Rock Band still not profitable for Viacom

It’s hard to argue that Rock Band isn’t a really, really big success. Just recently it was revealed that the latest edition of the game, Beatles: Rock Band, sold pretty darn well in its first month. One would then assume that some of the money that Viacom fills their swimming pool with constantly is made up of the mad profits from the series. It seems, however, that at the moment Rock Band is more of a leak in that pool than a hose adding more to it. According to some inside sources at The Kartel, a recent report from Credit Suisse highlights the fact that the franchise will lose Viacom $90 million by the end of 2009. While credit Suisse simply showed that the problem was there The Kartel guys highlight six reasons that such a successful franchise could still be in the red. 

  1. Viacom purchased Harmonix for $175 million.
  2. They subsequently gave Harmonix a bonus of $150 million for hitting sales expectation in 2008 and will deliver another $150 million to them at the end of this year most likely. (Guess the guys at Harmonix are in the black, huh?).
  3. MTV Games Senior Vice President Robert Picunko claims it took nearly $100 million to develop Rock Band.
  4. Peripherals cost money and the margin for profit is extremely low. Rock Band has four of them in every set.
  5. In the second quarter of 2009 it appears that Viacom made between $50 – $82 million worth of extra Rock Band 2 product because they overcompensated thanks to Rock Band selling out too quickly. Keeping overstock also costs money.
  6. Song licenses cost money. Lots of money. The Beatles license is reported to have cost upwards of $50 million.

It can also be noted that Rock Band‘s sales haven’t always been that fantastic, as a soft retail year brought them down. With all this it becomes a bit clearer to see how Viacom could still be $90 million in the hole when it comes to Rock Band. However, Credit Suisse also says that the company shouldn’t fear as they should be able to move into profitability with the franchise some time next year. Investing in a quality product for long term benefit instead of quick initial gain? Sounds like Wall Street needs to learn a thing or two from Viacom.

Matthew Razak