Tencent AI Lab loses key executive

Chinese internet giant Tencent just lost a leading artificial intelligence figure. Zhang Tong, who previously worked at Yahoo, IBM and Baidu, has stepped down after directing Tencent’s AI Lab for nearly two years. The scientist will return to academia and continue research in the AI field, Tencent confirmed with TechCrunch on Thursday, adding that it […]

Chinese internet giant Tencent just lost a leading artificial intelligence figure. Zhang Tong, who previously worked at Yahoo, IBM and Baidu, has stepped down after directing Tencent’s AI Lab for nearly two years.

The scientist will return to academia and continue research in the AI field, Tencent confirmed with TechCrunch on Thursday, adding that it hasn’t appointed a successor.

”We are grateful for [Zhang]’s contributions to Tencent AI Lab and continue to explore fundamental and applied research that can make the benefits of AI accessible to everyone, everywhere,” Tencent said in a statement.

Zhang’s departure is the latest in a handful of top AI scientists quitting large Chinese tech firms. In 2017, search giant Baidu lost its chief scientist Andrew Ng who started Google’s deep learning initiative. Last year, the firm suffered another blow as renown AI expert Lu Qi resigned as chief operating officer and moved onto spearheading Y Combinator’s newly minted China program.

Talent is key to a tech firm’s AI endeavor, for a revered leader not only inspires employees but also boosts investor confidence. Baidu stocks plunged following Lu’s exit as markets weighed on the talent gap inside the company, which had poured resources into autonomous driving, smart speakers among other AI efforts. Tencent itself had poached Zhang from Baidu’s Big Data Lab to ramp up its own AI division.

Tencent is best known for its billion-user WeChat messenger and being the world’s largest video game publisher, but it’s also been doubling down on machine learning R&D to serve users and enterprise clients. It launched the AI Lab in April 2016 and opened its first U.S. research center in Seattle a year later to work on speech recognition and natural language processing (NLP).

The AI Lab dives into machine learning, computer vision, speech recognition and NLP. Meanwhile, the social and entertainment giant also works to put fundamental research to practical use, applying AI to its key businesses — content, social, online games and cloud computing.

One beneficiary has been WeChat, which applies NLP to enable seamless dialogues between users speaking different languages. Another case in point is Tencent’s news aggregator Tiantian Kuaibao, which deploys deep learning to recommend content based on readers’ past preference. Kuaibao is a direct competitor to Jinri Toutiao, the popular AI-powered news app run by TikTok’s parent company ByteDance.

To date, Tencent’s AI Lab has a team of 70 research scientists and 300 engineers, according to information on its website. Tencent operates another AI initiative called the Youtu Lab, which focuses on image understanding, face recognition, audio recognition and optical character recognition. While its sister AI Lab falls under Tencent’s research-focus Technology Engineering Group, Youtu is the brainchild of the Cloud & Smart Industries Group, a new unit that Tencent set up during its major organizational reshuffle in October to place more emphasis on enterprise businesses.

Epic Games, the creator of Fortnite, banked a $3 billion profit in 2018

Epic Games had as good a year in 2018 as any company in tech. Fortnite became the world’s most popular game, growing the company’s valuation to $15 billion but it has helped the company pile up cash, too. Epic grossed a $3 billion profit for this year fuelled by the continued success of Fortnite, a […]

Epic Games had as good a year in 2018 as any company in tech. Fortnite became the world’s most popular game, growing the company’s valuation to $15 billion but it has helped the company pile up cash, too. Epic grossed a $3 billion profit for this year fuelled by the continued success of Fortnite, a source with knowledge of the business told TechCrunch.

Epic did not respond to a request for comment.

Fortnite, which is free to play but makes money selling digital items, has popularized the battle royale category — think Lord of the Flies meets Hunger Games — almost single-handedly and it has been the standout title for the U.S-based game publisher.

Epic, which was founded way back in 1991, hasn’t given revenue figures for its smash hit — which has 125 million players — but this new profit milestone, combined with other pieces of data, gives an idea of the success that the company is seeing as a result of a prescient change in strategy made six years ago.

This past September, Epic commanded a valuation of nearly $15 billion, according to the Wall Street Journal, as marquee investors like KKR, Kleiner Perkins and Lightspeed piled in on a $1.25 billion round to grab a slice of the red-hot development firm. However, the investment cards haven’t always been stacked in Epic’s favor.

China’s Tencent, the maker of blockbuster chat app WeChat and a prolific games firm in its own right, became the first outside investor in Epic’s business back in 2012 when it injected $330 million in exchange for a 40 percent stake in the business.

Back then, Epic was best known for Unreal Engine, the third-party development platform that it still operates today, and top-selling titles like Gears of War.

Why would a proven company give up such a huge slice of its business? Executives believed that Epic, as it was, was living on borrow time. They sensed a change in the way games were headed based on diminishing returns and growing budgets for console games, the increase of ‘live’ games like League of Legends and the emerging role of smartphones.

Speaking to Polygon about the Tencent deal, Epic CEO Tim Sweeney explained that the investment money from Tencent allowed the company to go down the route of freemium games rather than big box titles. That’s a strategy Sweeney called “Epic 4.0.”

“We realized that the business really needed to change its approach quite significantly. We were seeing some of the best games in the industry being built and operated as live games over time rather than big retail releases. We recognized that the ideal role for Epic in the industry is to drive that, and so we began the transition of being a fairly narrow console developer focused on Xbox to being a multi-platform game developer and self publisher, and indie on a larger scale,” he explained.

Tencent, Sweeney added, has provided “an enormous amount of useful advice” while the capital enabled Epic to “make this huge leap without the immediate of fear of money.”

LOS ANGELES, CA – JUNE 12: Gamers ‘Ninja’ (L) and ‘Marshmello’ compete in the Epic Games Fortnite E3 Tournament at the Banc of California Stadium on June 12, 2018 in Los Angeles, California. (Photo by Christian Petersen/Getty Images)

Epic never had a problem making money — Sweeney told Polygon the first Gear of Wars release grossed $100 million on a $12 million development budget — but with Fortnite the company has redefined modern gaming, both by making true cross-platform experiences possible and by pulling in vast amounts of money.

As a private company, Epic keeps its financials closely guarded. But digging beyond the $3 billion figure — which, to be clear, is annual profit not revenue — there are clues as to just how big a money-spinner Fortnite is. Certainly, there’s room to wonder whether analyst predictions this summer that Fortnite would gross $2 billion this year were too conservative.

The most recent data comes from November when Sensor Tower estimates that iOS users alone were spending $1.23 million per day. That helped the game bank $37 million in the month and take its total earnings within Apple’s iOS platform to more than $385 million.

But, as mentioned, Fortnite is a cross-platform title that supports PlayStation, Xbox, Switch, PC, Mac, Android and iOS. Aggregating revenue cross those platforms isn’t easy, and the only real estimate comes from earlier this year when Super Data Research concluded that the game made $318 million in May across all platforms.

That is, of course, when Fortnite was fresh on iOS, non-existent on Android and with fewer overall players.

We can deduct from Sensor Tower’s November estimate that iOS pulled in $385 million over eight months — between April and November — which is around $48 million per month on average. Android is harder to calculate since Epic skipped Google’s Play Store by distributing its own launcher. While it quickly picked up 15 million Android users within the first month, tracking that spending off-platform is a huge challenge. Some estimates predicted that Google would miss out on around $50 million in lost earnings this year because in-app purchases on Android would not cross its services.

There are a few factors to add further uncertainty.

Fornite spending tends to spike around the release of new seasons — updated versions of the game — since users are encouraged to buy specific packages at the start. The latest, Season 7, dropped early this month with a range of tweaks for the Christmas period. Give the increased velocity that Fortnite is picking up players and the appeal of the festive period, this could have been its biggest revenue generator to date but there’s not yet any indicator of how it performed.

More broadly, Fortnite has undoubtedly lost out on revenue in China, which frozen new game licenses nine months ago thereby preventing any publishers from monetizing new titles over that period.

Tencent, which publishes Fortnite in China, did release the game in the country but it hasn’t been able to draw revenue from it yet. The Chinese government announced last week that it is close to approving its first batch of new titles but it isn’t clear which games are included and when the process will be done.

Already, the effects have been felt.

Games are forecast to generate nearly $40 billion in revenue in China this year, according to market researcher Newzoo. However, the industry saw its slowest growth over the last 10 years as it grew 5.4 percent year-over-year during the first half of 2018, according to a report by Beijing-based research firm GPC and China’s official gaming association CNG.

Fortnite and PUBG — another battle royale title backed by Tencent — have perhaps suffered the most since they are universally popular worldwide but unable to monetize in China. It seems almost certain that those two titles will receive a major marketing push if, as and when they receive the license and, if Epic can keep the game competitive as Sweeney believed it could back in 2012, then it could go on and make even more money in 2019.

Epic Games is taking on Steam with its own digital game store, which includes higher take-home revenue rates for developers.

But Epic isn’t relying solely on Fortnite.

A more lowkey but significant launch this month was the opening of the Epic Game Store which is aimed squarely at Steam, the leader in digital game sales.

While Fortnite is its most prolific release, Epic also makes money from other games, Unreal Engine and a recently launched online game store that rivals Steam. Epic’s big differentiator for the store is that it gives developers 88 percent of their revenue, as opposed to Value — the firm behind Steam — which keeps 30 percent, although it has added varying rates for more successful titles. Customers are promised a free title every two weeks.

Either way, Epic is betting that it can do a lot more than Fortnite which could mean that its profit margin is even higher come this time next year.

Winter is ending: China to restart game approvals

As 2018 draws to a close, China’s gaming industry — which has been beaten by a nine-month-long freeze in license approvals — woke up to exhilarating news as officials announced that they have started to review new titles again. The much-coveted game licenses are essential for developers to legally monetize their work in China. “We’ve […]

As 2018 draws to a close, China’s gaming industry — which has been beaten by a nine-month-long freeze in license approvals — woke up to exhilarating news as officials announced that they have started to review new titles again.

The much-coveted game licenses are essential for developers to legally monetize their work in China. “We’ve finished reviewing the first batch of games,” said Feng Shixin, a senior official from the propaganda department of the Chinese Communist Party, at an industry symposium on Friday. He added that the ideology watchdog will assign licenses at the soonest though there is a huge number of applications sitting in the pipeline.

Shares of Tencent, the country’s largest games publisher, jump 4 percent on Friday while its smaller competitor NetEase is up 1 percent.

China’s regulatory bodies for games stopped approving new titles since March as they underwent a major reshuffle that would eventually place the State Administration of Press and Publication under direct control of the propaganda organ. The shakeup is meant to give the central government more scrutiny over the billion-dollar market.

For one, regulators are looking to clamp down on illegal games that contains pornography, gambling, violence and content deemed inappropriate by Beijing, including titles that rewrite the history, according to Feng. In March, Tencent’s blockbuster mobile game Honor of Kings came under fire by the Communist Party’s official paper for misrepresenting certain historical Chinese figures.

Secondly, China is calling game developers to have “a stronger sense of social responsibility”, especially when it comes to protecting minors from addiction and illegal content. Beijing went as far as blaming video games for causing bad eyesight in children. In response, Tencent and NetEase among other major publishers have placed a time limit on underage players.

Regulators have also ordered studios to improve game quality and encouraged them to expand overseas. Local titles could be an engine to “promote Chinese culture, propagate Chinese values and showcase Chinese tastes” as they go global, said Feng.

The long halt in game approvals has taken a toll on the world’s largest gaming market. Chinese games are on way to generate $40 billion in revenues in 2018, according to market researcher Newzoo. However, the massive industry saw its slowest growth over the last ten years as it grew 5.4 percent year-over-year during the first half of 2018, according to a report by Beijing-based research firm GPC and China’s official gaming association CNG.

The world’s largest game publisher Tencent — also the developer behind China’s largest messenger WeChat — for instance, could not cash in on popular titles. The giant saw gaming revenues slip by four percent during the third quarter. To offset the pressure in its consumer-facing gaming business, Tencent went through a major reorganization in October to put more focus on enterprise services.

Tencent said during its Q3 earnings call that it had 15 games with monetization approval in its pipeline, which means that gaming revenues may get back on track when those games attain the desired licenses.

“This is clearly very encouraging news for China’s gaming industry,” Tencent said in a statement on Friday. “As the review and approval process for games resumes, we are confident that Tencent will be producing more compliant and higher-quality cultural work for society and the public.”

Smaller players may also have a chance to race ahead in the revived market. “The size of the gaming company does not matter. It matters how fast the company can be adapting to the new set of rules and guidelines,” said Ilya Gutov, business development director at APPTUTTi, a company that helps overseas games enter China.

“Having said so, larger companies have more resources to work out the compliance. However, they have more internal process to go through — they are not as flexible as small companies — so it’s really [a question of] how fast people can react to the new approval process.”

Chat app Line’s games business raises $110M for growth opportunities

Messaging app firm Line has given up majority control of its Line Games business after it raised outside financing to expand its collection of titles and go after global opportunities. The Line Games business was formed earlier this year when Line merged its existing gaming division from NextFloor, the Korea-based game publisher that it acquired in […]

Messaging app firm Line has given up majority control of its Line Games business after it raised outside financing to expand its collection of titles and go after global opportunities.

The Line Games business was formed earlier this year when Line merged its existing gaming division from NextFloor, the Korea-based game publisher that it acquired in 2017. Now the business has taken on capital from Anchor Equity Partners, which has provided 125 billion KRW ($110 million) in financing via its Lungo Entertainment entity, according to a disclosure from Line.

A Line spokesperson clarified that the deal will see Anchor acquire 144,743 newly-created shares to take a 27.55 percent stake in Line Games. That increase means Line Corp’s own shareholding is diluted from 57.6 percent to a minority 41.73 percent stake.

Korea-based Anchor is best known for a number of deals in its homeland including investments in e-commerce giant Ticket Monster, Korean chat giant Kakao’s Podotree content business and fashion retail group E-Land.

Line operates its eponymous chat app which is the most popular messaging platform in Japan, Thailand and Taiwan, and also significantly used in Indonesia, but gaming is a major source of income. This year to date, Line has made 28.5 billion JPY ($250 million) from its content division, which is primarily virtual goods and in-app purchases from its social games. That division accounts for 19 percent of Line’s total revenue, and it is a figure that is only better by its advertising unit, which has grossed 79.3 billion JPY, or $700 million, in 2018 to date.

The games business is currently focused on Japan, Korea, Thailand and Taiwan, but it said that the new capital will go towards finding new IP for future titles and identifying games with global potential. It is also open to more strategic deals to broaden its focus.

While Line has always been big on games, Line Games isn’t just building for its own service. The company said earlier this year that it plans to focus on non-mobile platforms, which will include the Nintendo Switch among others consoles.

That comes from the addition of NextFloor, which is best known for titles like Dragon Flight and Destiny Child. Dragon Flight has racked up 14 million users since its 2012 launch, at its peak it saw $1 million in daily revenue. Destiny Child, a newer release in 2016, topped the charts in Korea and has been popular in Japan, North America and beyond.

Line went public in 2016 via a dual U.S.-Japan IPO that raised over $1 billion.

Note: the original version of this article was updated to clarify that Lungo Entertainment is buying newly-issued shares.