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Rock Band Drags On Viacom Margins, May Break Even At Holiday?
by Leigh Alexander
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November 4, 2009
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Rock Band is weighing on Viacom's margins, and the profitability challenge confronting the high-cost Beatles iteration is steep, says MTV parent Viacom.
In its most recent fiscal quarter, the company saw profits reach $463 million, an increase of about $62 million year-over-year thanks primarily to its cost conservativism and its Paramount Pictures division, although overall sales were down 3 percent to $3.3 billion.
However, company CFO Tom Dooley said the company's video games were no help: "Rock Band was a negative contributor to margins in the third quarter," he said on the company's conference call to investors, as reported by the Los Angeles Times.
"We expect it to break even or be slightly profitable in the fourth quarter from a margin point of view," added Dooley. "It really depends on how many units we sell in the holiday season."
According to the report, Rock Band dragged down its division's operating margin from 40 percent to 36 percent. CEO Philippe Dauman said that soft sales of other products offset Beatles' launch, which he described as "great" and said "the economics of our Rock Band franchise are improving" -- but added that improvements are not coming "as quickly as we'd like."
The company chose to release two The Beatles: Rock Band packages -- one instrument bundle and one software-only. The game itself is compatible with almost every existing instrument peripheral, a move aimed at selling more software copies at $60 that might otherwise be prohibited by the $100 bundle cost.
According to NPD results, the bundle and the stand-alone collectively sold 595,000 software-only and instrument-bundled units across Xbox 360, PlayStation 3 and Wii, a solid launch number, but short of some analysts' million-unit expectations.
Those analysts now see an underperforming music genre as an ominous bellwether for holiday sales and as possible evidence of a highly cash-strapped consumer.
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It should "dissuade publishers from putting out future band-centric games" at the same high rate as we have seen in the past couple of years.
However, the "underperforming music genre" is not "an ominous bellwether for holiday sales," as analysts claim.
See my post from last week titled, "Explaining the Decline of Guitar Hero and Rock Band"
In truth, economic conditions play a role, but other forces are at work that better explain the recent decline in music sub-genre games.
I'd say the reason why it was the 2nd best selling title in September is precisely because it is The Beatles. They are the biggest selling act of the 21st century, 40 years after they broke up. So it's not really a surprise it was the 2nd best selling title.
If there are any lost sales, it's not because it's The Beatles. When the second best selling title is deemed "disappointing" by some, it most likely has to do with the current economic conditions and the drop-off in music games in general. I personally believe that Xmas sales will boost it closer to 1 million in sales (maybe 800-900K).
I know that it was very likely a licensing issue that prompted this (and possibly the harmony vocal feature), but I have to wonder whether the fact that it was a totally separate game factored into anyone else's choice not to purchase it.
Beatles are quite timeless. Even myself who doesn't listen to much music from previous generations really like this. Everyone's heard of the Beatles. However, it's definitely more of a niche genre. They expected too much out of it, and it cost too much to make.
It's definitely selling well. It's just not profitable.