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Indy game makers get Bono-backed boost

A private equity firm that has U2 rock star Bono among its partners is joining forces with two of North America's hottest video game developers, Pandemic Studios LLC and BioWare Corp.
/ Source: Reuters

A private equity firm that has U2 rock star Bono among its partners Thursday joined forces with two of North America's hottest video game developers, Pandemic Studios LLC and BioWare Corp., creating one of the world's largest independent game-development houses.

In its first investment, one-year-old Elevation Partners said it had created a holding company that owns Pandemic and BioWare but ensures the developers retain their identities and gives them the funds and time to build top-quality games.

The $300 million deal came after California-based Elevation earlier this year bid for British computer games maker Eidos Plc. , the firm behind "Tomb Raider," but was trumped by UK's SCI Entertainment Group Plc.

"The aim is to create bigger and better games and a company that the best talent will really want to work for," Elevation co-founder John Riccitiello told Reuters in an interview.

Analysts said the deal was interesting as it sidestepped the traditional relationship in which developers were dependent on firms that publish their games for funding.

Riccitiello declined to break down the combined investment of $300 million in the joint venture, BioWare/Pandemic Studios, or the shareholdings of each of the three parties, but said Elevation would be the majority stakeholder.

Edmonton, Canada-based BioWare is a celebrated developer of story- and character-based role-playing games such as "Star Wars: Knights of the Old Republic" and "Jade Empire."

Pandemic is newer, with offices in Los Angeles and Brisbane, Australia, but has won respect among game players for its big-selling action and adventure titles, such as "Full Spectrum Warrior" and "Destroy All Humans."

Elevation Partners' interest in investing in games has come as no surprise as Riccitiello is former president of video game publisher Electronic Arts Inc.

Riccitiello said the attraction of BioWare and Pandemic was the quality of their games, none of which have come under public fire for their violence despite their titles.

He said Bono, a passionate advocate on Third World debt and anti-poverty issues, was a big fan of Pandemic's games, particularly "Destroy All Humans," a quirky game in which the player is a Martian trying to destroy Earth.

Under the terms of the deal, both video game companies will retain their separate brands and creative teams and continue to operate in their respective cities. But the two co-founders of each company will become shareholders and senior executives in holding company BioWare/Pandemic Studios.

Riccitiello will be the new company's chief executive.

All 450 employees will be given stock in the business.

Ray Muzyka, joint CEO of BioWare, said the alliance would be a launch pad for exchanging ideas, technologies and talent.

"In a business where developers often must sell out to survive, this deal is refreshingly new: a partnership of equals," Muzyka said in a statement.

Analysts said the one reason for the alliance could be to pressure higher royalty rates from the firms publishing Pandemic and BioWare games — Microsoft Corp. , George Lucas' privately owned Lucas Arts and THQ Inc.

"Video gaming is a pretty profitable industry, but the talent is unknown and the lion's share goes to the publisher. There is a move now to change this," said analyst Michael Pachter, from Wedbush Morgan.

"If this deal succeeds it could encourage more independent developers to do the same and encourage more venture capital firms to invest in this industry."

Riccitiello denied this was a reason for the deal and said the firms' relationships with current publishers remained.

Since Elevation was formed it has raised over $1.9 billion to invest in media and entertainment businesses.