The dawn of Daybreak Game Company, Sony's strangest former subsidiary

A strange thing happened a couple of months ago inside Sony's video game division: The death of one company and its rebirth as another. And on that day, the 46-year-old president of the company formerly known as Sony Online Entertainment, John Smedley, woke up happier than he'd felt in years.

SOE was a part of Sony and a part of PlayStation, but it was also its own entity, carving out its existence with massively multiplayer online role-playing games like the EverQuest franchise, the PC shooter series PlanetSide and the recent zombie-filled MMO H1Z1. SOE made some console games along the way — DC Universe Online was ported to PlayStation 4 recently — but PC, and not PlayStation, was its best-known home.

It was kind of weird, but it worked for 20 years — until Feb. 2, 2015, when SOE ended and Daybreak Game Company began. Sony was out. An investment firm called Columbus Nova Technology Partners was in.

With the notable exception of a round of layoffs, it's been a mostly quiet couple of months, full of business as usual and a pile of unanswered questions about how and why this happened. Until this week. Daybreak is coming out as its own entity, branding and all.

Last week, Polygon spoke with Smedley and head of marketing and sales, Laura Naviaux, about the circumstances that preceded the split, Daybreak's plans, and the benefits — and unexpected drawbacks — of being independent after a lifetime as a scrappy Sony subsidiary. It's a story of growth, pain, and perseverance, according to those who were there.

It's also about excitement because Daybreak gets to do new things. That's why John Smedley woke up smiling.

The zombies of H1Z1


To hear Daybreak's president tell the story, the split was amicable and beneficial to both parties. And for Smedley, it's all about opportunities.

Being in its weird position at Sony limited SOE's options. No matter what SOE's aspirations were, it wasn't going to develop for Microsoft's competing Xbox consoles, for example. Under Sony, SOE had its place, but it wanted to be other places, too.

"It meant that we could never really be the company we wanted to be," Smedley says, using a phrase he'd repeat several times, "because we were always held back by being only on Sony platform[s] and PC. Now, that's opened up to us."

At a certain point, Smedley says, Sony started shopping SOE around to potential buyers, looking for a company that would allow it to not simply continue down the PC-focused path it had established under Sony, but branch out in ways it never had.

"Sony started to explore, looking around for a good potential home for us, one that could give us the things we needed, like multi-platform," he says. "After kissing a lot of frogs, we finally found a happy home with Columbus Nova. It was really a match made in heaven."

Columbus Nova offers Daybreak the chance to do what Smedley says it wants — what it's long wanted to do. As a wholly owned property of the investment firm, Daybreak now has a license to branch out to other platforms like Xbox One, a goal Smedley started proclaiming publicly on the same day that Daybreak revealed itself to the world. He also mentioned mobile multiple times, a "huge growing space" he spoke of with evident excitement.

Under Columbus Nova, Daybreak has the funds and the mandate to do exactly that.

"After kissing a lot of frogs, we finally found a happy home with Columbus Nova"

Daybreak Game Company is now independent, but speaking to Smedley, it's clear that he's long seen the developer and publisher that he's headed for nearly 20 years as unique. Separate. An entity unto itself, no matter where its funding comes from.

He speaks of his time with Sony as if SOE was an outsider, not because of angry corporate overlords or an uncaring parent company, but because the nature of existing under the Sony corporate umbrella was at odds with some of his desires.

"We were kind of always a round peg in a square hole there because Sony really didn't have a PC gaming business," he says. "We were it, and we were part of the PlayStation group. So we always were kind of the odd man out."

It's not that Sony was obtuse, Smedley says. It's just not what Sony would permit for a company it owned. So, as Sony Online Entertainment, Smedley and company were in a position implicitly at odds with their benefactors. And according to its president, both sides understood the growing division.

"It was never in our face like that," he says. "That's just not how Sony works. Sony's a wonderful company. It's more like, we could see through the games we have, there's a much larger audience we could address, and we were always going to be hobbled by that at Sony. Always. And to their credit, they saw that, too, and wanted us to be in a place where we could kind of be the bigger company that we know we can be."

Naviaux is quick to point out that it wasn't a matter of being unsuccessful, but that the games maker believed it was missing more success. DC Universe Online became a sort of proof of concept for the company.

"Our console business is great," Naviaux says. "It's just a matter of expanding beyond one console [platform]."

She says that, year-over-year, metrics like player count are up for the free-to-play MMO. That proves to Daybreak that it can monetize in the console market, as well as PC. And Daybreak has high hopes for PlanetSide 2's imminent PS4 launch, too.

Also, as an independent company now building ever more expensive games, being everywhere that gamers are has a financial benefit.

"It greatly increases our profitability, which is kind of the main reason to do it," Smedley says.

"The thing that hobbled us was that, economically, we could not distribute on as many platforms as our competitors could. Now that restriction is gone, and now we're going to eat them for lunch."

A screenshot from PlanetSide 2


Sony's been hurting.

Since its release in November 2013, the PlayStation 4 hardware has been an unmitigated success for the company, helping to place its video game division back atop the pile of companies constantly duking it out for supremacy. But in early 2015, PlayStation's story of accomplishment, relative failure and reconstituted dominance still isn't the story of Sony as a corporate whole.

Sony's financial struggles predate the PS4's introduction. Its root causes are myriad, but not least due to ebbing electronics sales. Since Sony's sales slump started, CEO Kazuo Hirai has made aggressive moves to return the company to profitability. It's a strategy that includes changing the definition of what it means to be Sony.

PlayStation 4

In the same month that Sony Computer Entertainment unveiled the PS4, for example, its parent company sold its Osaki, Japan, headquarters in a deal that infused the company with $1.1 billion. A month before that, it had sold its U.S. headquarters for the same unfathomable sum. At about the same time, Sony announced an expected operating profit — largely due to the sale of a subsidiary. The trend continued into 2014, when Sony announced plans to sell its shares and equity stake in Square Enix Holdings.

Selling parts of what it owns, in other words, is part of Sony's strategy to attain financial stability.

"I think there's no secret about the tough times they went through," Smedley told Polygon when asked what preceded the sale.

What precise effect Sony Online Entertainment had on Sony's financial portfolio is difficult to ascertain because of how the parent company reports its finances, lumping its several video game divisions together. But we know that, at least in fiscal year 2013, SOE's presence wasn't great.

In February 2014, just a few months after the PS4's release, Sony touted a 64 percent year-over-year growth for its games division. It also disclosed a 6.2 billion yen ($59 million) write-off of "certain PC titles sold by Sony Online Entertainment." A month prior, SOE had announced that development on four games — Free Realms, Star Wars: Clone Wars Adventures, Vanguard: Saga of Heroes and Wizardry Online — would end.

In the following year's Q3 statement, Sony characterized that expensive decision as now having a positive impact. Still, it's difficult to conclude that SOE was generating significant revenue, especially given the layoffs that followed its independence.

Everything seems obvious with hindsight, and SOE's sale is no exception. The dissolution of SOE and the formation of Daybreak Game Company trace their history to Sony's struggles and its willingness to sell its properties.

And if Sony was looking to sell another property and make some money, SOE — its lone PC-focused developer, inside its PlayStation division but largely outside of its hardware ecosystem — seemed like a logical decision.

A screenshot from Landmark


Here's an odd thing about the brand-new entity called Daybreak Game Company: It's not entirely a new company.

It's mostly the same people making the same games. They didn't change. Neither did their products. They may expand. They may create new things they couldn't before. But the core of Daybreak is the same core that built and sustained SOE. Since the February announcement, just as it said it would, Daybreak Game Company has continued to work on games like H1Z1, EverQuest Next, EverQuest Landmark and other projects that the developer started when it was known as SOE.

As a new old company, one of the first things Daybreak needed to do was figure out how to encapsulate its new lease on life. And that began, as much as anything else, with the most obvious, public-facing parts of the company: the name and its logo.

How do you encapsulate this restart, while encompassing history and looking to the future? Well, with a nod to gamers and an owl.

"We wanted a name that really signified a fresh start but one that was also a nod to gamer culture," Naviaux says. "And we look at it as every day is an opportunity to move gaming forward, and we seized the moment, so to speak."

"We wanted a name that really signified a fresh start"

Even the new owl-centric logo that debuted this week is a nod to the "nocturnal nature of gamers," Naviaux says. The gear evokes Daybreak's technology. And in the iris, it becomes literal, as a day breaks on the horizon.

They see it as an extension of their connection with their player communities, which she described as the "bedrock of our company."

Sure, it's a flattering wink to players, but it's not a stretch: The online-focused games Daybreak makes require dedicated, committed, lasting players. Daybreak's operating theory is that they should listen to and be involved with the communities that coalesce around them.

According to Smedley, Daybreak's longstanding commitment to being part of its own community even helped it smooth over the surprise February announcement.

For example, Daybreak and Smedley, a regular fixture on social media, message boards and sites like Reddit, assured players that the games they played would continue to operate, and they have. So that's de facto proof. But some players were worried and skeptical, particularly about its new owner, CNTP. The company is based in New York and Silicon Valley, has more than $15 billion in assets, and it counts the digital music service Rhapsody among its investments.

"Oh, these are private-equity guys; they must be evil and greedy bastards," Smedley says, characterizing some of the responses he heard. "No. Not even close. If you got to know them, it's almost funny. The reasons they're interested in gaming? They like it. They're having fun. This is a good time. It's good stuff."

A screenshot from DC Universe Online


For as much excitement and optimism as Daybreak's president exudes, the transition to independence also carried a heavy burden. And he doesn't shy away from that.

"After having been at Sony for over 20 years myself, there's a certain way you carry yourself, the way you walk around," he says. "When you say the name Sony, people understand it. Immediately, that imparts on you, 'OK, well, I know I'm going to get paid,' that kind of stuff.

"With Daybreak, we're literally at square one with our corporate credit. So that was a bit of a shock. You know, calling American Express, and having them say, 'Uh, yeah. You're a new company now, so you're not going to get all the same perks you just got.'"

Being a "subdivision of a subdivision" within Sony, that wasn't something they had to worry about. Now they do.

That applies to a bunch of things like banking, which Sony took care of in days past. It's new, and there's something daunting about it, but Smedley says it's fun.

"This sounds odd, but it's very exciting for me to watch a bank account grow," he says.

"Uh, yeah. You're a new company now"

Except that it isn't as odd as he thinks. Daybreak is in charge of its own destiny now. There's nobody in Japan monitoring accounts, making sure there's enough in its accounts for payroll. That's on Daybreak. It's their money, not Sony's. And if the bank account is growing — and not shrinking — then that's part of the proof that Daybreak is succeeding.

The path to profitability, however, isn't always exciting. Swelling bank accounts aren't assured. And to get to this point, Daybreak had to make a difficult decision.

On Feb. 11, barely a week after Daybreak's formal announcement, the game maker announced a round of layoffs. The decision to leave an unspecified number of developers without employment was an unambiguous casualty of going independent.

Smedley is frank about the decision and the toll it took on him.

"I'll just be very blunt about it," he says. "Financially, we just weren't in the shape we needed to be. Our costs were outstripping our revenues, and we had to get that right-sized."

Smedley stands by it, calling it "the right move" for a budding company that had to get its finances in order. But he still hopes to make it right.

"It hurt like hell to cut people," he says. "Most of the people we cut were very long-term employees. I'm talking about, in many cases, over 15 years. So, it hurt like hell.

"But they got my promise — and we have lived up to it — that we're going to do our best to hire back every single one of them. As we get healthier and are in a position to do so, they are our first-line callbacks.

"We're not looking for new employees. We're looking for old ones."

H1Z1 artwork


Those who remain at Daybreak Game Company — and those who may be rehired — will have something else to look forward to this year: They're moving into a new location, where all employees will be under one roof. On the surface, it will consolidate and shelter a diaspora of developers, but it's also bigger than that.

Soon, under one roof, they'll build two communities.

Later this year, somewhere in California, Daybreak employees will extend a virtual roof over the thousands who play its games. And, as they have for decades now, they'll follow their leaders, no matter what they're called. At SOE and Daybreak, John Smedley doesn't just pay lip service to the communities. He joins them.

"The thing I really enjoy is interacting with our players," Smedley says. That involves playing the games Daybreak makes and interacting with fans on social media and sites like Reddit.

That strategy isn't devoid of drawbacks — Smedley is outspoken not just in games but on social issues — and he's become a lightning rod for attacks, like when a commercial airliner he was on had to make an emergency landing last August because of a hacker bomb threat. But there's no reason to believe that will change with independence.

Smedley is, by his own admission, "a loudmouth." And that mouth isn't likely to close anytime soon. To him — and as John Smedley goes, so goes Daybreak — it's worth the cost.

"Yes, there's a dark side to it, too. … I like to be who I am," he says. "I don't really care about the consequences all the time."

"We take our relationship with our players and each other seriously"

Daybreak's strategy mirrors its leader's, though with a bit more caution. It's why its aspirational mission statement talks of people who love games making games for people who love games.

No longer a subsidiary of a subsidiary, Daybreak is carving out an independent path, machete in hand, ready to build old and new games alike. Its success isn't assured, and getting here was sometimes difficult, but its leaders are excited, and Daybreak has a plan. And that plan involves building roofs for everyone involved its games.

Cynicism is easy, and a cynic could look at public proclamations about making games "with ambition and passion to inspire and bring together lasting communities" and feel their eyes roll out of their heads. "We take our relationship with our players and each other seriously," another part of its multi-part mission statement reads. "The conversation is open and focused on the pulse of our players and of the industry."

But speaking with those behind Daybreak, that idea of embracing communities — building roofs — feels sincere. It's what Daybreak thinks is right, for its business, for its employees, for its games, for its communities.

The strategy is nothing new. Of course, it's practical, too. Daybreak makes games that demand dedicated communities. If it fails to serve its players, it will be no more. But Daybreak's leaders really do seem to believe that measuring success is more than just making games. Building communities around its games is an extension of how Daybreak sees the world and how it understands its place in it.

And here in the age of Indiegogo, Kickstarter and Steam Greenlight, ever greater numbers of developers are recognizing its benefits, too. Today, we can play games that never would have been made if it weren't for a group of investors-turned-players who were willing to financially back developer ideas that led to crowdfunded games.

In short, Daybreak isn't just building games. It's building games that build communities. And it wants to be a part of those communities.

Daybreak Game Company is a little odd, and that's no slight. It's always been a little odd, and that's always been what makes it unique.