The New Shooter Game That Keeps Activision, Take-Two Up at Night

(Bloomberg) -- Fortnite, the hit game that’s denting the stock prices of video-game makers after signing up 45 million players, didn’t really take off until it became free and a free-for-all.

The game, first introduced in July, sold for $40 and was a team-based title in which friends joined forces to kill monsters that acted like zombies. In September, the manufacturer, closely held Epic Games Inc., introduced a free version called Fortnite Battle Royale in which 100 players compete against each other, using their wits and weapons to be the last person standing in a “Hungers Games”-like version of Earth.

While the game is gratis, Epic charges for skins -- basically outfits for the online characters -- for players who want them. Fortnite is on its way to generating $1.2 billion in annual revenue, siphoning sales from Activision Blizzard Inc. and Take-Two Interactive Software Inc., according to Morgan Stanley analyst Brian Nowak, one of several who have flagged the game’s impact.

Activision, which makes Call of Duty, has fallen 11 percent since March 9 as news of Fortnite’s success spread to investors, while Take-Two, whose big hit is Grand Theft Auto, lost 12 percent. The growth “showcases the power of free-to-play,” Nowak wrote.

Epic was founded in 1991 by Chief Executive Officer Tim Sweeney, who began programming at age 11. He designed games and sold copies on floppy disks from the basement of his parent’s home in Maryland. The company, headquartered in Cary, North Carolina, has had additional hits with shooting games such as Unreal and Gears of War.

Unreal Engine

Another big moneymaker has been its Unreal Engine, game-design software that it licenses to others. At first Epic charged customers to use the software. Sales took off when Sweeney made the product free in 2014 and instead began collecting a royalty on game sales from developers who used the software.

In 2012, Sweeney sold a 40 percent stake in Epic to Chinese internet giant Tencent Holdings Ltd. for $330 million. Tencent has been expanding its global game portfolio, buying Los Angeles-based Riot Games and this week acquiring a 5 percent stake in France’s Ubisoft Entertainment SA.

Fortnite, whose characters and weapons have a sort of cartoonish feel, is a hit in part because it’s more accessible to casual gamers. The rapper Drake is a fan. Many National Basketball Association players have tweeted about their love of the game, including Boston Celtics forward Gordon Hayward, whose stream on Amazon’s Twitch Wednesday drew more than 800,000 viewers.

The game’s success mirrors that of a competing title, PlayerUnknown’s Battlegrounds, from South Korea’s Bluehole Inc. Also released last year, it costs $30 and has a more realistic look.

Epic has been particularly shrewd in its design of in-game purchases, according to Wedbush Securities Inc. analyst Michael Pachter. Epic asks for as much as $20 for a skin, promoting the designs as available for a limited time only. Pachter expects other game designers to build the every-man-for-himself player mode into their games. The ability to quickly jump into another online Fortnite battle contributes to the success, he said.

“You can have 100,000 players online at once,” he said. “As soon as you die, you go right into a new match.”

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum, Susan Warren

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