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

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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 fueled 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.

Founded way back in 1991, Epic 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 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 on in 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 borrowed 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 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 across 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 deduce 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.

Fortnite 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. Given the increased velocity at which 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 froze 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 low-key but significant launch this month was the opening of the Epic Games 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 Valve — 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 will be even higher come this time next year.

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European Parliament DDoSed after declaring Russia a sponsor of terrorism

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Enlarge / An iteration of what happens when your site gets shut down by a DDoS attack.

The European Parliament website was knocked offline for several hours on Wednesday by a distributed denial-of-service (DDoS) attack that started shortly after the governing body voted to declare the Russian government a state sponsor of terrorism.

European Parliament President Roberta Metsola confirmed the attack on Wednesday afternoon European time, while the site was still down. “A pro-Kremlin group has claimed responsibility,” she wrote on Twitter. “Our IT experts are pushing back against it & protecting our systems. This, after we proclaimed Russia as a State-sponsor of terrorism.”

While this post was being reported and written, the website became available again and appeared to work normally.

The pro-Kremlin group Metsola referred to is likely the one known as Killnet, which emerged at the start of Russia’s invasion of Ukraine and has posted claims of DDoS attacks in countries supporting the smaller nation. Targets have included police departments, airports, and governments in Lithuania, Germany, Italy, Romania, Norway, and the United States.

Shortly after Wednesday’s attack against the European Parliament started, Killnet members took to a private channel on Telegram to post screenshots showing the European Parliament website was unavailable in 23 countries. Text accompanying the images made a homophobic remark directed at the legislative body.

The outage occurred shortly after the parliament overwhelmingly voted to declare the Kremlin a sponsor of terrorism.

Members of the European Parliament “highlight that the deliberate attacks and atrocities committed by Russian forces and their proxies against civilians in Ukraine, the destruction of civilian infrastructure and other serious violations of international and humanitarian law amount to acts of terror and constitute war crimes,” the declaration stated. “In light of this, they recognize Russia as a state sponsor of terrorism and as a state that ‘uses means of terrorism.’”

The resolution was adopted with 494 votes in favor, and 58 against. There were 44 abstentions.

DDoS attacks typically harness the bandwidth of hundreds, thousands, and in some cases, millions of computers infected with malware. After coming into their control, the attackers cause them to bombard a target site with more traffic than they can accommodate, forcing them to deny service to legitimate users. Traditionally, DDoS has been among the crudest forms of attack because it relies on brute force to silence its targets.

Over the years, DDoSes have become more advanced. In some cases, the attackers can increase the bandwidth by as much as a thousand-fold using amplification methods, which send data to a misconfigured third-party site, which then returns a much larger amount of traffic to the target.
Another innovation has been designing attacks that exhaust the computing resources of a server. Rather than clogging the pipe between the website and the would-be visitors—the way more traditional volumetric DDoSes work—packet-per-second attacks send specifc types of compute-intensive requests to a target in an attempt to bring the hardware connected to the pipe to a standstill.

Metsola said the DDoS attacks on the European Parliament were “sophisticated,” a word that’s often misused to describe DDoSes and hacks. She provided no details to corroborate that assessment.

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Apple iPhone factory workers clash with police in China

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Enlarge / Workers walk outside Hon Hai Group’s Foxconn plant in Shenzhen, China, in 2010.

Violent worker protests have erupted at the world’s largest iPhone factory in central China as authorities at the Foxconn plant struggle to contain a COVID-19 outbreak while maintaining production ahead of the peak holiday season.

Workers at the factory in Zhengzhou shared more than a dozen videos that show staff in a standoff with lines of police armed with batons and clad in white protective gear. The videos show police beating workers, with some bleeding from their heads and others limping away from chaotic clashes.

Beijing’s strict zero-COVID regime has posed big challenges for the running of Foxconn’s Zhengzhou plant, which typically staffs more than 200,000 workers on a large campus in the city’s suburbs.

Wednesday’s unrest will heighten investor concerns about supply chain risk at Apple, with more than 95 percent of iPhones produced in China.

Problems at the plant earlier this month led Apple to cut estimates for high-end iPhone 14 shipments and to issue a rare warning to investors over the delays.

Two workers at the Foxconn factory said the protests broke out on Wednesday morning after Apple’s manufacturing partner attempted to deny bonuses promised to new workers put into quarantine before being sent to assembly lines.

“Initially they just went into the plant seeking an explanation from executives, but they [the executives] didn’t show their faces and instead called the police,” said one of the workers.

Another worker said there was growing discontent over the factory’s continued inability to curb a COVID outbreak, tough living conditions, and fear among staff that they would test positive.

Foxconn said the company would work with employees and the government to prevent further violent acts.

The company said it had always fulfilled its contracts and would continue to “communicate and explain” that to new staff. It said reports that the company had mixed COVID positive workers with those not yet infected were untrue.

Videos show workers flipping over carts on the Foxconn campus, charging into the factory’s offices and bashing a COVID testing booth. Live streams from the scene on Wednesday afternoon showed groups of workers milling about in a courtyard between buildings. Some workers were livestreaming the protests on social media until censors stepped in to cut off the broadcasts.

“The Foxconn situation raises concern for China’s leaders because it challenges the narrative of being a reliable supplier,” said Shan Guo at Plenum China Research. “It’s clear workers are not happy being locked down,” she said.

Foxconn has been working with the local government in Henan province, where the plant is located, to repopulate its assembly lines with new workers after a mass staff exodus late last month spurred by conditions at the plant.

Local officials have been tasked with helping send workers to the plant, which is a big taxpayer and was responsible for 60 percent of the province’s exports in 2019.

Ivan Lam, an analyst at Counterpoint Research, said Foxconn had already been shifting iPhone 14 production away from the Zhengzhou factory amid the COVID problems. He estimated the Zhengzhou plant’s share of total iPhone 14 production was down to about 60 percent today from about 80 percent before the outbreak began.

Apple did not immediately respond to requests for comment.

© 2022 The Financial Times Ltd. All rights reserved. Please do not copy and paste FT articles and redistribute by email or post to the web.

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Meta researchers create AI that masters Diplomacy, tricking human players

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Enlarge / A screenshot of an online game of Diplomacy, including a running chat dialog, provided by a Cicero researcher.

On Tuesday, Meta AI announced the development of Cicero, which it clams is the first AI to achieve human-level performance in the strategic board game Diplomacy. It’s a notable achievement because the game requires deep interpersonal negotiation skills, which implies that Cicero has obtained a certain mastery of language necessary to win the game.

Even before Deep Blue beat Garry Kasparov at chess in 1997, board games were a useful measure of AI achievement. In 2015, another barrier fell when AlphaGo defeated Go master Lee Sedol. Both of those games follow a relatively clear set of analytical rules (although Go’s rules are typically simplified for computer AI).

But with Diplomacy, a large portion of the gameplay involves social skills. Players must show empathy, use natural language, and build relationships to win—a difficult task for a computer player. With this in mind, Meta asked, “Can we build more effective and flexible agents that can use language to negotiate, persuade, and work with people to achieve strategic goals similar to the way humans do?”

According to Meta, the answer is yes. Cicero learned its skills by playing an online version of Diplomacy on webDiplomacy.net. Over time, it became a master at the game, reportedly achieving “more than double the average score” of human players and ranking in the top 10 percent of people who played more than one game.

To create Cicero, Meta pulled together AI models for strategic reasoning (similar to AlphaGo) and natural language processing (similar to GPT-3) and rolled them into one agent. During each game, Cicero looks at the state of the game board and the conversation history and predicts how other players will act. It crafts a plan that it executes through a language model that can generate human-like dialog, allowing it to coordinate with other players.

A block diagram of Cicero, the <em>Diplomacy</em>-playing bot, provided by Meta.
Enlarge / A block diagram of Cicero, the Diplomacy-playing bot, provided by Meta.

Meta AI

Meta calls Cicero’s natural language skills a “controllable dialog model,” which is where the heart of Cicero’s personality lies. Like GPT-3, Cicero pulls from a large corpus of Internet text scraped from the web. “To build a controllable dialogue model, we started with a 2.7 billion parameter BART-like language model pre-trained on text from the internet and fine tuned on over 40,000 human games on webDiplomacy.net,” writes Meta.

The resulting model mastered the intricacies of a complex game. “Cicero can deduce, for example, that later in the game it will need the support of one particular player,” says Meta, “and then craft a strategy to win that person’s favor—and even recognize the risks and opportunities that that player sees from their particular point of view.”

Meta’s Cicero research appeared in the journal Science under the title, “Human-level play in the game of Diplomacy by combining language models with strategic reasoning.”

As for wider applications, Meta suggests that its Cicero research could “ease communication barriers” between humans and AI, such as maintaining a long-term conversation to teach someone a new skill. Or it could power a video game where NPCs can talk just like humans, understanding the player’s motivations and adapting along the way.

At the same time, this technology could be used to manipulate humans by impersonating people and tricking them in potentially dangerous ways, depending on the context. Along those lines, Meta hopes other researchers can build on its code “in a responsible manner,” and says it has taken steps toward detecting and removing “toxic messages in this new domain,” which likely refers to dialog Cicero learned from the Internet texts it ingested—always a risk for large language models.

Meta provided a detailed site to explain how Cicero works and has also open-sourced Cicero’s code on GitHub. Online Diplomacy fans—and maybe even the rest of us—may need to watch out.

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