In the wake of Red Octane's controversial Guitar Hero II launch on the Xbox 360 and MTV's purchase of Harmonix --- the original developers of Guitar Hero -- there's one big pink elephant question floating around the industry: Did Activision make a mistake when they purchased publisher, peripheral manufacturer, Guitar Hero rights holder Red Octane instead of developer Harmonix?

Michael Pachter, managing director at Wedbush Morgan Securities, thinks Activision made the right decision, "Would you pay $150 million dollars for someone who ripped off [Konami's] Guitar Freaks? The game is fun, I totally respect Harmonix, I'm sure Red Octane turned to them [with Guitar Hero] and said let's figure out a way to rip off Guitar Freaks and help sell our peripherals ... I think at the end of the day, the MTV/Harmonix game [Rock Band] will be a good game, it will cannibalize market share. I think it's good for consumers and it'll make Activision and Neversoft work harder [on Guitar Hero III]."

The entire situation between Red Octane and its former developer Harmonix has become very complex. With Activision's purchase of Red Octane and MTV's purchase of Harmonix the two companies are on very separate paths. Red Octane has retained Neversoft to develop the next Guitar Hero. Red Octane retained all rights to Guitar Hero, including the look and -- most importantly -- the guitar.

Pachter says legal recourse is why Harmonix has been so tight about information regarding Rock Band, "Who do they think they are? Rockstar? Blizzard? They think they can just wait until the last moment to release information?" Pachter believes that Harmonix/MTV/EA are getting their lawyer ducks in a row before they show anything of the game. Harmonix stated in a recent telephone interview that even the peripherals for Rock Band will be developed by Harmonix, opening up a whole new world of hardware development for the company. Pachter, who previously was a lawyer for many years, says that if the look of Rock Band or the guitars (which may need to have "six buttons to be legally different") comes anywhere close to Guitar Hero's look or Red Octane's guitars that Activision will have every right to sue. Conversely, Harmonix has to figure out how to copyright the drum peripheral so that Red Octane doesn't begin development on their own version. Pachter does find the situation fascinating, "I guess what's interesting here is Harmonix/MTV telling us that this game, with its four peripherals and the game, is coming out in less than six months and yet we have no more details."

Activision spent $100 million dollars for Red Octane and Guitar Hero. With the millions of copies sold of the game and the guitar, Pachter says Activision is making their money back and Neversoft will have no problem developing the third iteration of the game. He says the pieces are already in place to bang out another sequel and points out that there's hardly any difference between the first and second game. Guitar Hero III will be a hit unless Neversoft strays far from the formula. Pachter believes if anyone made a purchasing mistake it was MTV with their $175 million acquisition of Harmonix. Harmonix created a Guitar Freaks clone and is now trying their hand at peripheral manufacturing, a Karaoke Revolution clone, a Drum Mania clone and the technical achievement of making all these peripherals work online without lag getting in the way. Rock Band is a new IP with a lot of corporate players involved, not to mention a massive technical undertaking -- it's all a big risk. Pachter put it quite simply, "Activision didn't buy the wrong company, MTV bought the wrong company."

This article was originally published on Joystiq.