e-mailed statement, Viacom denounced the decision: “Regrettably, the Delaware Supreme Court refused to review the obviously incorrect decision of the accountants in this matter. We are considering our next steps.”

Through Harmonix, a representative of the shareholders said they would not comment. A company spokesman said Harmonix had no involvement in the matter.

Harmonix has reinvented itself since the “Rock Band” craze died. The company’s popular “Dance Central” games let players compete by dancing to pop tunes. Designed exclusively for Microsoft Corp.’s Xbox 360 video game console and the Kinect motion-detection system, the “Dance Central” games let players control all aspects of the game through body movements.


Harmonix has produced three editions of “Dance Central” since 2010 that have, collectively, sold about 5.5 million copies.

Last month, Harmonix announced a partnership with Walt Disney Co. to produce “Fantasia: Music Evolved,” a music-creation game inspired by the 1940 Disney movie.

The game, set for release next year, will let players modify and remix songs by popular artists like Bruno Mars and Queen.

It will be available only for the Xbox 360 and the Xbox One, an upgraded game console due to go on sale later this year.

Hiawatha Bray can be reached at