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Viacom's Rock Band, Up for Sale, Hopes to Keep Rocking

Stocks in this article: VIA ATVI ERTS

NEW YORK ( TheStreet) -- After becoming one of the most successful music video franchises in history, Rock Band -- and the entrepreneurs who continue to build out the game -- are in need of a new home. Viacom (VIA) announced last week that it will divest Harmonix, the game's parent company.

MTV Networks, a subsidiary of Viacom, purchased the Cambridge, Mass.-based Harmonix in 2006 for $175 million. Harmonix, which declined to comment on this story, added a unique gaming platform to the media giant's growing portfolio of digital businesses and increased exposure to Viacom's brand outside of television programming.

For Harmonix, the deal with MTV gave the founders resources to grow their next big venture: helping bands of all types get their music onto Rock Band Network, a service that allows musicians to make their music available as tracks for Harmonix video games.

But despite Rock Band's positive reviews and best-selling status, Harmonix inevitably proved too far outside Viacom's core area of focus.

The media conglomerate is in talks with several potential buyers for the business, CEO Philippe Dauman announced during the company's recent third-quarter earnings call. "Harmonix has and will continue to create terrific video games, but for us, it is about focus," Dauman told analysts. "The console games business requires an expertise and scale that we don't have."

The business was also a drag on Viacom's earnings.

In fiscal year 2009, Harmonix posted a loss of $87 million on $362 million in revenue. The previous year, it generated a loss of $24 million on $678 million in revenue.

Music Industry Slowdown

The difficult nature of the music genre business likely took a toll on Viacom, said David Cole, an analyst at video game research firm DFC Intel. "The music genre isn't a huge prize," said Cole. "It's one of those areas where you won't be able to get consumers to buy a new product every year. If you buy plastic guitars and drum sets once, why do you need to buy them again?"

Music games sales, which peaked in 2008 at $1.7 billion, are expected to drop to $500 million this year, according to Wedbush Securities.

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