Legend Games (4)
Legend Games.
The game company, based in Columbia, South Carolina, was a developer, an engine maker, a publisher, and a distributor all at once. It had first made its name with the Surreal Engine, which powered its blockbuster FPS series, and then earned licensing revenue by selling that engine to other studios. It had also made a splash in publishing, distributing a string of well-known titles, and recently it had even launched its own ESD.
Tom Scott, the company’s founder and CEO, was deep in a serious dilemma these days.
The problem came down to two things.
First was the next-generation engine.
Game engine licensing was Legend Games’ core business, but Surreal Engine 4 was aging fast and losing ground to the EDT Engine. The card that could turn all of that around in one stroke was Surreal Engine 5.
But development kept slipping.
Not long ago, Brian Cloyd, the man overseeing the project, had abruptly quit for personal reasons, and the schedule had fallen apart. As a result, studios that had planned to build their games on Surreal Engine 5 were now seeing their own timelines pushed back one after another.
The second problem was Legend Store.
Recently, Legend Games had focused less on making games itself and more on engine licensing and publishing. In the middle of all that, it had finally developed a new IP of its own after a long time.
That game was the FPS title Night Light.
With that release, Legend Games had also launched its own ESD. It lured studios in with shocking commission rates, dumped money into free games, and even launched exclusives.
But its market share was tiny, and the PC ESD market was still Stream’s world.
They had been prepared to run at a loss for a while, but the numbers were far worse than expected.
The experts had already judged that Legend Store had, in effect, failed.
The only reason it had been able to stay afloat at all was because Night Light, the FPS it had released a year earlier, had become a major hit.
The profits from that game were plugging an enormous hole, but the money was still draining away day by day.
Did I spread the business too thin?
Still, he had no intention of backing down.
Developing a new engine and growing Legend Store would require massive investment, and in the end Scott had decided to raise outside capital.
Once Legend Games announced that it was open to investment, proposals came flooding in from everywhere. Among them were Sonyu, NS, and Wechant—three of the biggest players in the game industry.
Sonyu and NS both have their own consoles and ESDs. If we take money from either of them, we risk becoming dependent on one side.
That naturally pushed his attention toward Wechant.
Taking Wechant’s money came with two major advantages. First, they invested without meddling in management. Second, it would make entering the Chinese market much easier.
Wechant had acquired dozens of game companies around the world and turned them into subsidiaries, but because it guaranteed managerial independence, it inspired a great deal of trust.
On top of that, the Chinese game market was practically under Wechant’s control. If Legend Games took Wechant’s money, expansion into China would become much smoother.
Wechant’s staff were enthusiastic as well, and they were willing to meet the conditions he wanted.
The details had already been negotiated, and they were basically at the signature stage when he received a call from another investor.
I met a man at Legend Games’ headquarters.
He was a white man in his late forties, thin-framed, with white hair and a white beard. He wore black horn-rimmed glasses.
He was Tom Scott, the CEO of Legend Games.
I had called ahead before coming, so he greeted me warmly.
“Welcome.”
“It’s good to meet you.”
We sat down.
“I’d heard a lot about you as Mr. Lockhart’s partner, but I had no idea you were co-CEOs at such a young age.”
“Are you familiar with Continue Capital?”
“Of course. You acquired Snow Crash, and I heard you just handled the Blackwood ransomware crisis too. How could I not know? Ah, and I also heard you invested in Purple Games Studio.”
“That’s right. We’re very interested in the game industry. I also heard Legend Games is looking for an investor.”
“We are.”
“Am I right in assuming you’ll probably take Wechant’s money? The company valuation must have been set at around eighteen billion dollars.”
“How did you—?”
“I narrowed down the possibilities. Considering your relationships with the studios using Surreal Engine and your future publishing plans, taking money from NS or Sonyu would risk tilting you toward one console side. So I figured Wechant was the likeliest fit. As for the valuation, I estimated it by comparing you to other game companies Wechant has invested in.”
He couldn’t hide his surprise.
“To get that exactly right... that’s amazing.”
Well, it wasn’t exactly magic.
By that point, it had already become public that they were selling 48 percent of the company to Wechant for nine billion dollars.
He said with an upbeat expression, “I’d heard of Continue Capital’s reputation for a while, but I never expected to meet you in person like this. What brings you to our company?”
“Are you familiar with the game Block Valley, which Purple Games Studio is making?”
Scott nodded.
“Yes. I watched the released footage. The fact that players can build anything they imagine inside the game was very interesting.”
“Continue Capital sees very high potential in Block Valley and is investing accordingly.”
“How high, exactly?”
“If our projections are right, it’ll be the highest-grossing game over the next few years.”
“...What?”
He looked utterly dumbfounded.
Who would ever imagine an indie game pulling in numbers like that?
“I know it’s hard to believe now, but we genuinely think so.”
If anyone else had said it, he would have dismissed it as a joke or sheer overconfidence. But given Continue Capital’s track record, it wasn’t so easy to brush off.
“I came because I wanted to discuss Legend Games’ publishing relationship with Block Valley.”
At that, Scott’s face lit up.
“Ah! I see. Then you’ve come to the right place.”
A publisher doesn’t just distribute a game.
It handles marketing, development support, localization, translation, operations, server management, and more.
Some publishers go even further, issuing instructions during development, charging extra costs, or even demanding rights to part of the intellectual property.
But Legend Games was different.
“Our company does everything we can to help developers earn as much as possible.”
Usually, the people who said things like that were the ones lining their own pockets, but Legend Store was the real deal. It protected developer autonomy as much as possible and spared no support where support was needed. It also did its best to maximize the developer’s share of the revenue.
At the very least, no developer had ever had a back-channel complaint about money issues.
It wasn’t for nothing that Purple Games Studio’s three founders had all agreed that Legend Games would be a good fit.
“If you let us handle it, we can do worldwide publishing as well as direct sales through Legend Store.”
I asked him, “One thing I’m curious about—why did you create Legend Store?”
“Because if you sell the same game through another ESD, you have to pay a commission, but if you sell it yourself, you save that fee.”
Even the big game companies ran their own ESDs. But among them, you could safely say none of them actually made money from it.
Legend Store was currently one of the main causes of Legend Games’ losses.
Luckily, Night Light, the game they had released as a free-to-play title, had succeeded; otherwise, they would have pulled the plug on the business long ago.
“You can broadly divide ESDs into three categories.”
“First, console ESDs.”
On consoles sold by companies like Lintendo, Sonyu, and NS, you could only access the ESD provided by that company, and games could only be installed through it.
“Second, smartphone app markets.”
Games on smartphones are downloaded and installed through the market just like any other app. In that sense, the app market for a given operating system functions as its ESD.
“Third, PC ESDs.”
On PC, consumers can buy and install games individually or purchase them from whichever ESD they prefer. So competition should, in theory, be much freer than it is on consoles or smartphones... but in reality, this market is practically monopolized by Stream.
The company that ran Stream was Gelview Corporation.
Its founder was Gabe McLenn.
He had originally been a developer at NS, and when NS went public, he became a millionaire.
While researching software sales, he had been stunned to discover that one particular program was being installed more often than NS’s own operating system.
That program was, of course, a game.
Back then, computers were unbelievably expensive compared to today, and they were used mostly for work.
And yet people who had spent a fortune on those machines weren’t doing their jobs first—they were installing games!
He realized that as computers became more widespread, the game market would grow with them. So he quit, left NS, and founded Gelview.
Then, while making games, he created Stream, the site where those games would be sold, and it went on to become the world’s largest ESD. Gabe McLenn became the richest man in the game industry.
It was the story of someone who had literally looked into the future, spotted the opening, and seized it.
“But whether it’s console, smartphone, or PC, all ESDs have one thing in common: they take a 30 percent cut. In other words, if you sell a ten-dollar game, they take three dollars. I think that kind of thing is absurdly exploitative.”
“So that’s why you set Legend Store’s commission so low?”
“That’s right.”
Legend Games’ commission policy was nothing short of radical.
While existing ESDs took 30 percent, Legend Store set its fee at 12 percent—less than half that amount.
If a game had been developed using Surreal Engine, then the licensing fee for sales through Legend Store would be waived entirely.
A game built with Surreal Engine would pay a total of 35 percent if sold through Stream, but only 12 percent if sold through Legend Store.
Maybe 12 percent still sounded high, but once you deducted operating costs, payment processing fees, and various overhead expenses, the actual profit was less than half that.
Unless you could create real scale, it was hard to make any money at all. And in practice, the losses were only piling up.
I nodded.
“The intention is very good. But aggressive pricing is hard for a late entrant to pull off. In a price war, the newcomer ends up taking the bigger hit. What if Stream cut its commission to 20 percent, or even 15? Then wouldn’t game companies have no reason to choose Legend Store?”
Scott burst out laughing.
“Haha! If that happened, that would be great too. Even if we took losses, at least other game companies would make more money. If Stream had started out with a commission that low, we never would have built Legend Store in the first place.”
The way he said it made it sound like he really did mean it when he said he was trying to help developers.
I really liked this guy.
“Still, wouldn’t Legend Store need to succeed for that to happen? Even at a glance before I came here, I could see there were plenty of problems.”
“What kind of problems?”
“Can I be blunt?”
“Yes.”
So I was blunt, exactly as I wanted to be.
“For starters, the UI is ugly. The features are worse. There’s no cloud save, no user reviews or forums, no mod support, item trading is blocked, library sharing doesn’t exist, streaming doesn’t work, screenshots don’t work, broadcasting doesn’t work, chat doesn’t work, and there isn’t even a shopping cart. Stream’s 30 percent cut is ridiculous, but does it make any sense for Legend Store, a latecomer, to ship with feature support like this?”
Scott looked properly shocked by the verbal beatdown.
“Th-that was because we rushed the launch. We’re planning to improve it bit by bit.”
Then why not improve it before launching?
“And never mind the convenience features—the server problems are serious enough that errors are common, and downloads are delayed all the time.”
Scott cleared his throat awkwardly, as though he had nothing to say.
“Ahem... we’re working to fix it as quickly as possible.”
At that rate, who knew when they’d be done?
I made him an offer.
“Why not hand it over to Snow Crash instead?”
“What?”
“I can guarantee you this: one week of work from CEO Lucas would be faster than a hundred of your developers grinding on it for a month.”