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Epic Games sells a part of itself to Chinese online giant Tencent
Epic Games sells a part of itself to Chinese online giant Tencent Exclusive
June 19, 2012 | By Mike Rose

June 19, 2012 | By Mike Rose
More: Console/PC, Business/Marketing, Exclusive, China

Major Chinese internet company Tencent has acquired a minority stake in Gears Of War and Unreal Engine creator Epic Games for an undisclosed sum.

The deal marks the first time an outside investment has been made in Epic, and Epic president Michael Capps noted that the company will be collaborating with Tencent to tap into the company's Chinese userbase.

It's notable that Tencent made up more than a third of all revenue in the Chinese online games market during the first quarter of the current fiscal year, through its various online platforms including the web portal and QQ Game Open Platform.

The deal will close sometime in the next month, although the terms of the investment were not provided. Capps was also keen to stress that Epic will continue to operate independently, seeking further expansion of its current game franchises across multiple platforms.

This isn't the first time Tencent has acquired a stake in a Western video game developer. Last year it bought a majority stake in Riot Games, Los Angeles-based developer and publisher of League of Legends.

Epic has had a relationship with Tencent for years, with the Chinese company licensing Unreal Engine for its projects. Mike Capps, president of Epic, tells Gamasutra that both firms have a lot to learn from each other, and that his company is eager to tap into Tencent's expertise in China's online PC and mobile games market.

"They have fantastic inroads into attractive markets and platforms, and Epic has been carefully weighing its options for the next generation of games for quite some time," says Capps.

He adds, "Our engine powers browser-based games, mobile games, MMOs, and more. As more of Chinaís population is becoming connected to the internet, Tencentís business is growing in all of these areas."

As for whether Tencent and Epic have plans to bring the latter's popular game brands like Gears of War to China, Capps says, "We are looking at all potential growth areas."

Epic also owns a minority stake in Yingpei Games (formerly Epic Games China), which offers outsourcing services and recently began developing its own titles like Mercenary Ops. That developer controls its own operations, and has more than 300 employees across its offices in Shanghai and Suzhou.

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Kale Menges
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I don't even want to know how much money we are talking about here... Even for a minority stake... But I can definitely see the method in this madness, for both companies...

Craig Page
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I'm guessing they paid an epic amount of money for this.

Terry Matthes
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It would be nice to get a better understanding of why they did this. I was really proud of Epic for being a wholly owned private company and not giving into being publically traded or co-owned. This just seems strange. If anything the reverse scenario makes more sense to me. I wonder if this has to do with some kind of Chinese business laws.

Joe McGinn
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I've heard Tencent is using UE 3 in some studios, so I can see the benefit from them.

For Epic, it provides a safe and reasonable path into a large, growing, but very difficult market.

Win win.

JB Vorderkunz
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Chinese businesses are often (but not always) in reality government operations - so this may have been an 'official blessing' scenario required for Epic's full entry into the Chinese market. Just hope that UE tech used in military sims is not now a serious weak link in DoD Network Security.

Joe McGinn
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Tencent is a private company JB, but the affect to Epic is much the same ... that is, Tencent has the government connections necessary to function in China.

Mike Griffin
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The updated headline for this article sort of engenders that type of "Epic is selling out!" reaction.
I don't think Epic loses much control or integrity here.
It's clearly a much smaller stake compared to the Riot Games deal.
For Epic, this becomes a very fluid path to the Chinese market via a preexisting UE3 licensee.

Terry Matthes
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Thanks for the insight Mike. I suppose in the end if that makes it easier and cheaper to penetrate the chinese market than that is a good thing for the studio as a whole. I just have that knee jerk reaction any time I hear of someone giving up part of their company. I suppose that's not the most mature insight on my part... :\

Nooh Ha
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Minority stakes by trade partners are often preludes to outright acquisitions (the rationale for investment and acquisition usually being the same) and such deals sometimes includes further share purchase options. Epic may not have lost its independence but it has definitely taken a step (albeit of unknown size) away from it.

Duong Nguyen
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It's a strategic decision by Epic, I'm sure they see Asia as the next forefront for their market ie high end game middle ware and realtime visualization software. Epic and other large studios already have a strong Asia presence. As large as Epic is, they are not the biggest players in the industry, there are far larger companies with enough capital to purchase Epic. What will that mean for all those people using their middleware? Luckily there are enough alternatives we won't have another Rednerware fiasco..