The relationship between game developers and game publishers hasn't exactly been sunshine and lollipops. Publishers have long provided much needed cash to keep developers afloat during the creative process, and have, in turn, had significant input into games' creations. This has caused a rift between the two as developers sometimes become reliant on publishers for income, but must also meet their demands or see the money well dry up.
However, it appears as though there has been a shift in the paradigm. Foundation 9 Entertainment, the largest independent developer in North America, today announced that it has secured up to $150 million through the tech-investment firm Francisco Partners.
"We plan to work actively with management to continue growing this business in scale and creativity," said Brian Ruder, a principal with Francisco Partners. "Relative to other businesses we have evaluated in the videogames sector, Foundation 9 enjoys a low volatility, solid growth, and consistent profitability, making it an excellent platform for further consolidation, and continued deployment of capital."
Late last year, venture-capital firm Elevation Partners inked a similar deal with two developers, Pandemic Studios and BioWare, forming the gaming superstudio BioWare/Pandemic. Elevation is contributing $300 million in capital to the partnership, and the firm's cofounder has taken the seat as CEO of the new studio.
GameSpot spoke with Foundation 9 CEO Jon Goldman shortly after the news was announced.
GameSpot: Seriously, what do you do with $150 million dollars? That's a huge amount of money...nearly half the amount Elevation put into its investment with Bioware and Pandemic.
Jon Goldman: We're rolling out kegs at all our studios today, so that costs some money... But really, the story is not the number, which is "up to" $150M or "more as necessary," it's the access to that capital without having ever again to distract our management team with fundraising. We've got a long-term partner who wants to invest big in this industry, who has the resources to deploy as much capital as necessary, and who shares our vision of what a well-capitalized independent developer, with a broad portfolio of projects, can become. We honestly didn't need to walk these guys through our strategy. They had come up with the same conclusions before we had even met! Specifically, about use of proceeds, we will be investing in three areas: 1) organizational and infrastructure growth so that we are prepared for increased scaling up of the company, 2) Research and development and original IP investment, and 3) further acquisitions as appropriate.
GS: Speaking of which: what is driving the interest private equity has in the game industry?
JG: Well, you'd have to ask the private equity folks, but my sense is that the financial community realizes that the game playing demographic is here to stay and is expanding. Videogames and interactive entertainment as a general category is migrating wherever you see the combo of lower cost memory, increased computing power and lcd screens. The traditional stigma that videogames are completely hit driven investments is being counter-balanced against the reality that every market segment is hit-driven. Every bet on drug discovery or semiconductors is not going to lead to a fabulous IPO, and as our industry matures, we have as much of a chance of creating financial successes as any other. As one private equity guy put it, there haven't been too many enterprise software wins lately, maybe it's time to pay attention to entertainment software.
GS: What does the trend mean for the future of game development? Do publishers go away, or do we rewrite the definition of what a publisher is?
JG: I've always felt this is not a publisher vs. developer situation. Publishers have had to shoulder all the risk in the industry, because they were the only organizations of size and strength to do so. Well-capitalized developers can share risk, and our hope is that in doing so, we can help foster better industry-wide specialization and growth. To give a specific example, if developers can spend more resources on developing and publishers more on marketing and sales, hypothetically, everyone wins, because we'll sell more, better games. That's the theory at least.
GS: What history does Francisco have when it come to software development?
JG:They are extremely experienced technology investors.
GS: What rights does such a significant stake in the company give Francisco?
JG: We will return all their calls! And Francisco has the right to buy us dinner whenever we get together. Without going into deal details, we expect Francisco to be extremely active partners for us, not just money guys. The lead investor we're working with, Brian Ruder, is extremely knowledgeable about the space, has a blackberryful of great contacts and is queuing up new opportunities already. To say we are excited is an understatement.
GS: Speaking to where the company will invest that money, where does F9 see opportunity in the game space over the next 1-3 years?
JG: To date, our strategy has been to go where the consumer is and get involved in as many active spaces as we can, as opposed to a strategy of "picking a winner" and doubling down. As you know, we're active on every platform at every age group, and we're also involved in opportunities that don't necessarily get tracked in the traditional videogames industry--location-based entertainment, advertising games, game-enabled toys, etc. We obviously believe that independently developed and funded game concepts will be an important component to keeping the game industry fresh.
GS: Thanks, Jon.
Foundation 9 was formed in early 2005 by the merger of Backbone Entertainment and The Collective. The company has since added Pipeworks, Digital Eclipse, ImaginEngine, and Circle of Confusion. Among the titles currently in the works from the company are Sonic Rivals (Backbone Vancouver), Dirty Harry (The Collective), and Death Jr. 2: Root of Evil by Backbone Emeryville.