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Losing Steam: A By-the-Numbers Look at Epic Game Store

There is a certain kind of complacency that sets in when you’ve been the king for as long as Valve has. Sure, GOG offers DRM-free games and itch.io allows developers to set their own revenue-sharing models. Neither of them, or any of the smaller players in the market, seem to have made a dent in Steam’s dominance (or its hubris).

Last week may have revealed the first real contender to the throne in the Epic Games Store. Epic Games is riding high on the global success of “Fortnite,” raking in money hand over fist and disrupting how the industry thinks about live games and other service offerings.

It’s fair to say that Epic (with “Fortnite’s” muscle) was the single greatest motivator for Sony finally allowing cross-platform play with other console families (and now Epic is giving those cross-platform tools away for free). There are few games large enough to find success on Android by completely avoiding the Google Play store. “Fortnite” pulled it off without a sweat.

Epic also turned the screws on one of Unreal Engine’s key competitors, Unity, by shifting its revenue share from the traditional 70/30 split to 88/12 in favor of asset creators. Oh, and it made that adjustment retroactive for four years. That same 88/12 revenue split is a hallmark of the Epic Games Store’s showy entrance into the competitive digital distribution arena.

Discord, which started selling games in October, has the advantage of offering a universal launcher, bringing together most of your game library (Battle.net and Epic Games Store don’t seem to be functioning perfectly yet). Discord also has 130 million users as of May 2018, with 19 million logging in on a daily basis. And earlier this month, Discord announced it would be delivering a revenue split of 90/10 in favor of creators.

Valve should be scrambling to figure out where it went wrong, especially since Epic’s announcement was perfectly timed to make Steam’s recent AAA-leaning changes to revenue sharing look embarrassing by contrast. That’s not to say Valve actually is worried about the newly announced Epic Game Store, though. In fact, it often takes actual decline rather than the threat of it to move entrenched market leaders.

While Valve was busy focusing on the drove of AAA titles it was losing to publisher-run distribution (“Call of Duty: Black Ops 4”, “Fallout 76”, and “Battlefield V”, among others), Epic was quietly wooing indie devs with exclusivity deals. Team Meat’s “Super Meat Boy Forever”? Epic Games Store exclusive. Supergiant’s new roguelite “Hades”? Epic Games Store exclusive. The Souls-like “Ashen” from A44 and published by Annapurna Interactive? Surprise launched on the Epic Games Store during The Game Awards. Coffee Stain Studios’ “Satisfactory”? Not only an Epic Games Store release, but the game’s Steam page has been wiped from existence.

So… why are indie devs excited about the Epic Games Store?

Earning your keep
To understand why Epic and Discord are making huge waves, you have to look at trends. Valve launched Steam just over 15 years ago. At the time, the concept was revolutionary: a unified storefront for games with auto-patching to ensure that you were always playing the most up-to-date version.

It didn’t take long for fans to clamor for all PC releases to arrive on Steam. And developers and publishers were eager to play along. It was worth the 30 percent cut that Valve was taking to be in front of thousands (at the time) and now 125 million registered users.

It was an easy selling proposition for Valve. You give us 30 percent, and we’ll put your game on in front of the biggest PC gaming audience in the world. That was enough up until a few years ago. In 2017, more than 7,600 games were released on Steam. That accounted for 43 percent of the total number of titles available on the service. In 2017,

A quick look at the trajectory creates a picture of what started to go wrong:

  • 2005: 6 Games
  • 2006: 71 Games
  • 2007: 223 Games
  • 2008: 183 Games
  • 2009: 356 Games
  • 2010: 276 Games
  • 2011: 283 Games
  • 2012: 379 Games
  • 2013: 565 Games
  • 2014: 1,772 Games
  • 2015: 2,964 Games
  • 2016: 4,207 Games
  • 2017: 7,672 Games

While Steam has been the king of the hill for a decade, it wasn’t until 2014 that success became a problem for Valve. Growth is a double-edged sword. Sure, it means more revenue and power, but it also requires a level of investment in infrastructure and systems to continue serving stakeholders (both developers and consumers) with the same level of care.

In 2014, Steam started to develop a problem with discoverability. Games were getting lost in the shuffle. About 43 percent of all Steam games were released in 2014. In 2015, 59 percent of all games on the platform were released in that year. Last year? That number fell, but to only 40 percent. The Steam library is growing at an enormous rate and Valve hasn’t given stakeholders the necessary discoverability tools.

New releases are getting shuffled off the front page rapidly. There’s very little by way of support that Valve is able to offer in terms of visibility. Put simply: Steam releases still cost developers 30 percent of every copy sold, as it always has, but the platform’s value has decreased as more releases flood the storefront.

This hasn’t gone unnoticed.

In an annual survey conducted by Lars Doucet, co-founder of Level Up Labs, developers had the chance to chime in on the perceived value of being on the Steam storefront. Only 11 percent of the 167 respondents believed that Steam had earned its 30 percent cut in the past year. That’s down from 39 percent the year before.

Epic is striking when the iron is hottest.

Capitalizing on a competitor’s woes

According to Mike Rose, founder of indie publisher No More Robots, the average Steam release sells approximately 2,000 units (total) and makes $12,500 in its first month and $30,000 in its first year. That’s due to a combination of the massive noise of dozens of releases each day and discoverability issues that Valve should have seen coming after the iOS App Store fell victim to them years before. Valve hasn’t done itself any favors, by incentivizing “asset flip” games that exist solely to flood the marketplace with trading cards and earn post-release revenue from hungry collectors.

But let’s break down what that same release on the Epic Games Store might earn. All other conditions held equal, $12,500 net earnings for a developer on Steam would be $15,714 in the first month and $37,714 in the first year.

Rose’s data is an estimate based on a variety of reference points, but not actual sales reports. It can’t be verified, nor for that matter can the numbers that were generated from SteamSpy. In 2017, SteamSpy suggested that the median ownership for games released in that year was 1,500 (500 lower than Rose’s assertion). If we assume that Rose’s estimate is in the ballpark and that SteamSpy was “good enough,” we can draw some comparisons of magnitude.

If the data itself isn’t wholly accurate, but it’s consistently off by the same margin, we can still connect the dots and determine how sales growth has changed. In 2015, SteamSpy reported the median number of units sold for new games on Steam was 32,000 copies.

Epic has also promised a curated storefront. While we don’t have full details on what that means exactly, we can assume that the Epic Games Store won’t kick the doors open and allow every game on the platform. There’s no incentive for asset flips, since there’s no secondary trading card market. Even if Epic only manages to replicate Steam’s supposed performance in 2015, it’s a massive improvement over what Valve is offering developers today.

To put that in financial terms, assuming an average sell price of $20 over a game’s life and 32,000 units sold, a developer will earn $563,200 for its game. If that game had been released on Steam in 2015, the developer would only net $448,000. That’s enough to keep an indie dev in business and making another game. The difference between Steam’s 70 percent and Epic Games Store’s 88 percent is another full-time team member (or two), more contractors, or a bigger spend on marketing and PR.

Discord’s 90 percent would give developers another $12,800. However, Discord has stated it will be allowing self-publishing in 2019. How that will impact discoverability is as yet unclear.

Epic and Discord can compete on price alone. The 88 and 90 percent (respectively) they will pass on to developers soundly beats Steam’s 70 percent. But this isn’t just a fight on that front. Having a clean slate and being able to learn from Apple and Valve’s discoverability mistakes is where Epic and Discord can really shine.

That is, if they can make the case to consumers who are tired of adding one more installer to their rotation, along with EA’s Origin, Ubisoft’s Uplay, GOG, Battle.net, and Bethesda’s launcher. Epic and Discord need to serve up value to make up for chipping away at convenience.

The easiest way to woo end-users is by showing them that having yet another storefront is good for them. Epic is already promising a free game for users to keep every two weeks. That’s a good start.

Incentivizing developers to pass on some of the difference between Steam’s 30 percent cut and the new storefronts’ 12 percent and 10 percent respectively might be enough to woo the vocal group that seems to be taking issue with having one more icon on the taskbar. Many end-users won’t know (or simply won’t care) that one storefront helps developers more than another. The messaging must be user-focused.

There are still a number of unknowns about the Epic Games Store, and if there aren’t hard conversations happening among Valve’s Steam team, there should be. With the “Fortnite” war chest, established relationships with developers thanks to Unreal Engine’s widespread use, and leadership that thrives on disruption, Epic Games Store has the potential to be more than a well-funded also-ran. Discord’s massive install and user base makes it a real competitor with its new pricing structure. These two create real competition in the space for the first time in years. If Valve responds with improved policies and competitive financial terms for developers, no matter which storefront comes out on top, developers and consumers stand to benefit.

But don’t expect Valve to move quickly. The threat of market share erosion isn’t enough to wear down an entrenched leader. It’s going to take significant and sustained competition to move the needle.

In-Game Economy” is a monthly column exploring business happenings and demystifying how the video game industry works by Michael Futter, freelance journalist and author of “The GameDev Business Handbook.”

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