An analyst with Sanders Morris Harris Group says Viacom Inc. [
VIA-B] will spend $135 million to promote its wildly popular Rock Band game during the second quarter alone, an upward adjustment from the firm's original $100 million estimate. The expense, generally connected to the June launch of Rock Band on the Nintendo Wii gaming console, will cut the firm's estimate of Viacom's Ebitda from $871 million to $836 million.
David Miller, a managing director with SMH, credits "a meaningful 16% bump" in revenues during the first quarter to the "enormous consumer response" to Rock Band, introduced in November 2007. The game, in which players use instrument-shaped controllers to hit musical "notes" as they appear onscreen during familiar songs, is descended from the popular Guitar Hero series, developed by Activision Inc.
Viacom's MTV Networks division acquired Harmonix Inc., one of two original developers of Guitar Hero, for an estimated $175 million in fall 2006. Activision bought Harmonix's former partner, RedOctane Inc., for a reported $100 million a few months earlier, pitting the two against each other. The Guitar Hero games feature guitar and bass parts, while Rock Band adds drums and a microphone for group play. Rock Band is distributed by Electronic Arts, although Harmonix's engineering team continues to develop the game.
SMH estimates that Viacom has sold 3.5 million Rock Band units since November and says Viacom's wholesale price for the Wii version will be roughly $120. (The retail price for the Wii version will be roughly comparable to that of the versions for Sony's PlayStation 2 and Microsoft's XBox 360.) Based on those numbers, the game has generated about $420 million in revenues for Viacom over an eight-month span, a cash cow for a company expected to post $3.38 billion in sales during the current quarter by SMH's estimate.
Despite the popularity of Rock Band, SMH maintains a "sell" rating on Viacom shares, citing lukewarm cable TV ratings for its properties, weak growth in television advertising in the U.S. and international markets, slow expansion of margins, digital revenue dilution, and an ongoing $1 billion YouTube
lawsuit.
-- Paul BonanosSee July 2007 post from Corporate Dealmaker regarding Viacom-YouTube lawsuit
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