Epic Games’ new digital game marketplace, announced earlier this week and surprise launched during the Game Awards yesterday evening, has raised a lot of eyebrows in the industry. With its favorable 88 / 12 percent revenue split and Epic CEO Tim Sweeney’s pledge to better support creators, many in the industry are wondering whether this will be the game store that could truly rival Valve’s Steam, which has been the dominant platform for PC game distribution for well over a decade.
We’re not going to know how successful the store will be for quite some time. Last night, Epic announced the first batch of games that will support its store, and that list remains minuscule compared to the tens of thousands of titles available on Valve’s storefront. And although Epic has the benefit of positioning its store within the Epic Launcher, which is the software required to update and start playing its mega-hit Fortnite, there remains the distinct possibility that consumers don’t want to fragment their game libraries any further. In that scenario, Steam remains dominant, and Epic’s store becomes just another less-popular alternative, like GOG or Green Man Gaming, while smaller stores like Itch.io and Humble Bundle keep their focus on the indie game market.
Epic’s store only just launched, but its financial terms look enticing to developers
But the question of why Valve needs a competitor in the first place is still an important one worth exploring. That’s because the current state of game distribution speaks volumes about the imminent platform war that’s been brewing for years. How it turns out could change how millions of people buy and play games in the future, and how developers, in turn, make money from those sales.
As it stands, if a developer is making a game for PC, chances are they will sell it on Steam. If they’re not selling a game on Steam, it’s likely for one of two reasons: they’re a large publisher like EA or Ubisoft that operates a digital store of their own; or they’re a game console maker or a studio owned or paid by a game console maker like Microsoft or Sony. In those rare cases, a developer is taking the loss of not selling a game on Steam because some larger company is paying the bills, and there might be a strategic business reason, like console or store exclusivity, for a company like Microsoft to, say, not sell the PC port of Gears of War 4 through Steam, but on the Microsoft Store instead.
That’s the old way of doing business in the game industry, and Valve has reaped the benefits for years. The company is estimated to have made $4.3 billion in Steam revenue alone last year, not including its standard 30 percent cut on purchases of in-game content and expansions. Under the current arrangement, Valve could never develop another video game and still remain one of the highest-earning companies in the industry simply by being the middleman between PC consumers and game developers and publishers. Not only does the company take 30 percent of nearly every sale on Steam, it also earns revenue from classics like Counter-Strike, Half-Life, and Team Fortress, while its e-sports juggernaut Dota 2 remains one of the most popular games on the planet.
In other words, Steam has been sitting pretty for years now as the Apple of the PC gaming market, operating an app store and getting to decide how much money it takes from each sale. The only problem is that, unlike Apple, Valve has no control over the hardware people use, and in turn, no control over what software they use. Valve can’t stop a user from downloading another game store and buying their games elsewhere, just like it can’t stop Epic or Ubisoft from creating their own game launchers and requiring players download the software to launch Fortnite or Assassin’s Creed on PC.
Up until now, that’s not really been an issue for Valve. Gamers, and PC ones especially, tend to take offense at what are seen as transparent crash grabs at the expense of the consumer. That’s turned storefronts and launchers from EA and Ubisoft — notorious for locking down games with digital rights management restrictions — into the corporate bad guys of the industry. Valve, with its loose restrictions and its generous refund policies, has always appeared to be the most consumer-friendly option.
Epic is arriving at the perfect moment to disrupt Valve’s position as market leader
That’s begun to change, and Epic happens to be arriving at the perfect moment to shake things up. Just as it made Fortnite at the perfect time to capitalize on the battle royale trend, Epic is now applying pressure to Steam at a crucial moment for game distribution. Because of the billions of dollars its earned through Fortnite, Epic now has enough in its war chest to properly do battle with Valve, and it’s doing so by offering up more developer-friendly revenue splits and wielding its Unreal Engine toolkit as a strategic weapon. If you use Unreal to make your game, Epic will now give you back the 5 percent it typically takes of all game sales, in addition to letting you keep 88 percent of all sales through the Epic store.
The timing couldn’t be worse for Valve, and Steam has begun to lose its sheen as the consumer-friendly, do-no-wrong marketplace. The company has, for years, taken a hands-off approach to moderating its storefront and the way users behave on its platform. That’s resulted in high-profile controversies around games like Hatred, a mass murder simulator that was pulled from the company’s Greenlight program only to be reinstated, and unsavory tactics from users like hateful and trollish Steam Curator pages, rampant bigotry on game community boards, and mass review bombing of indie games deemed overly progressive by alt-right communities. Valve’s philosophy around Steam was solidified over the summer, following the rare pulling of a game that centered on school shootings, with a new policy that allows “everything” onto Steam unless it’s either illegal or purposely designed to enrage people.
The result has been more developers eager to sell their games elsewhere, and more consumers interested in alternatives to Steam as the store has become overrun with subpar games and loosely moderated community boards. Meanwhile, Valve’s virtually nonexistent curation strategy makes it harder than ever to find games you may like, while developers have long bemoaned issues with Steam’s recommendation algorithm and discovery features that directly affect traffic to game listings.
This has created an opportunity not just for Epic, but other companies who see Steam’s weaknesses as pain points to exploit. Game chat platform Discord now operates its own game store because it already owns the social infrastructure around how PC gamers connect with friends and chat via voice and text. Selling games to those same consumers and giving them one destination to launch them and play them with friends could make Discord a more appealing storefront.
Valve is clearly feeling the heat. It’s begun copying Discord’s social features, and it announced in September that it would start moderating community boards. Last year, it said it would try to fix review bombing by temporarily freezing reviews. But most importantly, ahead of Epic’s store launch, Valve said last week that it would change its terms on revenue splits for game developers. That way, if you sold more than 10 million copies, you would get to keep an additional 5 percent of revenue (from 70 to 75 percent), and then another 5 percent if you’ve sold at least 50 million copies. It was a clear admission from Valve that it knows its platform is not untouchable, and that improving the financial incentives to sell a game on Steam may be the only way to keep developers from flocking elsewhere.
That might not be enough. As pointed out by game developer Rami Ismail, who co-founded indie studio Vlambeer, Valve’s new policies are aimed at appeasing big-budget developers. “Have things really gotten so bad for Valve in the ever-more competitive storefront scene that they now have to subsidize big studios?” he wrote on Twitter last Friday. “Are they that undesirable for large titles now that the large titles tend to be able to launch their own store?”
“Steam’s new 25 percent and 20 percent tiers represent a great improvement for the top 1 percent of games, and make Steam a significantly better deal for top games than Google Play and the iOS App Store,” Sweeney quipped in an interview with The Verge this week, making clear that Steam’s new terms don’t favor all creators — just the biggest ones.
How will this ultimately play out for consumers? That’s an open question, but competition typically results in lower prices. If game developers are getting a bigger cut of sales from Epic’s store, there is the possibility they could lower the upfront price of the game by $5 or even $10. A perk like that could pull consumers away from Steam or, at the very least, lessen the financial burden on some developers and allow them the freedom to create another game or produce an expansion. Regardless, Epic’s move — not just with revenue split, but also its waiving of Unreal royalty fees — will earn developers more money. That could be all the incentive they need to side with Epic in the future.