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Marc Merrill Interviewed by Kevin Zhang | Upfront Summit 2020

Marc Merrill
Co-Chairman & Co-Founder at Riot Games
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Upfront Summit 2020
January 29, 2020, Pasadena, CA, United States
Upfront Summit 2020
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Marc Merrill Interviewed by Kevin Zhang | Upfront Summit 2020
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About speakers

Marc Merrill
Co-Chairman & Co-Founder at Riot Games
Kevin Zhang
Partner at Upfront Ventures

About the talk

Topic: Business

Marc Merrill (Co-founder of Riot Games) talks with Upfront partner Kevin Zhang about the founding of Riot Games and development of League of Legends in 2006; what the company's acquisition by Tencent has meant to the company; his perspective on e-sports ecosystem development and fan engagement; and his predictions for cloud and mobile gaming.

For a recap of the 2019 LoL Championships: https://www.youtube.com/watch?v=PswnONyX23I

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How's everyone doing? Very exciting for me to be sitting here talking with Mark co-founder of Riot games and really one of the biggest gaming companies in the world now and homegrown in La so, thank you very much for being here with us. I think I'm so many people here who don't play video games or who are not as familiar with dry games. Can you some context on the size and scale what Riot games is today? Sure. Just had to cross any any video game investors are Esports investors in the audience. Alright a couple good. So give me the plays games and the audience couple Brave Hands

by myself and my business partner going to bring it back. And now, you know, we've been fortunate we had a lot of success our Flagship game is a game called League of Legends by many accounts. What's the largest online PC game in the world to me about a hundred million monthly active players. 250 million people that have ever played the probably about 9 million people playing it right this moment and has grown to have a 20oz around the world and we run 13 Esports leagues, which we'll talk a

little bit about it later and about 2,500 Riders which is our word for employee mostly located here in Los Angeles, but then we have many Regional publishing office. To Go Distribution published League of Legends and other names around the world. What are the coolest offices of actually ever visited complete with its own Hawks that takes on the residents there? Yes. We tried to be environmentally friendly with our Pest Control solution. So so in our first office, Missouri, Missouri, not in a way that will take her chances now, it's pretty it's a lot of

people like helping us on the office is pretty cool. But you know what you like to remind everybody when we were first getting started, of course in our office was rather be Capital efficient, which would mean and BC speak. It was in a pretty shity. So what actually motivate you and Brandon to start this company 13 years or so ago and maybe give us a little bit of sense for what it was like to start a gaming company all the way back then. Yeah for the world is pretty different 2006 in a free iPhone cloud computing wasn't a thing Facebook was two years old

and so we were essentially hardcore Gamers who after USC. Where is Wartburg with the school? He worked in strategy Consulting at a company called Bane and I worked first and finance and then in business business marketing at a company called of dancer Communications and but we're just really hard for gamers in and we have these back-to-back gaming rigs in our West Hollywood apartment and we felt deeply under Serve by the incumbents in the industry the time meaning that the game industry used to primarily Drive most of its revenues from a package good south of this

model where you create a new game that you didn't sell at retail and sometimes he would just sell a donut. The duration of that game like Burning Bridges play Guitar Hero. There's any Guitar Hero 2 Guitar Hero 3 Guitar Hero Aerosmith Guitar Hero Metallica in from our perspective the other types of things which fragment the community and I didn't necessarily want to just go pay another $60 at retail for some incremental improved features. Bass guitar songs. And so we wanted to build a company that would put the player first aired at the center of this isn't making and build this direct

relationship with her audience and League of Legends was the content fisa stand for the proofpoint to the broader long-term strategy around really high quality core games is it called them as a service? And then of course, he was one of the first free games in the west and it'll be 6 before I get a free ATM with certified 1 and model and you know of the 50 V sees that we had met with most all the snow and in fact in a 1-foot it fairly succinctly when they were likely to want to Millions of dollars to create a battle arena game where 19 year old boys

going to kill each other online and the way you make money as to cosmetic items. Are there playing dress-up doll, they kill each other and we're like kind of but not really there yet. Good luck with that. They said no but Rick heitzmann from person who's in the room or at least was when he was here. Thank you Rick you courageously raises hand and help finding a you know, we had some success. How long did it take to make the game and and how much Capital well, yeah that's been around the course of a stressful thing when you're spending a 16 out of people's money and we had the highest burn

rate of any company in both Benchmark. Who is the other two came in for us. And for smart portfolio into we started the company in 2006 open up herself in September and let me launch League of Legends in October of 2009 and again with a free-to-play this model. So this is not Pokemon go where is there this Overnight success we were slightly bigger than the month like first month after the end of the previous month and I had this long to wear it took a while to move. It was very stressful without having to take 3 million dollars to go to the product tickets 20 and

you know, if it was the early days were filled with challenges like this is before the days of locusts game engines, right like Unity. This is before the days of very readily available Amazon web services to scale your games. I mean basically building on the back and in the front end and the distribution in addition to actually doing this game and games that we thought as players we would want to see and we originally going to pursue a parallel financing sad be talking to both Aditi. But then also to Publishers of the day, you know,

they're like wait you're not have single player. Free hookah with you know, what? Are you talking about single players with 80% of the players. Do you know most people never can go online? And so we were like, well, we can't give these guys the keys to the kingdom because we will then fail which then meant we need to take on the responsibility of how do we go to the publishing business and that meant our scope and complexity increasing we had to go raise money and you know it so that's the same type of story where I think the data points that we had. They gave us the courage of conviction to go

take risk and go big in and some opportunities. Was really that player perspective where it'll be played thousands of hours of any online games and could be plea relate to some of the pain points of our end users and the same thing is true with e sportswear in overtime. I'm going to wait for us. We were always shocked that these forces didn't exist because we always thought that there'd be many players like us who wanted to watch other people consume this great content in a note been blessed to be able to help deliver some cool content like that which will definitely come back later.

But I'm going to go back to one of things you said, which do you guys have over twenty-five hundred Riders around the world. So we talked a lot about team building at any of our companies and I've always found in back in game companies that swallow that there's this out of creative burden that you don't you don't see in at General tech company. Can you talk a little bit about what it means for you guys? Like what is a writer and what makes for a good Rider 2 bomber was talking earlier about how again and it'll we have those sandwiches but then we also have the creative

challenge where we have to make something that really resonates with an audience into something that is cool until the lightning in a bottle and that's a really difficult thing to do. And so And we had to as we started the scale. I need to grow the company we needed to find ways to institutionalize our values and build an organization where the best creative Talent the world would want to come to do their best work and that you know has been it has been a huge challenge with something. It's a big focus and priority and so a lot of that meant that we tried to cultivate a

culture that was really a service and mission-oriented Company where are rioters, even that word conjures and motion as we are here to make it better to be a player in it. Meaning that's in a wee wee is all Gamers on has felt the pain of trying to look into taking a day off from work and you're super excited to go spend hours playing a game and the servers are down and it were in the developer doesn't even communicate to you or tell you what's going on psych for those that don't play games cuz like, you know, you

need to be on a flight and then the airline is like sir get in line. You know what this again is not providing a great user experience that feels bad. And a lot of this and we created values every time we try to reinforce. They're both hiring in Performance Management to screen for people who have player empathy in a meeting the the desire to relate and capability to emotionally relate to the audience and then some of the we have it at dinner with the natural beauty around player orientation, which means not just the willingness or emotional desire to connect about the yeah that the sort of

if there's like two hearts Inn in the mind of the intellectual capability to relate to the frame of reference or when we do a thing how will this audience that we care about perceive it relative to all the other things that they're used to know. The other thing is a great sign companies are doing and so that's been I think a key part of the success of the company over time is building this resilient organization filled with incredibly passionate people who wants to go solve the hardest problems and Industry at a place that really thinks long-term. That's amazing. So I want to switch

gears little been talked about in a post launching League of Legends for those 5 6 7 years into your guys's existence and son was an investor in right game and then eventually acquired the company over the early 2010s and you've been traveling there extensively both you have huge fan base is over there as well as obviously with tents and Etc some kind of curious what over the years have You observe are some of the biggest differences as well as similarity in terms of how do you match this writer culture with we're short of what people might typically perceive of what a Chinese word

essentially run tech company mentality is yes, I think we don't know how common are experience has been but I'm happy to experience has been so when rbc's in 2011 wanted to go test the market to explore strategic opportunities at the mention me to raise a lot of capital pre-launch to Brandon. I didn't control company and When we're going on the road show it at every American company in a media company game company that we talked to still had no idea what we're doing and what made it cool so they would truly look at the

financials and get on what not a diet accompanied by some that what you're healthy and his castle and growing but we really thought that a lot of the elements that made the company special relate to our culture relate to this mission in the way that we are prioritize thinking about our players first and revenues are the trailing indicator for going to do the right things upstream and it was fasting to us that the Gannett Company from China tencent, which is another one of largest tech companies down the world and you know, and I was in China really related to our mission in perspective

and really valued it. They invested alongside rbc's in our second institution around and their perspective was selling a company way too early this company just getting started. They wanted to prevent the company from being sold to a company that from their perspective would screw it up. Where weed goes in a report to VP of such and such. To tell us kids how to do it and then destroy a lot of value into the deal we end up doing where was more analogous a kind of a long-term Project Lead deal and it's worked out for the welfare buddy where we grow in the company more than 20 x since

then, you know recently we just shared the numbers externally. We're in a League of Legends has grossed over 20 billion dollars are in the world in the last 10 years, which puts me to probably this one of the top 10 fastest growing I teased ever and you know if it's worked out so we're also talking about what people were saying earlier in terms of service of the differences between the US and China excetera and you guys are one of the first and one of the very few actual examples of a cross-border collaboration that's worked out and then I'll assume

you're starting to finally see some Chinese companies are actually entering the Western markets for the first time and seems to take talk to me being the one that's currently you know, what sort of top of mine for everybody. But the moment I were hanging out quite different in terms of u.s. Trying to relationships when you guys write first took investment Unit 10 years ago vs. Now to talk to me with all the political tension. I mean, how do you think about you know, is there more opportunity for cross-pollination between countries across two sides, u-see-it centralizing more into their own

Tech ecosystems. I think there's a lot of collaboration between Chinese and Peter earlier that an exporter to China which is pretty rare Market actually and so, you know, we're selling billions of dollars at virtual Goods just sit in the Chinese market and get us what is trade War. They were having the course is quite challenging for us. We're going to be getting these governments license to allow us to launch. Our new games is a very important thing. That is somewhat risky give a lot of an Annex in but what's 1 of things have been

fascinating also about the exposure to Chinese culture has been one. Just how long term the in a sophisticated business leadership in Odyssey Sims. Need a political leadership think I am the implications that has on long terms. If you take investment then also the relationship Focus. So rather than being super focused on every single deal term that is next in negotiating X number of years previously, there's much more of this sort of symbiotic relationship where it's unless their relationship is strong and we're kind of constantly rebalancing then if it's off and it needs to be

massaged your adjusted or acknowledged your tweets and some way it was just like a marriage and it's been fascinating to experience that cuz then are for the Western production in perspective. Of course, it's like with a deal says act so therefore sex and but I think we've come to appreciate the need to evolve as the circumstances involved. But I do think that China has some great strengths and you know, they're also innovating a lot of ancient ways. I think a lot of people don't give him credit for Right now, I mean just speaking of tick

tock. I remember when they first came to the US it was awfully about of China and kind of ironic given that a lot of times we went there companies went into China. They tend to just bring the westerners over to run those divisions and usually doesn't end up the lawn looks like now they're actually trying to hire Western heads for bass Lee off everything extra. I mean, are you may be centered asking but are you bullish that this might be the first time that he actually leave a Chinese company building something that's Global or how do you think about that while I think that's one of

the challenges for Chinese companies going abroad is from a perspective. They don't have the management bench there and the sort of like the brand expertise or the consumer expertise to penetrate Western markets that are very different. And so, you know that tencent as a course in leveraging very well is acting more the hold KO finding what they perceived to be great disruptive companies and trying to partner with them and us and them to let them go do their thing, you know intense it now owns it Pretty good amount of the Western Daemon companies including in a supercell

and in a 45% stake in Epic, you know as well as they've been very thoughtful about which companies they they back but I think that a lot of companies that don't have the ability to go finish rate? It's like 90 Japanese companies did he think it's Tony and what that it had great success and they're going to continue to explore and find ways to go abroad because they're smart because they have braids in a massive not the capital that they're looking to play and so are they going to see more of that? So you guys really one of the true pioneers of Esports across any

gaming company? Can you maybe just talked about in high? Like what do you think has been the single biggest benefit of having run? All of these tournaments? All of these leaks over these years. We've always thought about e-sports as a feature essentially. So good of you to think about the value chain from develop into publishing. We talked about in the same way. We think about it in an email. So it had engagement infobae building an ecosystem of teams that need players that are parts of these teams in it with great content it over there competing with other teams. And then of

course having these Global competitions and making it easier to become a fan where you can watch and follow the content, you know, who's playing at all of these things essentially meant that we always had like a players always listening to talk about they always had a sort of it a new player to Aspire to in the same way that end of the NBA had you know, much lower ratings and much less reach in the early 80s Andy SPN came out and really help it'll grow that audience as well. As you know, save college football sports grow and evolve over time and a lot of it is

how you tell stories and how you can build Heroes and whatnot. So we've been really trying to demonstrate that these players are having credible talent in a life. Top one tenth of 1% of players in this visitor Pros would beat people that are in top 1% a thousand out of a thousand times if there's an exponential curve in two players left the watch other people play not just because they've can do these incredible things, but they can learn from them also and they can someday imagine of them being on stage and dingoes player since so sweet also created a whole ecosystem

with high schools. Now, you can earn if I swing a letter you can go into colleges and you know, we have deals with 11 different colored conference is now we're there scholarships that are being offered in its early does global ecosystem and it's been a lot of fun and you know, some of the multimedia stuff that you saw an errand for the original songs that we also have the blessing of creating our own intellectual property and you having a lot of great creative Talent, we're against like there's never been a fight song for Esports before right and so, you know we Were you able to go

work with artists who are Gamers who understand the stuff then go Kratom experiences to again just in Rich what it meant to be a player in to be a fan and that's why we think we're just getting started because our competencies are so much stronger now than they have been over the last several years. We now have this massive global distribution, you know what this massive audience and players want more. We want more games from Riot. They want more instead of our intellectual property to show up in different forms of media, and we're really excited to try to go make some impossible Dreams Come

True for our audience. When do you sign I mean nowadays with high school and college certain degrees and varsity letters. I mean that didn't exist back when we were playing games. And I mean, I'm I'm kind of curious. How is that being received by the parents by their peers? Emma is this I guess what we grew up with in terms of playing games that really a good thing for you. Like how much does that change so far? So we think it's changing a lot. So we used to get a bunch of letters from parents parental controls get my kids playing too much. You know, now we're getting emails being like a

my kid has talent and how do we go to the office are there in a coaching in ecosystems that they can go to and that's awesome. That means you're now the government gives us visas for Esports athletes in the end of in the broader media is starting to look at Esports and gaming with less disdain it historically it's been sort of the fascination piece. We're going to be felt like it was a kind of old people being old and kind of looking down their nose at know our players are the felt like that in for something. I didn't understand that. That's really sorry. Change into our Focus has

always looked build something. Great. So say we're going to be cool. That's just go do something. That's really cool. And yeah, but we think that the ecosystem is sustainable over the long run in over 10 years in the League of Legends and it's bigger than it's ever been and you know, this is very different than how many is worth operate which are more akin to fit a one-off tournaments are events that makes it hard to be a saint vs Leakes wear again, you know in the Major League Baseball, like what does she see what the schedule is going to be public in advance advertisers and sponsors your

Louis Vuitton or Samsung the other the premium brand ever getting involved in a big way and that's because it's probably one of the most under leverage advertising opportunities in history the world because of the major demographic divide like we're literally the largest sport from a dealership Sandpoint in China and for the 18 to 234 year old demographic in the US with the third largest port, which is crazy. We have just a little over a minute left. So the last question from me when you guys started over 13 years ago, you talked a little bit about just how different

distribution was back then how hard it was to actually buy games on Play Games versus now, we have a start excetera and it feels very much like for the next 10 years again distribution starting to change with cloud gaming with subscriptions for games has Riot responding sooner than what the next 10 years looks like. Yeah. So I think one of the biggest benefits of cloud gaming is going to be to be able to have a whole new population of people experience high quality games when you do a lot of the processing on the server side and you stream it to a mobile device. You know that

you're not eating after battery life. You can have a high fidelity cool experience that can be again running a search on a different machine. The latency still can be an issue. So if you're having a first person shooter in the camera around here premium gamers are not going to go flock in the immediate term to these new ecosystems because the the quality infidelity really has to be there in four people that are really engaged to be willing to spend money on hardware and go power ties having a preemie experience at home, but there's going to be Again, if you just think about India and the

amount of people that have mobile devices are going to be hundreds of millions of people that are going to get access to premium content away that they've never done before and really excited about that. Then of course, there's augmented reality and the companies that have a competency to build these Virtual Worlds that we're all going to be spending more time on it over. The next several decades are gaming companies in so I think we're going to have an increasingly important parts of the media next. And then also when AI takes all of our jobs in the lobby of men out of work for to be

thankful that we're not stabbing each other cuz we doing it virtually online. Thank you so much.

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