Chinese Internet giant Tencent acquires minority stake in Epic Games

dranii@newsobserver.com June 19, 2012 

Videogame company Epic Games has forged a deal with Chinese Internet giant Tencent Holdings Limited with an eye toward cracking the lucrative and fast-growing Asian market.

The Cary-based company announced Tuesday that Tencent, China’s No. 1 online company as well as the operator of that country’s largest online portal for casual games, has acquired a minority stake in Epic for an undisclosed sum. It’s the first outside investment ever for Epic, the 21-year-old company behind the blockbuster “Gears of War” and “Unreal Tournament” franchises as well as the creator of the enormously popular Unreal Engine technology used by other game companies to create cutting-edge titles.

Epic founder and CEO Tim Sweeney said the deal also calls for collaborating with Tencent, including tapping into the Chinese company’s customer base. That is expected to help Epic successfully expand beyond the console-based games that have been its hallmark into PC-based online games and mobile games with greater worldwide appeal.

“Tencent has by far the largest gaming customer base in China and really impressive and growing operations throughout the rest of Asia and in South America,” Sweeney said. “Basically, wherever Epic is not, Tencent is – in a big way.”

Publicly traded Tencent generated $4.5 billion in revenue in 2011, up 45 percent from a year earlier, and its instant messaging service had 751.9 million users as of March 31.

Unlike the North American and European video game markets, which until recently have been console-centric, games in Asia – with the major exception of Japan – have always been predominantly PC-based, said Sweeney.

Moving forward, Epic plans to work closely with Tencent early in the game-development process to figure out ways to maximize sales potential in Asia, and especially in China. The goal, said Sweeney, is to “develop global games that are globally successful.”

Epic and Tencent have had a long standing business relationship. Tencent, which also develops its own games, licenses Epic’s Unreal Engine.

Sweeney said the deal was driven by the opportunity that Epic envisions, not the cash infusion from Tencent.

“Epic has always been very profitable,” he said. “We often have a hard time figuring out how to deploy the money that we do have efficiently, given the amounts that games like ‘Gears of War’ and ‘Infinity Blade’ produce.” “Infinity Blade” and “Infinity Blade 2” are hit games that Epic developed for Apple’s iPhone, iPad and iTouch.

Sweeney declined to disclose how much Tencent is investing in Epic, but noted: “It’s a big enough deal that we’re talking about it.”

Epic employs 160 people in Cary and 250 worldwide.

The company is in the process of establishing a new game-development studio in Baltimore that will be staffed by former employees of Big Huge Games, the company behind popular games such as “Rise of Nations.” Big Huge Games recently went out of business when its corporate parent folded.

Sweeney said that Epic is hiring “at least a couple dozen” ex-Big Huge staffers.

“It was an incredible opportunity that came up,” he said. “We’re very nimble. When we see an opportunity, we can jump on it without the hesitation that many bigger, more top-heavy companies might have.”

Ranii: 919-829-4877

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