Sony invests $250 million in Fortnite maker Epic Games
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Sony has invested $250 million for a minority stake in Fortnite maker Epic Games, the companies announced today. With the new money, Epic Games has raised $1.83 billion to date.
The companies said the deal cements an already close relationship between the two companies and reinforces the shared goal to advance the state of the art in technology, entertainment, and socially connected online services. This close relationship was underscored in May when Epic first showed the upcoming Unreal Engine 5 graphics running on a PlayStation 5. As the company itself has disclosed, Epic Games raised $1.58 billion to date in three previous funding rounds. In 2012, the company received a $330 million investment from Tencent for a 40% ownership stake.
Under the deal, the investment enables Sony and Epic to broaden their collaboration, with Sony’s portfolio of entertainment assets and technology and Epic’s social entertainment platform and digital ecosystem (think Fortnite’s increasing use as a social space or the Epic Games Store), to create unique experiences for consumers and creators. The closing of the investment is subject to customary closing conditions, including regulatory approvals.
Epic confirmed it will still be able to publish to other platforms. As noted, Sony is acquiring only a minority part of Epic Games, and it is not acquiring a controlling stake in the company.
The deal is important for Sony because it needs allies in the upcoming console war. Later this year, Sony plans to launch the PlayStation 5 game console in competition with Microsoft’s Xbox Series X. But Epic has said that its Unreal Engine 5 and Fortnite will work with all game platforms, as Epic has generally been neutral when it comes to making cross-platform technology. If Sony gets any advantage from investing in Epic, it isn’t clear from this deal.
In a statement, Sony CEO Kenichiro Yoshida said that Epic’s technology keeps them at the forefront of game development and that is exemplified in the features of Fortnite. Epic CEO Tim Sweeney, meanwhile, said in a statement that both Sony and Epic have created businesses at the intersection of creativity and technology and they share a vision of real-time 3D social experiences that will lead to a convergence of gaming, film, and music. He also said the parties plan to build a “more open and accessible digital ecosystem for all consumers and content creators.”
The music reference seems like a call out to the recent virtual Travis Scott concert in Fortnite, which drew more than 27 million people. The mention of a more open and accessible digital ecosystem is also a surprise, as Sweeney has long been a proponent of open systems, while Sony has been an example of a company that protects its proprietary technology. Sony has, however, enabled Fortnite to function as a crossplay game that also lets friends play each other across other platforms.
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The deal is different from the one that Bloomberg reported in June, which we independently confirmed, that Epic Games was seeking to raise $750 million at a pre-money valuation of $16.3 billion, with a post-money valuation (the value of the company after the deal is done) of $17 billion. (Sony and Epic Games did not disclose valuations today). Epic declined to comment on that deal.
Epic Games is both the developer and publisher of Fortnite, which has more than 350 million registered users. And it is also the creator of the Unreal Engine, a fundamental toolset for building many games (and increasingly, making movies and TV).
Bloomberg said in June that new investors participating in the separate round are T. Rowe Price Group and Baillie Gifford. Existing investors KKR & Co. will also participate, Bloomberg reported, citing unnamed sources. Epic did not comment on that detail either.
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As we reported earlier in June, Epic Games’ fundraising gave us a window into the company’s current financial picture, as the privately held Epic does not disclose its revenues or profits. Epic has declined comment on the below numbers.
Sources told GamesBeat that in 2019, Epic Games reported $4.2 billion in revenue and $730 million in earnings before interest, taxes, depreciation, and amortization (EBITDA, a key measure of profitability). Revenue for 2020 is forecast to be $5 billion, with EBITDA of $1 billion.
In April alone, thanks to the pandemic, Fortnite revenue was $400 million, sources told me. Epic has said that in April, players spent 3.2 billion hours in the battle royale shooter, sources said.
In 2018, Epic Games did better than it did in 2019. Revenue in 2018 was $5.6 billion, with EBITDA of $2.9 billion, sources said. Epic used a lot of that money to invest in its Epic Games Store, expanding its staff for Fortnite and Unreal Engine, and some acquisitions.
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In 2017, the company received a strategic investment from Disney as part of the 2017 Disney Accelerator program. And in October 2018, Epic raised $1.25 billion at a $14.5 billion post-money valuation. Investors in that round included KKR, Vulcan Capital, Kleiner Perkins, Lightspeed Ventures, Smash Ventures, and Iconiq.
At that time of the Unreal Engine 5 announcement in May, Sweeney said in an interview with GamesBeat that Epic had a close relationship with Sony.
“We’ve been working super-closely with Sony for quite a long time on the storage architecture and other elements. It’s been our primary focus. But Unreal Engine 5 will be on all next-generation platforms, and so will Fortnite,” Sweeney said at the time.
He added, “Sony has done an awesome job of architecting a great system here. It’s not just a great GPU, and they didn’t just take the latest PC hardware and upgrade to it, following the path of least resistance. The storage architecture in PlayStation 5 is far ahead of anything that you can buy in any PC for any amount of money right now. It’s great to see that sort of innovation. It’s going to help drive future PCs. They’ll see this thing ship and realize, ‘Wow, with two SSDs, we’ll have to catch up.'”
Epic Games didn’t say what it would use the money for. But it’s a good bet the company will continue to make acquisitions, invest in its Epic Games Store, expand Fortnite, and drive toward the creation of the Metaverse. The later is the universe of virtual worlds that are all interconnected, like in novels such as Snow Crash and Ready Player One. Sweeney has said this is one of his goals.
Well I hope this doesn't turn into some crazy rabbit hole...Sony just invested in a company controlled by Tencent, who are collaborating w/ Huawei on a cloud gaming platform. Huawei is basically off-limits in the US, so I hope this investment doesn't put Sony or Epic on somebody's radar.
Bad investment imo. They invested at an extremely inflated value for an amount that's ridiculously high for the stake. If they were going to do this, would have been far better to have done it just before PS4 launched.
Epic Games may also become an exclusive distribution for any PlayStation titles.
Bad investment imo. They invested at an extremely inflated value for an amount that's ridiculously high for the stake. If they were going to do this, would have been far better to have done it just before PS4 launched.
Epic Games may also become an exclusive distribution for any PlayStation titles.
Whilst I don't really have an opinion on this I am sure the multiple Sony layers involved in this investment think otherwise.
Whilst I don't really have an opinion on this I am sure the multiple Sony layers involved in this investment think otherwise.
You'd think so, but then history is littered with these bad investment stories of where down the line it became abundantly clear it wasn't as helpful.
My only thinking is that Sony as a whole decided that if they buy a stake now that they could try negotiate more favourable contracts for gaming & movies but in all honestly, this investment is almost a case of "Too little, too late" imo. They should have invested back when Ten Cent did. Given that they got 40% of the company, a linear reduction would have happened for the current stake they hold and they could have even doubled or tripled without issue.
Also one other thing i feel strongly plays into this. Fortnite. The primary catalyst imo due to the surging valuation. The income generated from the Battle Royale usually has a multiplier and that's what drove the huge push upwards in valuation and then they made some smarter choices acquiring Quixzel(sic?) and starting the EPIC Games Store which has dons well. However Fortnite with billions in income is causing the inflation atm.
At the end of the day, it's their money as a company but it's just a poor choice to have invested now at that amount. Time will only tell when a real return is had.
Bad investment imo. They invested at an extremely inflated value for an amount that's ridiculously high for the stake. If they were going to do this, would have been far better to have done it just before PS4 launched.
Epic Games may also become an exclusive distribution for any PlayStation titles.
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Originally Posted by NARMAK
You'd think so, but then history is littered with these bad investment stories of where down the line it became abundantly clear it wasn't as helpful.
My only thinking is that Sony as a whole decided that if they buy a stake now that they could try negotiate more favourable contracts for gaming & movies but in all honestly, this investment is almost a case of "Too little, too late" imo. They should have invested back when Ten Cent did. Given that they got 40% of the company, a linear reduction would have happened for the current stake they hold and they could have even doubled or tripled without issue.
Also one other thing i feel strongly plays into this. Fortnite. The primary catalyst imo due to the surging valuation. The income generated from the Battle Royale usually has a multiplier and that's what drove the huge push upwards in valuation and then they made some smarter choices acquiring Quixzel(sic?) and starting the EPIC Games Store which has dons well. However Fortnite with billions in income is causing the inflation atm.
At the end of the day, it's their money as a company but it's just a poor choice to have invested now at that amount. Time will only tell when a real return is had.
Simple answer, Sony didn't have the money when PS4 released. The reason Sony are doing so well now is due to how successful the PS4 has been.
Also, trading in Leyou shares suspended pending a takeover announcement.
Simple answer, Sony didn't have the money when PS4 released. The reason Sony are doing so well now is due to how successful the PS4 has been.
Also, trading in Leyou shares suspended pending a takeover announcement.
I know Sony wasn't in the best financial spot back then, but they wouldn't have needed $250 million for the level of equity stake they just bought back then is what i'm saying and they were showing off Unreal Engine 4 on the PS4 conference too. It would have been much better to have found maybe $10-25 million to invest into Epic back then is all i'm saying and hold that minority stake than pay a potentially overinflated price in 2020.
Too late i suppose to hope that Epic give us a genuine next-gen release of the legendary Unreal Tournament franchise? One can but hope...
I think at some point, there's a potential for a Free to Play version being released for next gen underpinned by Battle Pass and MTX. Not sure how successful it could be in a traditional MP style but perhaps they'll offer multiple modes. I played it once and not much online back when i got to. Wasn't really something i probably managed to get in but with a F2P version i'd probably give it a whirl.
I was also going to say it doesn't seem like a smart deal based on the success of one game franchise, but 250,000,000$ for Sony is probably not a lot of money:
"Sony Corp.'s film unit recorded a full fiscal-year operating profit of $488 million (￥54.6 billion), while Sony Corp. overall posted a record $8.3 billion (￥916 billion) annual profit, the company said Friday." - Hollywood Reporter, 2019
I was also going to say it doesn't seem like a smart deal based on the success of one game franchise, but 250,000,000$ for Sony is probably not a lot of money:
"Sony Corp.'s film unit recorded a full fiscal-year operating profit of $488 million (￥54.6 billion), while Sony Corp. overall posted a record $8.3 billion (￥916 billion) annual profit, the company said Friday." - Hollywood Reporter, 2019
That's a healthy profit and seems they've recovered a lot since their ailing financial woes of years gone by during the PS4 launch till now.
That's true that to be able to take that huge of a risk with that much money, they have to feel pretty confident about their finances I'd imagine. Of course some corporations and companies take big risks that are all or nothing for their future, but Sony is giant enough to be able to handle this if the future of this deal doesn't pay off.
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Sony invests $250 million in Fortnite maker Epic Games
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