The Skinny blog is written by Rick Smith, editor and co-founder of WRAL Tech Wire and business editor of WRAL.com.
RESEARCH TRIANGLE PARK, N.C. – Epic Games is a very tightly run operation. Security is tight. IDs are checked rigorously. If a partner is in town working on a project in the cut-throat video game business, access to the recently expanded, high-tech headquarters in Cary is even more strict. Leaks about new products are controlled, generally going to friendly press.
Times are tough in the industry, however. Video game sales are plunging, and gaming platforms are aging while more players go to tablets and mobile devices to play cheap games. Curt Schilling, best known as a Major League tenacious power pitcher whose bloody sock from an heroic playoff performance against the New York Yankees is in the Hall of Fame, recently gave up and took his game company into bankruptcy.
Yet through all the industry’s turmoil, Epic has plunged ahead with new products, new game engine technology, and into markets where it had never tread – Apple iOS. Its “Gears of War” franchise has generated more than $1 billion in sales. Its Unreal game engine could very well be the most popular in the world.
So out of the East came news early Tuesday that Epic, now in its 21st year, had taken on its first outside investor – Chinese Internet entertainment giant Tencent. Tencent gets a minority stake for an unspecified amount of cash.
So why did Epic do the deal? Cash is king, and cash means Epic can grow.
Mike Capps, Epic’s president who co-runs the company alongside co-founder and Chief Executive Officer Tim Sweeney, agreed to answer a series of questions about the deal – but he didn’t provide all the details.
Still, his responses offer insight into Epic’s thinking – and what may be coming next.
The Q&A follows:
What factors led Epic to seek outside investment? Why let someone from the outside inside the tent – was this a difficult decision?
Epic has worked with Tencent for years through our Unreal Engine licensing relationship. They have fantastic inroads into markets where we want to be, such as China. Epic has been carefully weighing its options for the next generation of games for quite some time, and aligning with Tencent strategically was an easy decision.
I found the comment in the press release about Epic remaining independent a curious one given that you specified it was a minority stake. Why did you feel it was necessary to stress Epic remained in control?
This is Epic’s first outside investment in 21 years of business. We’ve always taken pride in being an independent developer of fun games and cutting-edge technology.
We want to assure our players and licensees that this transaction only brings more to the table in terms of what can offer them.
Did you solicit bids or were you approached by Tencent?
We have worked with Tencent for years, and each company has become increasingly successful during that time. The idea of a long-term partnership naturally arose in conversation.
What factors led you to choose Tencent as a partner? Had you worked with them in the past or were you familiar with some of their principals?
Tencent has unparalleled expertise in the Chinese market, and they are highly successful in the online PC and mobile games space. These are all areas of Epic’s business in which we see potential growth.
Why not work with someone such as Microsoft which you already work with on Gears projects? Did you want to be seen as “neutral” in the platform and gaming communities?
Microsoft recently announced “Gears of War: Judgment” for Xbox 360. They continue to be our publisher for the blockbuster Gears series and a trusted technology partner.
Does Epic have a board? If so, how many seats did Tencent gain?
Epic does have a board, and we are not disclosing terms of the deal.
Is Microsoft still the publisher for the Gears franchise?
What kind of expansion can we expect now from Epic with the new capital? More games? More offices? Possible acquisitions?
Epic’s position of careful, organic growth hasn’t changed; we’ll continue to capitalize on serendipitous opportunities. This deal enables Epic to extend its franchises to even more platforms and deliver richer gaming experiences to players everywhere.
Related to that, why did you decide to hire the workers from Curt Schilling’s Big Huge Games firm and decide to open a studio in Baltimore? Was this part of the thinking behind the outside investor? Will a new franchise be built by this new team?
Epic is very nimble, and we are able to quickly move on incredible opportunities. When Big Huge Games was shut down, we couldn’t resist the chance to work with a very talented group of people.
This was unrelated to the Tencent transaction but, of course, Tencent could see the potential and was supportive of our decision. We will have more news on the new Baltimore studio down the road.
With the Apple projects, a new franchise in development, a new Gears title, a new Unreal update and with the Maryland move – Epic appears to be growing at a fast pace. Might the management team be expanded to cope with these additional responsibilities and opportunities?
It sure sounds busy, but that’s business as usual here in Cary. As always, we are hiring.
[EPIC ARCHIVE: Check out a decade of Epic stories as reported in WRAL Tech Wire.]