Gaming the Systems

An Interesting and smart move by Sony last week to invest $250 million in Epic Games, publisher of the wildly popular Fortnite online game franchise.

The amount of money is fairly small relative to Epic’s overall market cap — good for about a 1.5% stake — but it should help Sony cement its strategic alliance with a company that has emerge as a major force in the games business — a sector in which Sony has a major interest as developer of the Playstation console and platform. The next iteration of the Sony console — Playstation 5 — is expected to be released later this year.

Perhaps as important,however, and likely a factor in Sony’s decision to invest, Epic is also emerging as an important and influential force in the music business, and the film and television business — two other sectors in which Sony has substantial interests.

Epic is the developer of the Unreal Engine, a game engine that has also become an important tool for filmmakers, thanks to its highly sophisticated graphics capability.

Using Unreal Engine, filmmakers are able to render cinema-quality virtual sets and landscapes that can be displayed on LED walls on a sound stage, allowing computer-generated graphics to be integrated in-camera with actors filmed on a bare stage. Thanks to Unreal Engine’s interactive capability, directors and cinematographers can also experiment with lighting effects, perspectives and other aspects of a shot on-set and in real time.

Much of the Disney+ hit The Mandalorian is filmed on virtual sets and locations using Unreal Engine. Like the Playstation 5, the next iteration of the Unreal Engine, which Epic says will allow game developers to create true cinema-quality images and graphics, is expected to be released later this year.

The Fortnite online “metaverse,” meanwhile, is rapidly evolving into a platform for hosting a range of different types of content, from immersive virtual concerts to interactive movie screenings. In April, Sony Music artist Travis Scott, appearing as an avatar, attracted 12.3 million concurrent viewers for a 15 minute “live” performance within Fortnite.

Epic’s emergence as a player in the music and film industries has been accelerated by the exigencies of the Covid pandemic. With brick-and-mortar music venues boarded up, preventing artists from touring, musicians have flocked to online platforms, especially online gaming platforms like Twitch and Fortnite that offer huge worldwide audiences, to maintain contact with their fans and promote their music.

Covid has also shuttered or limited the use of sound stages an all but wiped out location filming, creating an incentive for producers and directors to explore virtual alternatives.

Both phenomena are likely to outlive the Coronavirus, however. Fortnite concerts provide a highly immersive experience that would be difficult to recreate in a live setting. Once monetization strategies around them have matured it’s quite possible they will remain a popular complement to touring, allowing artists to create a new kind of experience for their fans and to reach audiences in places their live tours don’t reach.

The ability to move “location” shooting into a sound stage promises significant cost savings for filmmakers and financiers, as does the ability to limit the personnel needed on-set to film interiors.

Sony’s investment in Epic Games, in other words, helps strengthen its ties to a major player in one core business sector, but also gives it a front row seat to the development of a technology likely to be critical to the future of all of Sony’s core entertainment businesses (whether or not it ends up spinning off those businesses).

Moreover, Sony’s move comes at a time when a number of its Hollywood competitors are moving away from direct investment in the games business.

Disney moved earlier this year to unload the game development studio it inherited with the Fox acquisition, while WarnerMedia parent AT&T is exploring a spinoff of Warner Interactive, developer of the Mortal Kombat franchise, to help pay down some of the debt it took on to acquire Time Warner’s media assets.

NBCUniversal parent Comcast has also backed away from direct investment in games in favor of licensing its properties to third-party developers.

All three of those companies, of course, are investing heavily in direct-to-consumer video streaming, and no doubt view games as a less-than-core business. But video games are already a bigger business than the movie and music industries combined, and both the business and technology of gaming appear poised to begin absorbing big chunks of their smaller brethren.

By abandoning the field, Disney, WarnerMedia and NBCUniversal are leaving Sony with plenty of room to run into.