Updated:
Harmonix released a statement today asserting that Viacom’s sale plans won’t have any affect on its operations.

"This morning's announcement does not affect the ongoing work at the studio as we continue to support our existing franchises, Rock Band and Dance Central. As stated earlier, Viacom is in discussions with several potential buyers and will continue to fully support the business until a sale is completed."

One lingering question is what happens to the existing licensing agreements Harmonix has in place to be able to sell songs for download, through the Rock Band and Dance Central franchises. The Rock Band Store has thousands of songs for sale and boasts more than 75 million downloads to date. The Rock Band Network (Harmonix’s D.I.Y. solution for bands who want to publish their own downloadable content) is a separate store also with a large catalog. As we know, licensing terms are not transferable when a company is acquired, so how big a sticking point that may prove as Viacom pursues this sale is something to watch.

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MTV is getting out of the videogame business.

Parent company Viacom announced today during its third quarter earnings call that it will put the Harmonix game development unit up for sale. Harmonix is, of course, responsible for the Rock Band music game franchise, which has spawned three iterations, the latest being Rock Band 3 which was released October. It also created the critically acclaimed “The Beatles: Rock Band,” “Green Day: Rock Band” and most recently the motion-based “Dance Central” for the new Kinect camera-based controller for the Xbox 360.

The music game category however proved to be a flash in the pan. After raking in $1.4 billion in sales for 2008, the sector fell to $875 million last year and so far this year sales are down another 50%. Industry analysts say the entire sector will be lucky to crack $500 million this year.

Much of the shortfall stems from the fact that fans are now buying new versions of these games only and not the more expensive plastic instruments that were bundled with them initially, as well as buying new songs to download into the game through services like the Rock Band Store. Both generate far more incremental revenue, which Viacom president and CEO Philippe Dauman said was just not in line with the company’s focus.

“Our decision to exit this business strategy is to focus on what we do best, and that’s creating world class entertainment,” he said during the call. “The console games business requires expertise we don’t have. For us, this is all about focus.”

Viacom and MTV acquired Harmonix, the original developer of the Guitar Hero franchise now owned by Activision, in 2006 for $175 million. The move to sell the division resulted in a $299 million loss from discontinued operations and related writedowns, causing a 59% drop in third quarter earnings. But overall, analysts applauded the move
"The decision to sell Rock Band is welcome news," Christopher Marangi, an analyst at Gabelli & Co., told Reuters. "The franchise has been a disappointment and a drag on earnings."

As to who will buy the franchise? All eyes are on Electronic Arts as the likely buyer. EA already serves as the exclusive distribution partner for all Harmonix titles, and is certainly big enough and rich enough to afford such an acquisition. Another possibility is Konami, which has carved out a music niche of its own with dance based titles like “Dance Dance Revolution,” but has had less success in the music simulation market.