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What to do with $40 Million? May 6, 2008

Posted by Wilhelm Arcturus in entertainment, Lord of the Rings Online.
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Ars Technica reported over the weekend (via Private Equity Hub, which unfortunately charges for their content, so I couldn’t follow up on details) that Turbine has secured $40 million in additional venture capital (bringing their total up to $88 million) and will be announcing a new project soon.

That brings up two immediate question.

First, what will Turbine’s new project be? Another MMO surely, but an original IP or will they be licensing again?

So far they have two original IP MMOs:

Asheron’s Call – success
Asheron’s Call 2 – failure

And two licensed IP MMOs:

Lord of the Rings Online – success
Dungeons and Dragons Online – still open, but hardly a smash

Which route to go?

Second, what is the cash out plan? Those venture capitalist dollars are not angel investments, they will want their money back somehow.

For the second question, there are two obvious routes, go public and sell the company to somebody bigger.

Going public for the sake of going public (to pay off the VCs) is almost always a mistake and ends up damaging the company in the end.

But selling to another company can also shake things up more than people like. Plus, my thoughts immediately stray to one big company that wants to get into the MMO market, but that has failed to so far: Microsoft.

The cash out plan is almost inevitable because of the venture capital involved. It is just a question of how and when.

On the new project though, speculation can go wild. What will Turbine do?

Is their commitment to Dungeons and Dragons and their relationship with Wizards of the Coast strong enough that there might be another IP in that domain they want to try? Say, a nice outdoors IP like Forgotten Realms?

Or will Turbine lay down the sword this time and pick up the gun or the laser?

What will be the next project?

What do you think Turbine should do?

[addendum: Turbine's Press Release]

Comments»

1. Mandalore - May 6, 2008

It’s probably funding to increase the success of LOTRO in light of the Hobbit films in production for 2010. Turbine recently renegotiated their contract with the Tolkien estate and it makes sense that they feel there is still a long way to go with this IP, and a lot of money still left on the table. More funding would help them capitalize on the work they have already done (which fundamentally covers one half of one of the book plus a bit more extra content) and I can see there is great potential to make cash of the back of the film (something they failed to capitalize on previously)

Other than that, another MMO in the sea of lacklustre third gen MMO’s, no thanks Turbine, just make sure your successes stay successful!

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2. Lateris - May 6, 2008

I think turbine should build a savings for a rainy day. Upgrade the Asheron Call Engine to compete with today’s graphics. Enter the console market. And make a sci fi mmo that fills in the gap that no one has been able to fill since SWG Pre CU. They would also benefit from a monthly pass for all their online games.

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3. Talyn - May 6, 2008

Turbine intimated several months ago they’re already in the planning/very early development phase of their next project. I got the impression it would be an original IP this time, but that was strictly a “vibe” thing, no mention was made in their statements.

They’ve also hinted that they’re interested in entering the console market, but that it would have to be the right project, not simply porting over DDO or LOTRO, which wouldn’t work.

As for DDO, when Wizards gave them the license it was strictly for Eberron. Wizards is also very involved and has to give the OK for everything that goes into DDO as it is already.

Personally, I’d love to see a sci-fi game from them. On the fantasy side, I would also love to see them return to the AC realm, either giving AC1 a complete transition to the new engine or reinvigorating the series with a whole new entry. Problem with that is other than EQ2, MMO sequels tend to fail.

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4. nuyan - May 6, 2008

Sandbox game!

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5. Cyanbane - May 6, 2008

They are more likely to be bought by EA/Blizz than MS. MS wouldn’t touch anything unless they have seen a successful launch of an 360 title I would think; they don’t have to take any risk, they make money off the licencing, and they can watch the results.

The Investors are certainly going for a buy out though after WOW though. No IPO. They are seeing consolidation of titles (much like Sony is doing with their station access pass) under one umbrella in the future.

If their as of yet announced title is made for the 360 (coupled with pc) then I would say your MS bet is right, but it would be well after launch.

The rising Azeroth water floats all boats it seems.

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6. Marchosias - May 6, 2008

Knowing that Microsoft already bought AC2 from Turbine, cremated it and sold it back to Turbine, so dunno that MS wold buy again from Turbine.
My guess, like others, is that it’s “continuance money” to keep LOTRO up to date and capitalize on the forth coming Hobbit movies. Although I’d like to see Turbine reinvigorate their AC IP, I’m not sure how they could go about it successfully. And DDO is just controlled too tightly by WotC to really develop and play around with. It’d be interesting to see what Turbine could make in the Sci-FI arena, would it be like AO or more like EVE? Hmmm…

Personally, I’d like to see one of the following:
a new & improved AC/2/3
Some Sci-Fi IP
Some other fantasy setting like Ancient Egypt, Incas/Aztecs, undersea worlds, etc.

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7. Wilhelm2451 - May 6, 2008

40 million from a VC is not sustaining capital or money for a rainy day. That much money is to fund something specific, and since Turbine has already been talking about a new project, it seems more a matter of what it will be, not if it will be.

As for potential suitors for Turbine with a new project announced, funded, and under way:

Vivendi (ActiBlizz) – Won’t be interested. WoW has ensured that they can’t even see any deal that small and that they will believe they can do it better in-house in any case. (The scary thing is, they might be right.)

EA – Before Mark Jacobs I would have said yes, but in the EA-Mythic era there will be many a compelling PowerPoint presentation about how Turbine dilutes rather than enhances EA’s MMO position. (i.e. It is all about WAR) Could change if WAR is not the enormous hit that Mark Jacobs is openly predicting.

Microsoft – Still out in the cold on the MMO scene and still has to make people believe it is serious about this “Games for Windows” idea, all the more so since the demise of the print version of the magazine of the same name. Most people at Microsoft have nothing to do with the XBox, but do depend on Windows to make their goals and quotas.

The AC2 history is there, but Turbine now has the #2 subscription MMO in North America and Europe and will have an exciting new funded project. Microsoft has made its was in the past by buying a second or third ranked competitor and using them as a wedge to break into a market.

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8. bluelinebasher - May 7, 2008

Console MMO seems to be the next trend.

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9. Rick - May 7, 2008

Hey Wilhelm, where did you get the stats saying LoTRO is the #2 subscription MMO in North America and Europe? My old eyes start to get all fuzzy looking at Sir Bruce’s charts, but from what I can tell on his April updates, WoW and Eve are still larger than LoTRO. He’s got Eve around 240k, and LoTRO around 150k. In fact, according to this chart:

http://www.mmogchart.com/Chart7.html

EQ1 and EQ2 also have (barely) more market share than LoTRO.

I’m mostly curious if you have more current or more accurate sources :)

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10. Wilhelm2451 - May 7, 2008

I knew somebody was going to call me on that statement after I posted it. Somewhere a bit back I thought I read something that pegged LOTRO at #2, but cannot find it now. (Though it might have just been bleed over from Mark Jacobs saying WAR will be the #2 after WOW. All that beating the drum for WAR is getting into everything now.)

Still, even going with MMOG Charts (Chart 2), LOTRO looks like a reasonable candidate for the #3 spot, considering that the EQ and EQ2 numbers are more than a year out of date and reflect a sales bump from expansions which, in the case of EQ2, was very successful.

It still leaves Turbine as a possibility for acquisition by Microsoft which does not figure into those charts at all.

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11. Something New From Turbine? « Ardwulf’s Lair - May 8, 2008

[...] New From Turbine? Wilhelm over at The Ancient Gaming Noob has revealed that Turbine has secured $40 million in venture…and intends to announce a new project. This is very interesting news, and forces one to wonder (as [...]

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12. swiftvoyager - May 8, 2008

Not sure about the next project, but WotC seem to be busy with 38 Studios at the moment. As far as trying to ride the coattails of the Hobbit movie, I’m not sure there’s time for that. The film is due to release sometime in 2010.

Funny how everyone thinks MS when they think buyout. What about Sega, or Sony? I wouldn’t rule out Vivendi/Blizzard completely. Vivendi has been accquiring companies to rebuild Sierra Games for the past couple years, and a studio with 88 million in VC would be a nice juicy accquisition. Sierra has received several IP licenses from Vivendi which would make really great childrens/teen MMORPG or SocialMMO. As Raph Koster has been saying, the youth market for VW and MMO is huge and may be underserved.

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13. Wilhelm2451 - May 8, 2008

Well, everybody thinks of Microsoft because they have the cash and they need to invest it in something to get a better return than they can get with a money market account. Ironically, that is their biggest problem financially, too much money sitting still.

And, of course, Microsoft has made a couple of attempts to get into the MMO business. Microsoft usually has to make a few attempts before it commits.

I agree though that there are certainly other possibilities. I can’t get behind some of the ones you have mentioned though.

I’m not sure Sega is in a position to buy up Turbine.

Sony has an MMO division that seems to specialize in stray dogs and charity cases. I’m not sure they would know what to do with a company they were not rescuing from the brink. And now that SOE reports to the PlayStation people, what I rejected from Cyanbane’s comment about Microsoft and the XBox 360 probably applies to Sony: No PS3 support, no interest.

And Blizzard is a potential political nightmare. How do you tell the #1 star team in the world that you’re bringing in some new people? Do you let them turn Turbine into “Blizzard East?” (Remember how well that worked with Blizzard North.) Or do you snub the team in Irvine and bring another MMO team on board, but then keep them separate and make them a competitor for resources?

Who else might be primed to make a bid? NCSoft? Webzen? Nexon?

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14. Talyn - June 5, 2008

/necromancy

Was this $40 million ever confirmed? Turbine just announced yesterday they raised $40 million in equity funding. That was announced on their own press releases. The alleged $40 million in venture capital financing was not on Turbine’s press releases…

However, now that Time Warner is involved, that they were hopeful of using one of their IP’s, combined with yesterday’s rumor of Warner Bros. saying that a Harry Potter MMO was “compelling” …

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15. Wilhelm2451 - June 5, 2008

I think that is the same deal. Equity is ownership. Venture capital is usually investment in something that is a bit risky. They usually come together in a single package. VCs accept risk, but they want to own your butt if they’re going to take it.

And, one of the parters providing the funding, GGV, was is described as “a leader in expansion-stage venture capital investments,” which means they get in after the initial risk has passed and there is some more promise of getting their money back and then some.

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