Game Publisher Cancels Contract With Developer, Then Tries to Poach Its Entire Team

(Bloomberg) — One Friday evening last December, employees of game designer Star Theory Games each received the same unusual recruitment message over LinkedIn. It struck them as bizarre for two reasons. One, it came from an executive producer at the publishing company funding their next video game. Two, it said the game—in the works for the previous two years—was being pulled from their studio.

“This was an incredibly difficult decision for us to make, but it became necessary when we felt business circumstances might compromise the development, execution and integrity of the game,” Michael Cook, the executive at Take-Two Interactive Software Inc., wrote in the message, which was reviewed by Bloomberg. “To that end, we encourage you to apply for a position with us.”

It was strange and disconcerting news to Star Theory’s employees. Normally, an announcement like this would be delivered in a companywide meeting or an email from Star Theory’s leadership team. The contract with Take-Two was the studio’s only source of revenue at the time. Without it, the independent studio was in serious trouble. 

The LinkedIn message went on to say Take-Two was setting up a new studio to keep working on the same game Star Theory had been developing, a sequel to the cult classic Kerbal Space Program. Take-Two was looking to hire all of Star Theory’s development staff to make that happen. “We are offering a compensation package that includes a cash sign-on bonus, an excellent salary, bonus eligibility and other benefits,” Cook wrote.

When employees returned to the office on Monday, Star Theory founders Bob Berry and Jonathan Mavor convened an all-hands meeting. The two men had been in discussions about selling their company to Take-Two but were dissatisfied with the terms, they explained. The game’s cancellation was a shock, but the founders assured staff that Star Theory still had money in the bank and could try to sign other deals, according to five people who attended the meeting and asked not to be identified, citing the risk of litigation. Berry and Mavor encouraged employees to stick together and stay at the company.

The next few weeks were chaos, employees said. Take-Two hired more than a third of Star Theory’s staff, including the studio head and creative director. By March, as the coronavirus pandemic choked the global economy, any hope of saving the business appeared to be lost, and Star Theory closed its doors.

Even by the cutthroat standards of the video game business, Take-Two’s tactics were extreme. The company behind the Grand Theft Auto franchise is one of America’s largest publishers, with a market value of $15 billion. The stock is up 10% this year and trading near an all-time high, thanks to increased demand from people stuck at home. Take-Two cultivated a leading position in publishing through a mix of big-budget games developed in-house and by a tightknit group of studio partners. Publishers like Take-Two control a project’s financing, marketing and distribution, giving them a great deal of leverage over most developers they sign.

The swift demise of Star Theory and the events of its three final months, which have not been previously reported, highlight the frailty of those business relationships and the power dynamics within the industry.

Brian Roundy, a spokesman for Take-Two’s Private Division publishing label, said the company contacted “every member of the development team” at Star Theory with an invitation to join the new studio, called Intercept Games. “More than half of the team is now at Intercept Games,” Roundy wrote. “In doing so, we are empowering our deeply passionate and talented team to focus on quality, and we are thrilled with the progress that they are making on the game.” Star Theory’s Berry and Mavor didn’t respond to requests for comment.

Patrick Meade, a senior engineer at Star Theory, said he turned down the job offer from Take-Two. He declined to discuss the events in detail but said he didn’t want to work for a big company where he wouldn’t have the same degree of influence or financial benefits if the game were a hit. “I was at a small studio, where the work I did had a massive impact on our success,” Meade said. “When I see myself at any large corporation, that is fundamentally not true.”

Berry and Mavor started their game studio in 2008 in Bellevue, Washington. They called it Uber Entertainment, later changing the name to Star Theory following the rise of a certain ride-hailing company. Early hits included Monday Night Combat, a cartoonish shooter that sold more than 300,000 copies, and Planetary Annihilation, a strategy game that raised more than $2 million on Kickstarter.

In 2017, Star Theory began working with Take-Two on its most high-profile project. Take-Two had purchased the rights to a popular flight simulation game developed by another independent studio and contracted Star Theory to make a sequel. The original game, Kerbal Space Program, allowed players to construct and launch rockets using realistic physics. It sold more than 2 million copies, was critically acclaimed and even led to partnerships with NASA and the European Space Agency. Gamers, like moviegoers, tend to flock to brands they know, so working on a well-liked franchise is a chance for a studio to increase sales and gain exposure.

The view inside Star Theory was that development on Kerbal Space Program 2 was proceeding smoothly, according to the people who worked on the project. A preview of the game on display at the Penny Arcade Expo in September left fans impressed, and Take-Two’s public enthusiasm for the title was rising, said Doug Creutz, an analyst at Cowen & Co.

Late last year, Take-Two agreed to extend Star Theory’s development deadline by six months to add new content to the game. That kicked off a new round of contract negotiations. All seemed well, said the people who worked on the game, until Dec. 6, when the project was pulled and the LinkedIn messages went out. At the hastily called staff meeting a few days later, the founders said in addition to sale talks, they had been trying to clarify royalty terms, which were unclear in their contract, they told employees.

Three of Star Theory’s leaders—Jeremy Ables, the studio chief; Nate Simpson, the creative director; and Nate Robinson, the lead producer—departed for Take-Two’s new studio immediately. Other staff mulled whether to go, torn between leaving and abandoning their colleagues or staying and risking their livelihoods, they said. One employee, who asked not to be identified, said they felt a mix of confusion and fury, adding that they’d never been put in this type of position.

The attempt at hiring away the development team came with business risks, both for the project and for Take-Two if word got out, said Creutz. “They’ve got a game they’ve got high hopes for, and they have now potentially injected an enormous amount of disruption into the development process,” he said. “You could be taking a reputational risk as well, if you want other studios to work with you and it appears that you play this kind of move when things don’t go the way you want.”

About a dozen of Star Theory’s 30 employees wound up leaving for Take-Two’s new studio, while the rest stuck around in an attempt to save the business, they said. By January, the remaining team had a plan in place: Each employee would spend the next two months brainstorming new ideas and building prototypes. Then they would pitch the best ones to publishers at the Game Developers Conference in mid-March in the hope of securing a new deal, the five workers said. The annual conference is always full of publishers looking to make investments in indie studios with proven track records.

Then came the pandemic. The conference was canceled, leaving Star Theory with nowhere to take its pitches. Publishers, sensing an economic downturn, tightened their spending. On March 4, Star Theory shut down. Each worker received a month’s pay and two months of health insurance, said three former employees. A few joined their former colleagues at Take-Two’s Intercept Games.

Kerbal Space Program 2 remains in development at Intercept. The game had been set to come out this year, but the company said last month it was delaying the release until the fall of 2021. “With everything going on in the world today due to the Covid-19 outbreak,” the company said, “we’re facing many unique challenges.”

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