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Thursday, September 28, 2006

MTV buy Harmonix - for how much ?

MTV have just spent $175 million on Harmonix, a small developer with 2 games and 6 patents under their belt.

Jon Jordan at gamasutra writes:

"Apparently, I appear to be the only person in the world who's flabbergasted. I mean $175 million for a small independent developer. That's $25 million more than Francisco Partners has promised to invest in the seven studios that make up Foundation 9 Entertainment, and a pretty favourable comparison to the $300 million Elevation Partners dropped to merge Pandemic and BioWare. Which isn't to say Harmonix hasn't had success, but in the case of Guitar Hero, publisher RedOctane approached it to develop the concept, not the other way around. And the main reason for the game's success was the bundled guitar; again RedOctane's smarts. Perhaps the most striking contrast then is that Harmonix was valued at $75 million more than RedOctane, which was bought by Activision earlier in the year for around $100 million.

A victory for developers everywhere you might think, but behind the scenes, it's more symbolic of the powerful workings of the US investment community.

Because, for all its focus on creating software for the tone-deaf to make beautiful music with, Harmonix is an incredibly well run and managed company. The two founders come from MIT's Media Laboratory and the company holds six patents relating to real-time music creation systems, collaborative music making over a network and the three dimensional display of musical data. Most importantly, in terms of valuation, it was backed by venture groups such as Acer Technology Ventures and Softbank Investment Corp, which, in these situations, are always determined to secure multiple returns on their investment.

Add into the mix something of feeding frenzy among media giants such as MTV's parent Viacom and News Corporation, when it comes to acquiring new media companies, and the result was $175 million on the dotted line. Overpriced? No deal is overpriced at the time it's signed, but it will be interesting in future to work out how the addition of Harmonix's undoubtedly talented staff has boosted MTV's bottom line.

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