Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

Last week, we wrote about Epic’s recent funding round ($2b led by Sony and KIRKBI, the family-owned investment company of The Lego Group), understanding the history of Epic, and the likely future of the Epic x Lego partnership. This vision is incredibly similar to that of Roblox and while we believe Epic is well positioned to create the go-to platform for digital experiences across age groups, this week we want to discuss the various ways that non-gaming originated IP and brands should create game experiences, why branded platforms historically fail, and what Epic x Lego need to focus on to succeed.

We believe there are two primary ways for brands to enter games that we believe have a higher rate of success:

Option 1 - One-off experiences on existing UGC platforms or games that allow for emergent gameplay:

In this situation, a company does not need to worry about building the infrastructure or tools required of a complete platform, instead leveraging the host’s resources which has the potential to be orders of magnitude faster. Instead, these companies have the flexibility to utilize either internal or external development teams in creating engaging gameplay experiences with their IP. For example, Sega and Gamefam (a Konvoy portfolio company) partnered to create “Sonic Speed Simulator”, an open-world online multiplayer game where you play as either a Roblox avatar, or characters from the Sonic universe, on Roblox. Within the first two days of release, the game achieved 100,000 concurrent users (CCUs), generated 15m+ visits and is a top 5 Roblox game (LinkedIn). In this case, Sonic (now >30 years old) was delivered in a refreshing new way to an already established Roblox user base without Sega (Sonic IP owner) having to do any heavy lifting. By delivering experiences in this way, companies do not take on as much cost or brand risk. While the risk is lower, the tradeoff is the upside potential due to platform revenue share structures, limitations of the potential player base to the user base of the platform, and being subject to the rules and regulations the platform sets (e.g. the “Squid Game” replica on Roblox had to made adaptations to what the game could include).

Option 2 - Interactive Storytelling via Standalone Games (Transmedia):

One step up in operational complexity, development complexity, and gameplay depth are standalone games around single IP titles (The Walking Dead, Spiderman, Batman, Pokemon). One important feature that is prominent in this category is a fixed storyline because the scope of the story (and where it overlaps with what is known within existing lore) is defined and allows developers to focus on building a strong game with great gameplay mechanics. This type of game is better than one-off experiences on third-party platforms because the brand and the developer can capture a higher upside potential both in-game revenue and in brand perception if done well. However, there is a much higher cost risk as the company must also pay for development of a full-fledged game and publishing (usually entails yet another revenue share agreement) so that the game is properly marketed and distributed.

What Not to Do: Standalone Platforms or Massive Multiplayer Online Games (MMOs)

While there is a group of successful MMOs that have emerged from existing non-gaming IP (Star Wars: The Old Republic, DC Universe Online), it cannot be understated how large the graveyard of failed ventures is within this space. In addition to the upfront cost that must be delicately balanced with the scope necessary to do most IP justice, the hyperfocus on creating a branded experience takes away from the focus on the gameplay itself and there is a distinct lack of originality in the feel of these games (The Matrix Online). With MMOs, the capital intensity does not end when the game is released, content must be continuously pushed in order to keep the player base engaged (LiveOps). When tied to a larger brand, any shift in priorities of the brand footing the bill can kill the game (Pirates of the Caribbean, Disney VMK). Lastly, these experiences are limited in creative freedom by the lore and the universe of the brand itself. Everything created must be already established in that universe or at least within the realm of possibility which, outside of a select few, limits the shelf life of these games. Universe exploration and storyline development must expand and enhance the IP and brand, not only retell stories.

Our Perspective: While standalone platforms and MMOs have the highest potential for creating a long-standing, industry-recognizable, high-earning venture into games, they also carry an immense brand and cost risk, in addition to capital intensity to maintain. For brands and companies making their first forays into games, we recommend experimenting on existing UGC platforms or, if there is a higher appetite to commit, a standalone game.

Considering the Epic and Lego partnership, little detail is given other than they want to build “an immersive, creatively inspiring and engaging digital experience for kids” with the “tools that will empower them to become confident creators and deliver amazing play opportunities in a safe and positive space”, which sounds like a UGC platform for children and strong Roblox competitor. We believe that the Lego brand is especially unique and avoids many of the risks discussed above. This is because Lego is not a cast of characters or a distinct lore set in a universe, it is a look and a feel. This is why some of the most successful Lego games actually leverage other IP: Lego Star Wars, Lego Harry Potter, Lego Pirates of the Caribbean. Lego has unlimited creative potential because those leveraging the Lego brand have the flexibility to be and do anything with Lego’s iconic bricks. In order to capture this opportunity, we believe Lego and Epic must address 3 key risks in their presumed UGC platform:

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