Electronic Arts' 'Epic' deal
Video game maker licenses hot new graphics engine, raising questions about a previous $48 million deal
NEW YORK (CNNMoney.com) -- Things are getting a bit more Unreal in the video game world.
Electronic Arts last week became the latest publisher to sign a license for Epic Games' Unreal Engine 3, a high-end graphics engine that is designed to power next generation games. The move puts EA in good company. THQ (Charts), Sony and several other studios have previously announced deals to use the engine in their upcoming titles.
What makes the EA deal a bit more curious, though, is the company's 2004 purchase of a company named Criterion. To non-hardcore gamers, it might not mean much, but Criterion was the maker of a graphics engine known as Renderware, which was used in a rumored 25 percent of all games made in the Xbox/PS2 generation. Among the titles using it were "Burnout," Take Two Interactive's (Charts) "Grand Theft Auto" series and Activison's (Charts) "Tony Hawk's Pro Skater 3".
EA spent $48 million to buy Criterion, no doubt hoping to boost its revenues with future licensing income from Renderware. Other publishers, though, were hesitant to bankroll their biggest competitor and began looking for other graphics options. (Some chose to build their own, but building a graphics engine is often the most expensive part of developing a game.)
The timing was serendipitous for Epic, which was beginning to show its new engine and was leaps and bounds above the competition visually. At present, aside from EA's internal titles, no next generation video game is using the next version of Renderware, though the company continues to offer licenses.
Admittedly, graphics engines aren't the sexiest topic in the video game world. But in an industry that's so visually focused, they can be a major factor in a game's sales. A gorgeous game isn't necessarily a good one, but it's a heck of a lot easier to sell it to a mass audience than an average looking one. (Consider it the virtual equivalent of sex sells.)
EA (Charts) will only say it plans to use the Unreal engine on action games. P.J. McNealy, an analyst with American Technology Research, said in a note Monday that the latest "Medal of Honor" game, which was recently delayed to 2007, has made the switch, as well as an unannounced first-person shooter named "Dead Space". (The company declined to comment on the specifics of the report.)
The latest Unreal engine has been in development for four years and cost Epic, a growing force in the gaming world, more than $40 million. The first game to showcase its power will be this winter's "Gears of War" for the Xbox 360 - widely considered to be Microsoft's tent pole game for the holiday season.
While Epic has licensed previous versions of the Unreal engine, it has always been a tangential player in the market. Roughly 60 games used Unreal 2, mostly on PC. (The engine simply wasn't a good fit for consoles.) Mark Rein, vice president of Epic, expects 300-400 games to use Unreal 3 by the time we begin to see the PlayStation 4 and Xbox 720 (or whatever Microsoft (Charts) and Sony (Charts) decide to call the machines).
Whether Renderware ultimately fades from the industry's view or not, the Criterion purchase was still money well spent for EA. The "Burnout" franchise alone has been a substantial hit and while "Black" didn't quite live up to expectations, gamer interest in the group's next title remains high.
"The move is also consistent with EA's approach to most things; try to build internally, and if that fails, acquire or license," wrote McNealy. "Electronic Arts has seen the same type of challenges in wireless, casual games, as well as massively multiplayer online role-playing games."
Morris is Director of Content Development for CNNMoney.com. Send him an email at Chris.Morris@turner.com