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The crying game

Midway machinations stir Redstone rift

A week after absorbing a public rebuke from Viacom czar Sumner Redstone, Shari Redstone is getting payback the way her father knows best: through the media.

Stories citing anonymous sources popped up on Aug. 1 — one in the Los Angeles Times, the other in Fortune — identifying a key irritant in the Redstones’ strained relationship: Sumner using the financial resources of National Amusements, the exhib chain run by Shari, to accumulate shares in troubled Midway Games, the vidgame maker best known for its “Mortal Kombat” franchise.

Though earnings were improved in the second quarter, the midsize publisher has been a consistent money-loser for the past few years.

Since Sumner Redstone announced his intention to take control of Midway in April 2004, its stock has declined by 39%.

In that time, Redstone has been very aggressive with the press, making phone calls and sending faxes to try to generate positive coverage of the company.

He unsuccessfully tried to persuade Viacom, which he chairs, to buy or make a strategic partnership with Midway. An independent committee of the board set up to investigate that possibility never made such a recommendation.

The company is hoping for better results from upcoming games such as “Stranglehold,” an action title based on John Woo movies, but it hasn’t set a specific target date to hit profitability.

Sumner Redstone now controls close to 90% of Midway shares. In February, he sold about 12.4 million shares of Midway to a National Amusements subsidiary, a transaction opposed by Shari Redstone. She reportedly felt her father was using National to prop up the sagging Midway.

The backdrop for that charge was an escalating dispute over who will succeed the 84-year-old Redstone.

The elder Redstone’s history with Midway dates to 1984, years before he took the helm of Viacom, when he started buying shares in slot and pinball machine company WMS Industries. Midway was spun off from WMS in 1996.

Along with the February transaction, Shari Redstone took issue with her father’s involvement in Sumco, Inc., a shell company set up in 2005 specifically as a vehicle for 33 million Midway shares. Shari officially was to have control of Sumco, but when Sumner continued to make moves as if he were in the driver’s seat, it created friction.

Of course, as 80% owner of National Amusements (Shari owns the rest), Sumner would seem to be able to trump any of her claims to ultimate power.

A source close to the situation tells Variety the media frenzy about a family meltdown (while fueled by both sides) has been overblown. The source contends, “there has been a considerable standing-down,” as evidenced by Sumner and Shari dining together with her children in New York on Aug. 1, the day the latest accounts were published.

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