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Interview:  League of Legends  Developer Riot Games Acquired By Tencent
Interview: League of Legends Developer Riot Games Acquired By Tencent
February 4, 2011 | By Christian Nutt

February 4, 2011 | By Christian Nutt
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Tencent Holdings, one of the leading internet companies in China -- which operates IM, social networking, and online games -- has acquired a majority stake in Riot Games, Los Angeles-based developer and publisher of League of Legends, it announced late on Friday.

The two companies had already planned to launch the Chinese version of Riot's popular multiplayer action RTS title League of Legends together this year -- now, the rapidly expanding Chinese Internet firm is expanding further in the West via this majority acquisition deal.

According to CEO Brandon Beck, who spoke to Gamasutra about the deal: "Technically it's an acquisition -- Tencent is acquiring a majority stake in the company.

He added, "It's unusual as acquisitions go, in the sense that there's an incredible amount of autonomy and independence that both companies are trying to create, which is critical to us."

Tencent already has U.S. offices in Culver City, CA; Beck stressed that his company, co-founded with Riot president Marc Merrill, is not becoming Tencent's U.S. operation.

Overall, according to a recent report, Tencent has captured 20 percent of China's online gaming market. The company had the biggest growth in the tech sector for 2010, beating out Apple, according to Bloomberg Businessweek.com.

"Riot is going to remain completely independent. There are no redundancies, no layoffs, no synergy fishing, no leadership change," Beck said. In fact, Riot Games is remaining its own publisher in North America and Europe. "Nothing is going to change other than they're dramatically increasing their holding in the company. They see this more as an investment in a partner."

Beck said that the close partnership the two companies had already forged working together on the upcoming Chinese launch of League of Legends is what made this a perfect fit. "We've gotten work with them in a lot of different capacities... [We have] a mutual respect, a shared philosophy."

"We've been working together for a long time -- over two years," he said. "Tencent and Riot share a view of the game industry. As important as technology and IP is, the most important thing in the industry are the people and the talent, particularly when you're trying to innovate and trailblaze. To keep people exited, motivated, hungry to succeed, and maximize creativity, you have to have a really independent and autonomous structure."

In Beck's view, this really changes nothing for the company's trajectory. "All it changes is that we now have access to the resources of Tencent ... [we can] more aggressively pursue our plans. We have 100 open positions at Riot, and we're really looking for talented developers. The goals are to continue to develop and expand on League of Legends, and then to embark on some exciting new projects."

Riot Games' DoTA-styled title is forged on a competitive core gaming pedigree, which aligns well with Tencent's audience, said Beck. The core game is free to play and download, and is supported by microtransactions. "Core gamers in every territory have an awful lot in common... there's almost a global gaming community, at the end of the day."

"As a company we're very focused on core gamers, people that identify themselves as gamers unabashedly. That's just where we are as a company. The whole company is centered around that -- really community driven too. It's important for us to have a relationship with our players and a dialogue and so on. That's' why you see us with incredibly active forums and active communications. We view games as living, breathing, ongoing experiences."

Merrill, who is also League of Legends' executive producer, commented that this acquisition will allow the developer to carry this philosophy forward into both League of Legends and its new projects.

"We really do feel like we're just getting started, and the success of League of Legends is a validation of our approach. And we think that Tencent really identifies with our community-focused strategy, and sees we want to grow and evolve in how we deliver games to our users," he said.

Riot currently operates League of Legends in North America and Europe; it will launch in China and other global territories during 2011. Describing the fan reception to the game as "really overwhelming," Beck said that currently "We have upwards of 1 million players play our game every single week, and they log upwards of 1 billion minutes of playtime every month."

[UPDATE: A report in AllThingsD claims that "Tencent, which had already invested in the game maker, will pay “just south” of $400 million to buy out other investors, primarily Benchmark Capital and FirstMark Capital, which along with angels had put approximately $18 million into the company."

The Wall Street Journal-affiliated site claims: "The company’s management team will receive some portion of that buyout themselves, but will also retain an equity stake; some will receive 'stay packages.' The total investment values the company at $472 million."]


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Comments


Skip McGee
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"It's unusual as acquisitions go, in the sense that there's an incredible amount of autonomy and independence that both companies are trying to create, which is critical to us."



Oh, I've never heard a studio head say that before. Best of luck Riot!

Tom Cadwell
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I'm the design director at Riot. I have more knowledge of the particulars of this deal than most, and I can tell you, Brandon meant every word he said in this interview.



@Skip McGee -- I understand your thoughts on this and why you'd have doubts... But there are strong counter-examples: Bioware and especially Blizzard both have a large amount of autonomy, and what it comes down to is, when you have a winning team, you want to let them keep doing what was causing them to win.



Not only that, but our company is successful because of our people. As really talented professionals, they have a lot of career options any time they want to pursue them. And yet, our voluntary turnover here is around 1% annually. I attribute this both to the positive work environment, and the fact we are on a great upwards trajectory working on interesting stuff.



So, if you don't want to take us at our word, look at the motivations of everyone involved instead. Why would you want to mess with a winning team, full of happy staff? A happy, winning team is what produces more hits, and more success. It's in everyone's interest (our players, our employees, and our investors) to continue on the route we are going. And that's why we this deal is structured the way it is.

Andrew Hopper
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Activision has its mitts all over Blizzard's design direction, and Bioware has always been pretty damn producer friendly. Producer creep just *happens*, so you're going to get a lot of rolled eyes and "we'll sees".

Tom Cadwell
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@Andrew Hopper -- This contradicts my experiences w/ regards to Blizzard. It wasn't that way prior to Activision, and I regularly hang out with various designers at Blizzard and they laugh at this sort of notion.... Go talk to a few of them if you don't believe me.



w/ regards to Bioware, I have fewer friends there, but I think we can all agree that their game quality, throughout their entire history, has consistently improved and been unrelated to M&A activity. Mass Effect 2 is probably their best game yet...

Cordero W
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Hope you guys are hiring when I graduate from college in another year. Want to put my computer science degree to good use, and I already enjoy your League of Legends game.

Tom Cadwell
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@cordero -- I don't anticipate a slowdown. We also have summer internships.

Kale Menges
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100 hundred open positions? Any concept artist positions?

Aaron Casillas
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Congrats on the funds! Interesting topic on cross cultural acquisitions. Tom C. Does Riot already moderate their content and champions to fit censor norms in other countries? For example China will not allow the usage of skeletons as humanoids because it's found offensive. Will that mean Karthus will have to be changed?



Or the German censor board as another example, there has been some controversy that "Twitch" is based on stereotypical Jewish caricatures (recall 1 German citizen making 1 complaint to the censor board will get your game in review.) Or the usage of "red colored blood."



There are always censor issues when dealing with other countries.

Tom Cadwell
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We pick champions that we think will have broad international appeal. We avoid champions that are too narrow to one region, and try to put spins on archetypes that are appealing for everyone. Sometimes we localize the art slightly though when we really want to do something. For example, Karthus has a skull exposed in the US version, but his hood covers his skull up in the Chinese version. Blood is another example -- some regions have bloodless clients, some do not.



Because LoL is enjoyed in virtually every internet using country in the world, it's important to us that we design for this audience.

Cordero W
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@Tom: Problem is, I live in Texas. I would love to do internships with you guys, cause I've been looking to various companies, such as ones in Austin, but a lot of good companies seem to be in California, which sucks big time.

Tom Cadwell
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If you are in school there's nothing stopping you from spending a summer in another state for an internship.

Tejas Oza
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If you think living in Texas is a problem if you want to intern a few states over, you really should try wanting to intern there when you live halfway across the world. *chuckles* Ah well, perhaps someday...



Anyways, what interests me about this, both as a gamer and as studying game designer, is how the proposed Chinese LoL server is going to affect the existing servers as well as how Riot might deal with changing the interface to better suit gamers of that region. While the article did mention that the existing staff won't see any lay-offs or acquisitions, I'm inclined to believe that an office will be set up in China to run that server and the associated site. Also, the DotA format being well known in the region, will the game remain the same or will (as mentioned earlier) Riot attempt to change/tweak a few aspects of the UI to the needs of gamers there?



Lastly, the article mentions that Riot will be opening up in "other global territories" this year... I understand that this might be information that can't be revealed yet, but I am /very/ curious as to where these territories might just be.



(Oh and purely as a gamer and fan of LoL - Awesome stuff!)

Casey Labine
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@Tom: You should recruit some of the people from the now defunct Warcraft III modding scene. They already "get" your style of game, and have done things that, on a technical and design level, put a lot of the new standalone offerings to shame. I'm mostly thinking of the "farewell" version of Tides of Blood released last year, but there was also Desert of Exile, which had some interesting Guild Wars-esque elements.

Joe McGinn
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Congrats Riot, seems like a really good alignment with company values and similar audience to Tencent.

Neil Campbell
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@Tom Caldwell,



Let's cut the bullshit. You did the thing that all players of games hate to see their developers do: sell out to a massive corporation. Worse than that, you sold out to China. Not only did you sell out to China, but you sold out to the company that controls a large amount of China's IM and social networking sites. What does that mean?



That means Tencent is one of the world front runners in disrupting freedom of information and freedom of the press to Chinese people, as well as aiding the Chinese Communist Party in their persecution of religious groups like Falun Gong, Christians, Muslims, Tibet, etc. This is no joke. People have been murdered and people's families have been destroyed because of these companies being in bed with the CCP.



Of course, Tencent won't try to have Riot do those things in America, because US law will utterly annihilate you if you do, but I suppose when facing more money than you could humanly dream of, considerations regarding ethics is too much to ask for.



As for your autonomy, once you give up the majority of shares, you don't have *any* control. Your autonomy comes from this fun little part of your acquisition contract called "Representations and Warranties". One day in the future when that expires or can be breached, or when Tencent decides that doing what they want with their investment in you (which cost more than a year of profits of their business in China because of the laughable Yuan to USD conversion rate) outweighs the risk of getting sued for Breach of Contract, all of you will be gone and they'll replace you with their corporate muppets who tow their party line.



Selling out is unforgivable, and even you are afraid of its consequences. Riot has really never moderated anything on their boards, but you directed your moderators to close all threads in general discussion about this, relegating it instead to a 200 page Announcements thread. Why? Because you understand well that you'll lose the support of your playbase if people who understand this situation for what it is were able to talk to them.



How weak your position is. How dark the prospects for your future are. It's my genuine wish that you all come to your senses and stop being inebriated by money and influence. Humans are awful at thinking about how their actions are going to affect their future more than one or two steps ahead.

Jiake Liu
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@Neil Campbell,



Oh get off your high horse. I won't comment on the political aspect of this issue, since you are just trying to over-sensationalize this purely business transaction with false claims about Tencent being the evil Orwellian supporter. Your claims are not only unrelated to issues at hand, but they are also untrue.



Now, EVEN assuming your ridiculous claims are true, you yourself have admitted that "Tencent won't try to have Riot do those things in America, because US law will

utterly annihilate you if you do." What are you worrying about then?



Regarding the actual contract. I'm just going to assume (correct me if I'm wrong) you are not a lawyer. How much do you know about the actual contract? You think something that even you could point out won't be recognized by Riot who has way more responsibilities and enthusiasm over its own intellectual property and people than somebody spewing false accusations behind a computer monitor? How many big investors have invested in your company?



To highlight your ignorance even more: "their investment in you (which cost more than a year of profits of their business in China because of the laughable Yuan to USD conversion rate)" Let's take a look at this:



http://www.tencent.com/en-us/content/at/2010/attachments/20100317
.pdf



Tencent 2009 Profit: RMB 8550 million (USD 1252 million)



In case you haven't figured it out, that's $1,252,000,000 profit versus the $472,000,000 investment in Riot claimed by this article. Do I need to do the math for you?



"Riot has really never moderated anything on their boards, but you directed your moderators to close all threads in general discussion about this, relegating it instead to a 200 page Announcements thread. Why?"



I'll tell you why, it's because players don't want to bothered with uninformed people like you spamming their general discussion board.

Andrew Hopper
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Being bought by a company means that company intends to use your profits. Profits which are being shipped overseas to a country with notoriously lax labor laws, regardless of the specifics of the companies involved.

Jiake Liu
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What's your point?

Chad Cohen
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Tom,

Congratulations, I am familiar with your deal as one of my HS friends is a key employee at Riot. It appears that this deal will be great for all parties involved. I will be in your office, at some point, in the next few weeks. I look forward to meeting you.

Ken Nakai
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Honestly, this sort of thing can go either way. It really depends on one thing: how well Riot does with its games. Any sane business person, whether they're in China or in the US, is not going to muck with a formula that works and generates profits unless there are obvious ways to improve those profits. Meanwhile, Riot gets to offload a bunch of investors in exchange for one which frees up top-level management from managing investors to driving profitability and making great games.



Of course, if Riot makes a bunch of mistakes and creates a series of terrible games, then the chances they'll be sold off, closed down or otherwise absorbed into Tencent increases substantially. Given the success of LoL, I can't imagine that would happen any time soon. And, if Tencent helps enable LoL's expansion into the Asian market where that OTHER well-known RTS has a lot of popularity, it'll be even harder for anyone to justify decimating the company at this stage.



Now, not liking the fact that a Chinese company now owns an American company might be a personal opinion you can't really argue against but remember: barely 30 years ago, people were complaining about Japanese businesses buying out US companies. What was funny about that was that there were US senators smashing Mitsubishi TVs made in US factories. Genius. Welcome to the global economy. If you don't like it, go and find a way to make a US game company that's profitable. Oh, wait, EA, Activision Blizzard...already been done.



Congrats on the acq. Enjoy the relative freedom for the next year or two...should be a great ride.


none
 
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