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Activision Pulls Plug on 'Guitar Hero'

Guitar Hero
Activision

UPDATED: The company announces 500 workers will be laid off as it discontinues development on the popular video game.

Guitar Hero, the video game that managed to put a cool new spin on the concept of playing air guitar while sparking digital sales of classic rock tunes, is getting the ax.

Activision Blizzard, which publishes and distributes the wildly popular game, said Wednesday that it will "disband" the Guitar Hero business unit and "discontinue development on its Guitar Hero game for 2011."

The company said its decision is "due to continued declines in the music genre."

The news came as a shock to many in the video game and music industries. In fact, just three months ago Activision Blizzard CEO Bobby Kotick, in an interview with The Hollywood Reporter, was lamenting the fact that he hadn't been able to license music from Led Zeppelin for Guitar Hero.

"We simply cannot make these games profitably based on current economics," said Eric Hirshberg, CEO of the parent's Activision Publishing unit. That unit will lay off about 500 of its 7,000 employees to account for abandonment of Guitar Hero.

Driving costs higher for Guitar Hero were licensing agreements for the music, which were hefty considering that Activision Blizzard was doing the music labels, publishers and artists a solid by including their works in the game. The Washington Post reported in 2008 that songs released on Guitar Hero III and competitor Rock Band "experienced upswings in download sales that ranged anywhere from 15% to 843%."

Some of the acts that have benefited over the years from Guitar Hero, in both licensing fees and renewed interest in their music, include Ted Nugent, Aerosmith, Metallica, Van Halen, No Doubt, Queen, Bon Jovi, Survivor and Jimi Hendrix.

Guitar Hero was created in 2005 by RedOctane and Harmonix Music Systems. Activision has been its distributor since inception, and it purchased RedOctane in 2006, the same year MTV Games purchased Harmonix. Two months ago, Harmonix was sold to a consortium of investors.

The popularity of the first iteration of Guitar Hero took the video game industry by surprise, and Activision said that Guitar Hero III was the first video game to boast $1 billion in sales.

Activision disclosed that it was pulling the plug on Guitar Hero just ahead of releasing fourth-quarter financial results that beat Wall Street's expectations. However, lighter revenue was forecast, sending shares down in after-hours trading.

The company recorded an adjusted $2.55 billion in revenue in the fourth quarter, up slightly from the same quarter a year ago. On a per-share basis, it earned an adjusted 53 cents, about 2 cents more than analysts had expected, though without the adjustments it lost $233 million.

A bright spot in the quarter involved the company's massive Call of Duty: Black Ops game, which hit store shelves in November and took just six weeks to rake in $1 billion in sales.