In a surprising announcement this morning, MTV Networks has agreed to acquire Harmonix Music Systems, Inc., known for its music-based video games, most notably the popular Guitar Hero (although Frequency, Amplitude and Karaoke Revolution should not be forgotten).

MTV will pay $175 million in cash for all of Harmonix's outstanding stock. Under the terms of the deal, Harmonix shareholders may also be "eligible for incremental earn-out payments through 2008, to the extent that financial results exceed specific targets." The transaction, subject to certain customary conditions, is expected to close in the 4th quarter of this year.

MTV had already established a good relationship with Harmonix by partnering with the developer back in November of last year to feature the Guitar Hero franchise in original programming, creative promotions and competitions across a number of MTV's multi-platform properties. Now with the acquisition, MTV said that it will be able to "enhance its music-based universe of entertainment, news, gaming, and interactive content offerings, and increase audience engagement and time spent with the brand across all screens."

According to the terms, Harmonix CEO Alex Rigopulos and other key employees will continue in their roles following the completion of the acquisition. Furthermore, Harmonix will join MTV Networks' Music and LOGO Enterprises unit, led by Jeff Yapp, Executive Vice President.

"The acquisition of Harmonix will deepen MTV's connection to its audience via on-line, mobile and console music gaming, and expand the relationship with both labels and artists through the creation of games based on classic songs as well as future album releases," commented Christina Norman, President, MTV. "Harmonix's technology allows everyone to pursue their rock and roll fantasies, even people like me, with more musical ambition than actual talent."

"The acquisition of Harmonix advances MTV Networks' strategy of connecting with target audiences by creating immersive, multi-platform environments that extend to every device they use," said Judy McGrath, Chairman and CEO, MTV Networks. "Harmonix is an innovator in giving audiences new and dynamic ways to interact with music, and I couldn't be more excited to welcome the company into MTV Networks' strong portfolio of multi-platform brands."

Added Harmonix's Rigopulos, "We are very excited to combine our unique assets in the music and gaming space with one of the most recognized brands in the music world. We look forward to continuing to create innovative ways for people to enjoy music."