Source: Wikipedia

British developer and publisher Jagex has changed ownership repeatedly over the last two decades. Best known for creating RuneScape, the company was self-funded for much of its early life. 

Brothers Andrew and Paul Gower had at first planned to create multiple browser-based games using nascent software program Java. Instead, the brothers almost immediately struck gold with RuneScape, which they began developing in 1998. 

Originally conceived as a text-based multi-user dungeon (MUD) under the name DeviousMUD, the duo added graphics to make it one of few “graphical MUDs” at the time. In 1999 Jagex (JAva Gaming EXperts) was formally founded, and the earliest incarnation of RuneScape began development. The MMORPG became known for its unique combat system, upgradeable skills and, of course, quests. This version of RuneScape, RuneScape Classic, would exist from 2001-2004.

The company solicited outside investment for the first time in 2005, shortly after the launch of RuneScape 2. The release included a new combat system, faster engine, and 3D graphics among many other improvements. This led to explosive growth, and the game grew from a few hundred thousand active players to 3.5M.

Around 14% (~500,000) of those players were paying a $5 per month subscription. Subscribers got a larger world to explore, additional skills, and many more quests, to name just a few perks. This put Jagex in a similar bracket to much bigger budget MMOs like World of Warcraft and Everquest, making it attractive to investors.

New Funding, Projects and Monetization

Funding came from Insight Partners, a VC and PE shop that today is one of the largest in the world. The firm, which had $1.5B AUM at the time, said Jagex “represent[ed] an ideal fit” for the portfolio as it was concentrated in high-growth tech companies. Its stake was later reported by The Times to be a chunky 35%, and while the deal value was undisclosed, Jagex was generating around $30M in subscription revenue annually. 

As stated in press releases at the time, Insight hoped that Jagex would release new games building on RuneScape’s success. Jagex kickstarted FunOrb in February 2008, a website that featured small Java-based browser games. Akin to Kongregate and Armor Games, the company wanted to capitalize on a casual audience that did not have time to spend hundreds of hours grinding in RuneScape. FunOrb rolled out with 18 games, four of them multiplayer, including the flagship turn-based strategy game on the platform Arcanists. 2008 saw another 16 games released, but by the end of the year, it became clear that FunOrb was not getting the traction Jagex had hoped for. 

FunOrb’s monetization came in two forms. Free users were served ads on the website and during gameplay; given the state of the online ad market at the time, especially for gaming, this could not have been particularly lucrative. The company hoped to convert users to paying members, charging $5 per month for benefits including full-screen mode for all titles, exclusive in-game content, and access to select games behind the paywall, among other features.

FunOrb had a few issues from the start. For one, it’s hard to convince users, largely RuneScape players, to pay the same amount per month for quantity-over-quality flash games. Secondly, Jagex had promised updates to the website every other week, a schedule which it only followed through 2008. In 2009, FunOrb only released five new games, launched four in 2010, and then took a four-year hiatus until the last game was released in 2014. A lot of these later releases were also multiplayer, which users again had little incentive to play given RuneScape was already Jagex’s multiplayer ‘forever game’. FunOrb targeted RuneScape players through a bundled membership that included both services at a much lower cost than purchasing both à la carte.

FunOrb didn’t close until 2018, though it was abandoned many years prior. In the meantime, Jagex tried its hand with many other projects, as agreed with Insight. These included iOS games Bouncedown in 2009, and StarCannon, Miner Disturbance, and Undercroft in 2010. Some of these were mobile ports of FunOrb games, but all failed to gain traction. The studio wouldn’t have another mobile release until RuneScape itself hit Android and iOS in 2018. 

There were various other projects that came and went for Jagex, but perhaps its best opportunity was Transformers Universe. In 2011, Jagex announced a partnership with Hasbro to create a free-to-play MMO based on the Transformers IP. Early trailers for the game showed promise and the game entered open beta in July 2014, but just five months later, Jagex and Hasbro confirmed that it would be canceled. As with many failed Jagex projects, no reason was given for the closure, though it was later reported in 2015 that both businesses were undergoing “strategic realignment.”

Insight acquired a majority stake in Jagex in January 2011 when it purchased an additional 20% from co-founder Andrew Gower. At the time, Jagex reported £45.3M ($72.5M) revenue in the twelve months ending March 2011, more than double what it was grossing in 2005. The company also had 468 employees for a very low revenue-per-employee of ~$150k. 

Jagex’s loss of independence was a turning point for RuneScape. Big changes were made to the game in 2012, and many centered around microtransactions. In February 2012 Jagex added the ’Squeal of Fortune’, a random daily rewards wheel. In April, players were invited to buy extra spins with money, introducing RuneScape’s first microtransactions. Players felt betrayed because CEO Mark Gerhard had previously lambasted microtransactions as a “stealth tax.” Jagex claimed the proceeds were being used to develop RuneScape 3, which was being developed in HTML5 and slated for a 2013 launch.

Squeal of Fortune was quickly followed up by Solomon’s General Store that July, a microtransaction store in which money could be exchanged for cosmetic items without a loot box or luck element. It’s likely Jagex’s new owners were inspired by World of Warcraft’s cosmetics store, announced earlier that month.

The game became properly pay-to-win with the introduction of Bonds in September 2013. They could be traded with other players or through the Grand Exchange auction house for Gold. Jagex claimed Bonds would circumvent real-world trading, as some players bought Gold on off-site forums for money, in violation of the TOS. Bonds cost $6 each at the time, and two of them could be redeemed for one month of membership; other uses for Bonds rolled out over the coming years.

Bond prices, like with all other items, were dictated by supply and demand. While they started at around 15M Gold, prices began to skyrocket in 2021 (perhaps due to real life inflationary forces), and today can be sold for over 70M Gold. With enough cash, players can have as much Gold as they desire, allowing them to level their skills, max out quickly, and get the best gear instantly.

Tons of other microtransactions and add-ons followed, and are still being introduced today. 2016 saw the introduction of RuneMetrics, a paid service allowing players to see in-depth gameplay statistics akin to Dota Plus. In 2018, RuneScape released a paid battle pass called RunePass, essentially modeled after Fortnite’s version. These all created tension between RuneScape’s player base and Jagex executives who had to answer to investors.

Jagex’s last financial disclosure was for the year ending December 2021. While paying subscriber numbers were essentially flat for the previous three years at 1.1M, revenue rose from £108.6M to £124.9M, a delta entirely attributable to microtransactions. Headcount also remained flat for over a decade, proving the firm’s ability to boost earnings without increasing development resources.

Players have openly voiced frustration at the game’s many microtransactions, but given Jagex’s ownership history, these introductions are not surprising. Like every other private equity firm, Insight wanted to boost revenue as much as possible in preparation for selling its investment at a profit. 

Revolving Door of Ownership

Indeed, Jagex was sold in 2016 to Hongtou, a Chinese investing company for an undisclosed sum, but one undoubtedly higher than Insight’s price. 2016 was a banner year for Jagex, as it saw a 28% increase in revenue year-over-year. In total, revenue increased by about 50% over Insight’s four-year holding period in constant currency. Hongtou eventually transferred the assets to its parent company Fukong.

Fukong then sold Jagex to ‘global asset manager’ Macarthur Fortune in April 2020 for $530M in a clouded deal, given the company was incorporated at the exact same time as the transaction. It appears that Fukong artificially inflated Jagex’s worth in the middle of the pandemic, valuing the company at more than 4x revenue with the hopes of either satiating its own investors (via a sale to itself) or garnering an even higher price when the pandemic abated.

Next, private equity giant Carlyle, one of the largest mega-funds in the world, went on to acquire Jagex in January 2021. Terms of the deal were undisclosed, but The Daily Telegraph reported it was for at least $530M, meaning Fukong’s strategy paid off. In September 2023, Jagex introduced Hero Pass into the game, a three-month battle pass and the successor of 2018’s RunePass. The initial reaction to Hero Pass was extremely negative, resulting in a review bombing of RuneScape’s Steam page and outcry on the game’s subreddit and forums. Many of the more controversial additions (like XP buffs in the paid tier) were rolled back, but it appears that Jagex is set on releasing a new Hero Pass every quarter.

Current State of Jagex

While the studio continues to actively support RuneScape, Jagex has not stopped trying to find its next big revenue opportunity. Under Phil Mansell, who joined Jagex as lead designer in 2011 and was named CEO in 2017, the company has made some notable acquisitions. 

The first is in co-development. It acquired Oregon-based Pipework Studios last year, a studio with 200 employees that has shipped over 120 games across platforms. Notable projects include Terraria’s port to PS4, Xbox One, and Switch in 2018, and Magic Spellslingers in 2022 for PC, Mac, and mobile. Pipeworks was acquired for an undisclosed sum last year from Tencent subsidiary Sumo Group. The aim of the acquisition, according to Mansell, was to develop “a proper operating presence in the U.S.” 

Alongside this acquisition Jagex also announced that work had begun on an open-world survival game. The unannounced project is being developed in Unreal Engine 5, and will expand the RuneScape universe. Jagex acquired also Gamepires last December, a smaller Croatian studio with about 50 employees known for SCUM, a multiplayer open-world survival game. It is clear this purchase is intended to boost the upcoming open-world project.

Terms for both transactions were not disclosed, although Pipeworks last changed hands for $100M in September 2020. While Jagex has not had the greatest success with non-RuneScape projects, it is notable these acquisitions occurred in such a short amount of time. 

Jagex’s Next Owner

Now Jagex is in the news again. Reuters reported in early September that Carlyle was in the midst of selling Jagex for as much as £1B ($1.25B), and is working with advisors at Morgan Stanley and Aream & Co. Carlyle is clearly in the process of boosting recurring revenue via Hero Pass before such a sale.

Sources familiar with the matter reportedly said that Jagex could fetch as much as 15x EBITDA, which stands at about £60M and is expected to increase another 10% by next year. They also stated Jagex’s next owner was likely to be another private equity firm, continuing the studio’s cycle of finance-related ownership. Any PE buyout is probably going to involve a lot of debt. While it’s hard to imagine RuneScape including even more monetization, with the highest interest rates in over two decades future buyers will have to extract a lot out of Jagex to realize an adequate return. This however runs the risk of agitating RuneScape subscribers, the numbers of which have been flat for years, and could result in a mass exodus from the game. 

Reuters reports that Jagex could be used as a holding company to acquire smaller gaming outfits as well, but given the performance of existing holding companies like Embracer Group, it’s unclear why PE wouldn’t just buy a studio from Embracer at a much lower multiple to accomplish this.

Jagex’s next owner has to walk a very fine tightrope to please its investors while simultaneously preserving the integrity of RuneScape. Jagex has the same headcount as a decade ago, so layoffs don’t seem like a viable option. On the other hand, adding to Jagex’s headcount to have the company return to active development like in the FunOrb days would boost costs in a way anathema to how PE operates. 

Perhaps the studio’s best outcome is to be sold to a publisher who can give RuneScape the care it needs. The 22 year-old MMO is one of the oldest ongoing games out there, and its players do not deserve ownership which only cares about extracting maximum financial value. RuneScape has evolved into a very large game, and needs a team that can maintain its operation while supporting growth. 

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