The developer of Fortnite has come up with a novel solution to the entertainment industry's perennial problem of finding the next hit, as the blockbuster success of its "battle royale" shooter game begins to wane.
Instead of creating another Fortnite itself, Epic Games is expanding its toolkit for other developers, in the hope that it can take a cut of whatever turns out to be the next breakout game.
A spate of acquisitions over the course of 2019 has seen the Tencent and KKR-backed company reinvest the huge profits generated by Fortnite into building out its own gaming platform, Unreal Engine.
Purchases such as 3Lateral, Twinmotion and Quixel are helping Epic assemble a suite of low-cost tools for creating ultra-realistic digital characters and virtual worlds.
"Propelled by Fortnite's massive financial success, Epic Games has successfully re-established itself as a force to be reckoned with and is shaking up the entire gaming industry," said George Jijiashvili, analyst at the tech consultancy Ovum.
Epic's evolution during the past 18 months or so has been pretty significant. It has built a direct-to-consumer business, is seeking to compete with incumbent storefronts in PC and mobile and wants to disrupt the distribution model for digital content
Fortnite is still generating tens of millions of dollars a month from players who purchase new outfits and accessories for their characters. But analysts at Sensor Tower, which tracks spending on mobile devices, say that the earning power of the game has been in decline every quarter since spending peaked in autumn 2018.
Unreal Engine was first released 20 years ago, long before Fortnite made Epic Games familiar to hundreds of millions of players around the world. It is initially free to use but takes a 5 per cent royalty on revenues from any game built using its tools.
So-called game engines such as Unreal and its main rival, San Francisco-based Unity Technologies, promise to bring the capabilities of Hollywood studios and big-budget games publishers to a much larger pool of creatives.
Epic's dealmaking has accelerated its plans to enable any developer to create far more realistic people and detailed environments for their games.
Kim Libreri, chief technology officer at Epic, said earlier this year that Unreal Engine's tools would soon allow developers and film-makers to bridge the "uncanny valley", making virtual people look totally natural and convincing.
"We want to make it that for normal game creators or normal people making interactive experiences, we take the mystery out of it . . . That's our big project for the next couple of years," he told the Virtual Beings Conference in San Francisco this July.
Epic's shopping spree Jan 20193Lateral, Novi Sad, Serbia — 3D character animation
Jan 2019Agog Labs, Victoria, Canada — simplified development tools
May 2019Psyonix, San Diego, California — multiplayer games developer
May 2019Twinmotion, Paris, France — generating 3D environments
Jun 2019Houseparty, San Francisco, California — group video chat
Nov 2019Quixel, Stockholm, Sweden — realistic graphics libraries
Those efforts will be boosted by Epic's ownership of 3Lateral, a digital character design and animation company that worked on games including Grand Theft Auto V, and Quixel, which offers an extensive library of photorealistic assets that have been used in films such as Marvel's Black Panther and this year's Lion King remake.
"It's becoming pretty obvious that in the next 10 years, the virtual world and the real world will merge into one," said Mr Libreri, a veteran of the visual effects industry whose movie credits include The Matrix. "You won't really be able to tell the difference between one and the other."
Late last year Epic took a $1.25bn investment led by the private equity group KKR. It had previously sold a roughly 40 per cent stake to the Chinese gaming and internet group Tencent in 2012. Tim Sweeney, who founded Epic in the early 1990s, has retained control of the North Carolina-based company, making him a billionaire.
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Epic's other acquisitions this year include Agog Labs, which automates some aspects of game development, and Twinmotion, which is used by designers and architects to create 3D visualisations of buildings or landscapes.
Piers Harding-Rolls, games industry analyst at IHS Markit, said Epic's dealmaking this year has been just one part of its broader "shift in gear". Epic Games Store — which takes a 12 per cent commission on all games sold, undercutting Apple's App Store, Google Play or Steam — has already attracted tens of millions of gamers since it was launched a year ago.
"Epic's evolution during the past 18 months or so has been pretty significant," said Mr Harding-Rolls. "It has built a direct-to-consumer business, is seeking to compete with incumbent storefronts in PC and mobile and wants to disrupt the distribution model for digital content."
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