"A

t our wedding, I got one of the last photos of the three of us together. It might be the last hurrah of us while we still worked together."

In it, four beaming faces, all wide-eyed and smiling, look directly into the camera.

There’s Mark Rein, Epic Games’ co-founder and deal maker, leaning in from the left side, a genuinely happy look on his still boyish face. Tim Sweeney, employee number one and the other founder of Epic, leans slightly away from the camera, head almost imperceptibly tilted down, smiling. And in between the two founders is Cliff Bleszinski, arm wrapped around new wife Lauren, bow tie shining under a stubbled chin.

"That photo was right before the transition," Bleszinski says.

On Aug. 4, 2012, the wedding photo booth captured a quiet, personal moment in the midst of what became a massive metamorphosis for Epic.

The month before, Tencent purchased 40 percent of the company. Months later, Bleszinski and a slew of other important figures left to retire, to start over, to find better fits.

It’s all led to what Sweeney calls the biggest change in the 25-year-old company’s history: Epic 4.0.

The most recent, still unfurling version of Epic Games now wants to be what Bleszinski calls a "multi-headed hydra of technology."

For gaming, this latest change brings Epic almost full circle, back to a place where it deals directly with the people who play its creations. At least, that’s the plan.

But now there is much more to Epic than just game making. There is the necessity of virtual reality, technology that many at Epic say will be an integral part of the company’s future. There is Epic’s now free up-front development engine, which they say is incredibly profitable. There is the company’s push into television and movies, a move powered by that same development engine, which Epic says can now create lifelike models in real time for 3D and virtual reality needs. And then there is everything else, from the company’s work with NASA to its recent deal involving using the engine to design elements of Walt Disney theme parks.

Nearly four years after the move to 4.0, the company is ready to explain how the Epic of Gears of War and Bulletstorm is becoming the Epic of ... well, everything.

Re-evolution

It’s not just you.

Epic Games has changed — in ways the company believes will mark the emergence of a new sort of game industry. But this latest era of Epic isn’t the first time the company has evolved.

Surviving for this long, says Tim Sweeney, requires change. He estimates that Epic Games should have already died three times, but a willingness to evolve and the constant support of the Unreal Engine has saved the company repeatedly.

As Sweeney tells it, the ongoing metamorphosis of Epic Games is one driven by business acumen and attention to finance, but listen to anyone else and you’ll hear it’s Sweeney’s foresight that powers the motion of the North Carolina studio.

"I mean, I don't know if you've heard this part of the story, but Tim has this concept of Epic 1.0, Epic, 2.0, 3.0, 4.0," says Paul Meegan, Epic’s president.

Each iteration of Epic marks a new era for the company, the thinking goes and our cover illustration shows. Each era has a specific focus, a key partner company and an approach to development.

While the company’s telling of its history neatly matches that philosophy, it does leave out some of Epic’s experiments and failures over its 25 years. In its early days, Epic tried its hand as a publisher, putting out games developed by Safari Software, for instance. Epic also partnered up with EA, Midway and others during the era that it had success publishing with Microsoft.

In 2007 Too Human developer Silicon Knights sued Epic, accusing the company of using money it earned by selling licenses to their Unreal Engine 3 game engine to fund the development of Gears of War, rather than improve the game engine for other developers. In 2014, Silicon Knights lost its case and Epic won a counterclaim alleging breach of agreement, infringement of copyright and misappropriation of trade secrets. Epic was awarded $9 million in a decision that was later upheld by a federal appeals court.

Sometimes Epic’s shifts were so sudden they led to what could only be called bad business decisions.

Founded in 2000 by Brian Reynolds, Tim Train, David Inscore and Jason Coleman, THQ acquired Big Huge Games in 2008. When THQ went under, 38 Studios picked the team up. In May, 2014, 38 Studios, struggling to stay afloat, laid off the staff.

In less than a month, Epic swooped in and hired the team, turning it into, first, Epic Baltimore and then Impossible Studios. Epic shuttered Impossible about six months later.

Former Impossible employees declined to comment about the six-month stint with Epic. One said that saying anything about those months would break a separation agreement that included a line about disparaging the company.

After Epic upped the team, the company put them to work on turning an Infinity Blade dungeons game that was prototyped during a game jam into a full-blown title.

"We brought them on and gave them the task of building that game out," Sweeney says. "But that relationship really didn’t fit. They were great, but our way of collaborating just didn’t work."

Sweeney blames the whole thing on timing. Epic had to make a decision quickly, before the team disbanded and went its separate ways, and it decided to go for it without going through the typical process of figuring out if the team would fit into Epic’s culture.

He says the shift to 4.0 was also responsible.

"It’s all connected."

Sweeney himself balks at the idea that there was always a neat plan for his company’s growth, though he does repeatedly describe in detail where he sees the industry and the company headed over the next decade.

"In retrospect," he says, "I guess it looked like a plan."

What he describes, while trying to dodge credit for the shifts in the company’s nature and its ability to survive so long as an independent, is more about chasing the money than it is about leading with innovation.

"At each [transition] we recognized our existing business was running into the limits of what the game industry could support," Sweeney says. "Our current approach was being made inviable by industry forces."

He says he started out as a shareware developer, making games he sold through the mail or old dial-in bulletin board systems, because that was where the opportunity was at the time. "It was the only way I could make money."

By the late '90s, the company had expanded from 15 employees to 25, and with that expansion came a need to make bigger games to support the bigger payroll. Epic moved into making big PC games with "serious" budgets, Sweeney says. "That required selling a couple million copies for each game."

So the team began working with publishers to help float its games to success.

"That whole era ended as PC piracy impacted the market and made single-player campaign games impossible," he says. "We estimated at one point that, for every game we sold, four copies were pirated."

And so Epic shifted again, this time to the console market with the help of Microsoft and an exclusive publishing deal. Gears of War started out as a tremendous success for everyone involved, Sweeney says.

"The very first Gears of War game cost $12 million to develop, and it made about $100 million in revenue," he says. "It was very profitable."

But those profits continued to shrink as the cost to make each proceeding game went up and the revenue generally didn’t.

"By the end of the cycle, Gears of War 3 cost about four or five times more than the original to make," he says. "The profit was shrinking and shrinking. We calculated that, if we built Gears of War 4, the budget would have been well over $100 million, and if it was a huge success, we could break even. Anything less could put us out of business.

"That’s what caused us to move and change business models."

It wasn’t just Gears 4 that pushed that change; it was also issues that arose while working on Gears of War: Judgment.

"When we released Gears of War: Judgment, a bunch of community players were complaining about all the multiplayer levels we created. We realized that, you know, there are some problems with this, we should rework it, create a bunch of new content and release multiplayer around a new game just like we did in the project that was the genesis of Unreal Tournament," Sweeney says. "We had all these plans to do this, and so we went to Microsoft and we said, ‘Hey, we want to do this.’ And they said ‘No, you don't want to do that.’

"We weren't asking them for money, but you know as our publisher and proprietor of Xbox, it didn't fit into their business plans and so they said no. That made me realize very clearly the risk of having a publisher or anybody standing between game developers and gamers — and how toxic and destructive that process could be to the health of a game and its community."

Around the same time, Epic began to recognize that one of its projects, a game originally designed as a small indie title called Fortnite, could thrive under a free-to-play, ever evolving system.

As these things lined up, the decision to change the company began to grow out of a deep sense of foreboding.

"I would describe it as seeing the writing on the wall," Sweeney says. "There was an increasing realization that the old model wasn’t working anymore and that the new model was looking increasingly like the way to go."

Sweeney describes the new model as the one embraced by Valve with its digital distribution and early access games and by Riot Games with League of Legends' take on the ever-evolving games as a service platform.

"It boiled down to a decision: What do we do with our company? Do we enter into a new generation of publisher agreement and continue the way we were?" he says. "We ruled that out fairly soon after Gears of War 3 was released.

"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."

But to do that, to make this latest transition, Epic Games need time and money.

"So we did a bunch of pretty crazy things," Sweeney says. "For the first time in Epic's history, we brought in an outside investor, Tencent, who put money into the company and also has provided an enormous amount of useful advice."

In June 2012, Tencent purchased about 48 percent of Epic’s outstanding shares, or roughly 40 percent of the company, for $330 million. Along with a sizable chunk of the company, Tencent also picked up the right to have two representatives on Epic’s seven-person board of directors. But Sweeney says that has no real impact on the games the team makes.

"Epic Games is incorporated and has a board of directors that make[s] major financial decisions about the company but doesn't involve itself in the design or product development of games," he says. "It made sense at that point in our history after 25 years to do that and we thought that that was the way to really reliably establish Epic in this generation. We realized this would be a big leap. In the past, we had done a publishing deal with Microsoft that had brought in enough funding to operate the company for several years and Tencent's involvement in Epic had a similar effect on our ability to make this massive change and make this huge leap without the immediate of fear of money."

Tencent, Sweeney is quick to point out, is the number one operator of live games in the world, the number one game publisher in China and the number three internet company in the world. "They're not a game developer," he says. "Their expertise is how to operate these games on the large scale and to really appeal to customers, and we found that their values are very similar to ours and that we had a great deal we could learn from them."

Looking back over the company’s quarter-of-a-century history, Sweeney says that each transition has one thing in common: "We've always looked for a partner to help us to achieve the things for Epic that are very difficult of themselves."

In the shift to Epic 2.0, the company leaned on publisher GT Interactive. In the shift to consoles and 3.0, Epic partnered with Microsoft. For this generation, Epic’s white knight is Tencent.

"Tencent is not our publisher here but our investor and our publisher in China," he says.

By mid-2012, Epic Games was flush with cash and on the cusp of change but still hadn’t completely committed to this new route.

"We weren’t at the point where we wanted to blaze down this new path yet," Sweeney says.

But then came Rod Fergusson, former executive producer and director of production on Gears of War. Fergusson left Epic in 2012, shortly after the Tencent investment.

He came back to Epic not to work there but to ask a question.

"He was at 2K and inquired about the possibility of building a Gears game," Sweeney said. "We discussed that with 2K and also with Microsoft, who of course was the publisher of the existing Gears games. Microsoft won the deal, and then recruited Rod to The Coalition to lead development."

"It was also our moment of realizing we were really going down this new path."

For more on Epic, listen to this episode of Newsworthy, where we sit down with Epic Games president Paul Meegan to discuss his history in the game industry from LucasArts to Epic 4.0.

Next: Hear from those who left Epic amidst the 4.0 transition.