Craig Zinkievich of Los Gatos-based Cryptic Studios says a sale to Perfect World will allow his company to compete effectively in the free-to-play space.

Cryptic Studios makes money making worlds. That is to say, it creates MMOs, shorthand for MMORPGs: massively multiplayer online role-playing games. Built on the Dungeons and Dragons model, this generation of video games theoretically can handle as many players as there are on Earth.

That’s just an upper limit. Cryptic does not disclose how many players converge in its virtual worlds. But as an indication of scale, consider Champions Online, Cryptic’s superhero game. Locations include Millennium City (a rebuilt Detroit), the desert outside Area 51, Monster Island, the underwater city of Lemuria, outer space, mystical realms and alternate universes. All are well populated with avatars of countless players at all hours of the day and night.

Craig Zinkievich, Cryptic’s chief operating officer, admits that managing such vast worlds is a technical challenge. He says Cryptic isn’t intimidated though.

“To be frank, the world is not empty for ideas of cool MMOs,” he says, “but there are precious few studios who can go out and technically deliver. It’s awesome to have an MMO engine and a foundation that’s so mature that we can just think about making the game, making the best game that we can, and not necessarily the technical challenges behind that.”

Cryptic Studios was founded in 2000 by Michael Lewis and Rick Dakan, a couple of friends in Los Gatos, along with three veterans of Atari’s coin-operated games division. Their first big game was 2004’s City of Heroes, followed soon after by City of Villains. That franchise was sold to the game’s publisher, South Koreabased NCsoft, which continues to work on that universe with Mountain View’s Paragon Studios, a team made up of many former Cryptic employees.

In 2007, Cryptic was purchased by Atari, the pioneering game company founded by Silicon Valley legend Nolan Bushnell, which is now French-owned. If this all seems very complicated and international, it’s an indication of where the global game industry is at today.

Cryptic made a big splash two weeks ago when it launched a free-to-play version of Champions Online. Like most MMOs, Cryptic’s most popular game had previously made money by requiring players to buy subscriptions. In a subscription-based model of gaming, players don’t pay for the software, they pay, on a monthly basis for access to an online world. You can’t buy an MMO, you can only rent it.

In a free-to-play model, much of the game’s content can be accessed for free. Sometimes the game is supported by ads. More often, in the case of MMOÕs and virtual worlds, a “freemium” model lets users pay for extras like extra content or options. Or different character classes, better weapons, cooler clothes.

Free-to-play MMOs are a fairly recent phenomenon in North America, where for the longest time subscription services have dominated. In Asia, it is the free-to-play model, supported with microtransactions, that is king.

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The free version of Champions should not have been a total surprise to gaming enthusiasts. Last month, it was announced that Perfect World, a huge Chinese MMO company that specializes in free-to-play games, had agreed to buy Cryptic Studios outright for around $50 million. The deal has yet to be finalized.

At the announcement of the sale, gamers’ forums and comment threads erupted with reactions ranging from certain predictions that this spells the end for Cryptic, to optimism about what an infusion of cash will do for the studio.

CEO Michael Chi says the acquisition “will help Perfect World penetrate into the U.S. and global online game markets.” One step among many in the company’s global expansion efforts.

Those efforts have created a stir in Silicon Valley, birthplace of and still home to many of the world’s biggest gaming companies. Venture Beat’s Dean Takahashi called the Cryptic deal “another sign of the times: Cash-rich Chinese online game companies are flexing their muscles on the world stage of the gaming market.”

Zinkievich says it’s a natural evolution. “The world of Chinese MMOs is its own world,” he says. “They’ve been doing the free-to-play model for years and years, and they have tremendous experience on how to work in that business model. They really want to crack this nut and they’re not shy about going out and trying to make that happen.”

Fantasy Job

The sale to Perfect World would cap off a big year for Cryptic. Last July, the company released Star Trek Online, a galaxy-spanning MMO based on one of the most esteemed properties in all of geekdom. And they’re currently at work on Neverwinter, a Dungeons and Dragons game.

Zinkievich revels in the chance to work with these beloved franchises. “It’s every nerd’s greatest dream,” he says. But apparently it’s also a tricky proposition. The companies that own such properties put a lot of restrictions on what can be made from them. They have to be very careful about maintaining the brand and making sure the franchise’s notoriously passionate, possessive and nitpicky audience is satisfied with any derivative products.

Zinkievich says that’s not much of a problem at Cryptic. “Quite frankly, the audience is us. Usually our audience is pretty darn comfortable knowing that weÕre going to nerd it up.”

Zinkievich says the goal of Cryptic’s writers, designers and executives is “to make a game that we’re excited to play.”

Apparently, through all of the rapid growth that has turned the gaming industry into an annual $50 billion worldwide industry, it is just as important as ever that the people in charge watch a massive amount of Star Trek and play a lot of Dungeons and Dragons.