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Trion World Network announced it has raised $70 million in a third round of funding to finance its massively multiplayer online games for the PC.

The amount is a big haul for a game company and, coming off the heels of an $83 million round for Big Fish Games earlier this month, shows that video games are in favor among investors despite the tough economy. To date, Redwood City, Calif.-based Trion has raised more than $100 million.

Trion is making server-based games, or ones that are stored and operated on servers more so than they are on your actual PC desktop, as many other hardcore MMOs are. The company says the design of its games to emphasize server-based interaction allows it to achieve the combination of high-quality graphics as well as dynamic game play. An example of the latter is a user could log into a virtual world and the environment could change overnight.

Trion hasn’t yet shown off any of its games. The amount of funding is a vote of confidence that Trion is on the right track with its cloud-based game development, which includes a joint venture game with NBC Universal’s Sci-Fi Channel. That game will debut alongside an unnannounced TV show on the channel. That deal was announced in June.

As we explained in that earlier story, the company can develop an episode at a time. If gamers don’t like it, the company can cancel the game without a lot of sunk costs. Lars Buttler, chief executive of Trion, described the ability to hold “prime time events,” like staging an event inside a game just before a big plot point is revealed in the TV show. Those prime-time events can feature in-game ads. Thus, the development of a game and TV show can be far more intermingled than ever before.

The companies didn’t reveal the name of the game/show. But Trion will be able to change the story and environment of the game to match the TV show’s episodes. That lets the games become more of a social magnet for gamers who are also fans of the show, allowing user participation in the same way that fans of the TV show “Lost” congregate on web forums with the TV show’s producers.

The company was founded by former Electronic Arts online game executive Buttler and Jon Van Caneghem, creator of the best-selling “Might and Magic” and “Heroes” franchises. It has studios in Redwoo City; San Diego, Calif.; and Austin, Texas. Van Caneghem is working on a fantasy role-playing MMO.

The new round was led by Act II Capital and an unnamed “large global financial institution.” All previous investors also participated, including initial-round investors DCM and Trinity Ventures, and second-round investors Rustic Canyon, Time Warner, Bertelsmann and Peacock Equity – the joint venture between GE Commercial Finance’s Media, Communications & Entertainment business and NBC Universal.

The company’s rivals include Activsion Blizzard’s “World of Warcraft,” which has more than 10 million subscribers worldwide, as well as titles from other big companies in games such as Funcom and NCSoft. Trion has a lot of challenges. But it won’t be deterred by lack of funding.

Game startup Trion World Network is today revealing how it is designing massively multiplayer online games with high graphics fidelity that will run across video game platforms — such as consoles, PC, mobile, and set-top boxes — a feat that no other video game company has yet pulled off.

The bold scheme will let the startup launch multiple games at once on what it calls the “Trion Platform,” which consists of software that runs on a bunch of game devices and exists on a network run by Hewlett-Packard. The games are cross platform because they run on servers in contrast to most desktop-based or console-based games.

“For decades, games have run on the clients, but we’re transforming them so they are completely server based,” said Lars Buttler, chief executive of Trion in Redwood City, Calif. “We think that will disrupt the industry.”

I’ll talk about the significance of shifting from client to server games below, but it’s a bit like how Salesforce.com disrupted traditional business software companies with its software-as-a-service, or how delivering software over the web has disrupted delivery through traditional means.

Trion may have amibitious goals, but it’s done some heavy lifting in just a couple of years: signing up partners and investors, building game design teams and creating a fundamental technology infrastructure. While most start-ups take on an innovation in just one part of the value chain, Trion is trying to create most of that value chain itself.

“It’s like Apple designing everything it needs,” he said. “It’s very risky, but highly profitable if it works. We’re not just doing a little piece. We’re bringing it all together.”

The first major partner being announced today is the Sci Fi Channel, but Trion plans to have a whole portfolio of online game worlds. I’m duly skeptical until I see how good these games look and how fast they play. Server-based games aren’t new as a concept. Typically, they have lousy graphics quality and suffer from time lags because of bandwidth limits, said Billy Pidgeon, a game analyst at International Data Corp.

Coordinating fast-action games is so tough that they usually have to be limited to 16 to 64 online players in a single game. Trion wants to allow thousands of players in the same game arenas. Others who try to build massive game worlds with thousands of players always run into some trade-off that compromises the quality of the experience.

Buttler can see the company he wants to disrupt outside of his company’s window, since Trion’s home is within view of Electronic Arts‘ headquarters. The more focused target, however, is Blizzard’s “World of Warcraft,” which has 10 million subscribers worldwide and is the No. 1 online game. Read the rest of this entry »

Lars Buttler isn’t shy in this story in GameDaily. The CEO of Redwood City, Calif.-based Trion World Network says that Bobby Kotick, the CEO of Activision (whose merger with Vivendi’s game unit is pending), was really just trying to scare away rivals when he said recently that it would take $500 million for a competitor to dislodge World of Warcraft from its No. 1 position in the massively multiplayer (MMO) online game market.

Buttler’s own start-up is focused on creating original online games. He previously served as head of online gaming at Electronic Arts and so far has proven adept at raising large sums for his startup. EA itself is going to take on World of Warcraft with the upcoming launch of its Warhammer Online MMO.

“Nice try Mr. Kotick. We understand that Activision has to defend its merger and scare competition — but I have to call his bluff,” Buttler told GameDaily BIZ. It’s not entirely clear how Buttler will compete with WoW, which has 10 million paying subscribers. But he has been building up his arsenal.