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Epic Games announced last week it is bringing self-publishing tools for game developers and publishers to the Epic Games Store.
I talked to Tim Sweeney, CEO of Epic Games, and Steve Allison, head of the Epic Games Store, in an interview about what that means for game developers and gamers.
They positioned it as a major milestone for the store that should enable many times more game developers and publishers to reach larger markets with their independent games. The store has more than 1,500 games on it now, but that’s barely 1% of what its rival Steam has, Allison said.
What’s significant is that the Epic Games Store, at a relatively young age, still reaches an audience of 68 million monthly active users, up from 34 million in 2022. To date, the store has had 230 million players. That’s about half the reach of Steam Direct, which has been in place since 2017. After Steam enabled self-publishing, the number of games on Valve’s platform skyrocketed.
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Self-publishing on Epic should enable it to start catching up. Developers should reap some rewards from that, as Epic only charges a 12% royalty for games sold on its store compared to 30% on Steam.
But what also matters is having the right games. Epic’s store is still an investment. It’s losing money because Epic still subsidizes free games on the store in order to attract more users and to attract the right developers to its platform, which needs to become more competitive compared to Steam. Epic also believes that a more competitive store could go a long way toward correcting the anti-competitive behavior of rivals.
I’ve included a transcript of our interview.
GamesBeat: What is the vision for the store right now? Can you talk about self-publishing and how you see this as a new stage?
Tim Sweeney: Like all things we’ve released to developers, the Epic Game Store started out with our own need to build a distribution vehicle for our own games. In 2012 we decided we wanted to move to making online games. We could continually upgrade them for years and years. We released that those are intensive to build and operate, and a store taking 30 percent would eat up the majority of the profit from the game itself. We decided to build our own thing and launched it in 2014 to distribute the Unreal engine. In 2016 we released Paragon. In 2017 it was Fortnite.
We always had this idea we would turn it into a store, because we felt developers, other developers, would like having an efficient distribution vehicle for their stuff. The problem was, without a lot of customers visiting the store, it didn’t have much opportunity. Fortnite’s success enabled us to open it up. In 2018 we launched it to developers with this 88-12 revenue sharing. We felt like that was a good deal for developers. It’s a source of profit, because the payment processing and support costs are well under our total percent. We felt it achieved a better balance that was appropriate for a retailer. We don’t see ourselves as a platform necessarily. It’s a game store. We sell games, just like a grocery store sells groceries on a 2% profit margin. We’re happy with that.
We’ve always just done PC and Mac. We’ve expanded the feature set over time. We wanted it to launch really quickly, because we had the audience and we wanted to share it with developers and help everyone build an opportunity. We’ve been bringing a lot of features online, which brings us to the point of this call, which is talking about finally opening up the self-publishing systems that any developer can maintain. Not only submit their own game, but maintain their own presence and constantly update the materials. They don’t have to work with us directly. It’s an unblocking event for the store going much wider than it’s gone so far.
GamesBeat: From looking at what you’ve talked about, and also some of the documents that came out in the Apple case as well, it looked like the store was a huge investment, especially in the beginning. It was almost a loss leader of a kind. Have you gotten to a healthier point? Are you able to make money with the store compared to all those early investments that had to happen?
Sweeney: Strategically, building anything requires up-front investment. You can easily launch a store, but you find you have no users, no opportunity for growth. Just like if you want to sell oil, you need to build an oil refinery. We’ve been investing heavily in building up our user base through funding free games and exclusives.
When you look at the profitability of the store, you really have to look at it two ways. As an ordinary operating business, what are the costs of selling games and providing support and ongoing services, and what’s the revenue from it? The Epic Games Store has always been profitable on a net basis. The cost of operating the store is significantly less than 12%. That part of the business has always been healthy. And then we have this huge up-front investment made up of exclusive rights and other things to jump-start the store. Those have brought the store up to 60 million monthly active users, which is half the monthly active user base of Steam. Between that and the self-publishing tools and other organic growth that’s happening, we’re well on the way to being a business that has achieved a position where it has the potential to be profitable on a stand-alone basis.
Whether we intend to wind down the heavy investment in exclusives or continue to make those for a few more years, these are decisions we make on a year-by-year basis. So far we’re still investing. Not at the staggering numbers as previously, but we’re still investing. We have the free games program. We renewed that for the year. We have exclusives in the works, which are really good games. We have our first-party stuff. We feel the lineup is good. It’s getting to a point where it’s becoming a force in the industry.
With half of the monthly active users of Steam–if you want to reach the whole PC user base, and a lot of the Fortnite players aren’t on Steam, do you want to come to the Epic Games Store or do you want to come to Steam? At some point in the future I think we’ll hit a tipping point where you might choose, as a game developer, to release on the Epic Games Store first, because 88% is a lot more profitable than 70%, and we have a high enough fraction of the users that you might calculate that it’s to your benefit to do that. Several developers have already done that.
GamesBeat: The self-publishing part gets very interesting in that it seems like other stores out there are more like gatekeepers in a lot of ways. It sounds like that’s not necessarily a role that you want to take on as heavily.
Steve Allison: That’s true. That’s definitely our principle. But it’s also one of the things that I like to use when I talk about why this is so important to our next phase in the future. Steam has done a good job with this. If you look at Statista, you could probably look at the graph of their releases per year. When Steam Greenlight debuted, and then when they went to Steam Direct in 2016, you could see how it changed the curve of releases up and to the right. But it’s also where the business went up and to the right.
Tim just said that our monthly active users are half of Steam’s, but our catalog size is only 1%. Our users can’t get everything that they want to buy if it’s not here. We have to open up. We’re working hard on getting every major sim-ship, all the major publishers, supporting business models like subscription, and launching these self-publishing tools so that we can create our version of that same up and to the right moment. We think it’s going to be a powerful driver for us, the same way it was for Valve.
GamesBeat: What do you think you get a lot more of with this kind of option for people? Maybe you don’t necessarily want to invite the whole wave of user-generated content in yet, but there are professional developers who have not been able to get in before.
Allison: Look at Steam’s release count from the last few years. It’s close to 10,000 a year. There are a lot of things that we probably wouldn’t want here, but there are several thousand releases a year that have an audience of some sort, but aren’t professionally made. We don’t have contact with a lot of the small creators, one-man studios, three-man studios. We don’t have contact with them, and this will open that up.
One of the things that’s just a truth, our process has been so manual for all these years. Steam Direct lets so many developers use that as their opening salvo on PC. They set their product pages up 300 to 400 days before the title launches. Our average time for a product page in the first couple of years, before it went live, even if they were in both stores–it was maybe 15 days. Just helping developers be able to set up their game, set it up everywhere, have pages up, have the wishlisting system that lets them sell more units and forecast their business. It’s going to change the game for our partners. We’ll have a lot more new partners we haven’t had in the past.
GamesBeat: Are there other things you’re doing very differently from other stores, whether it’s iOS or Steam?
Allison: As far as PC stores, the Windows store has this, but they’re not really as focused on games, and they’re not nearly as big as us. Along with the self-publishing tools we’re launching the IARC service, which is super helpful for developers who like long-form ratings. Big companies like EA, they have teams that do that. It’s a very involved process. IARC makes it super simple. The console platforms all use IARC. But if you’re a PC-first developer and you’ve only published for Steam, you’re probably not getting your ratings until you decide on a console SKU. Now we have IARC. We can be a path for first ratings on PC in a way that’s never been enabled before. I don’t know what to predict there, but I think it will be meaningful. We’ll see some change around developers’ behavior. I hope for a lot of appreciation.
We’ve developed our features a bit differently. We talked earlier about our review system, which is a traditional five-star system, but it also has polls. We wanted to figure out a way to prevent brigading and negative reviews. We’ve seen games get shut down on other stores just because they locked their framerate at 30FPS or things like that. Suddenly all these negative reviews come in and end the life of this game. It’s terrible. Valve has done things to make that better, but we want to make a brigade-proof review and poll system. We do the five-star system, and then we ask questions of actual players who’ve played for more than two hours to help users communicate with users in a way that can’t be review-bombed. Anywhere we can do things that we would like to see improved, and that our partners would like to see improved, we try to do that.
GamesBeat: I’m curious if preventing review-bombing is possible.
Allison: So far so good, on our system anyway. Our system, you have to play a game for two hours. You can’t buy it, refund it, and put in a negative review. We ask people at random, after they hit that criteria, to either give it a star score or answer a poll question on it. You never know what you’ll be asked. It’s very difficult to work straight review-bombing. That was the thesis, and it seems to work out so far.
Sweeney: The other thing is, we’re not economically gatekeeping. You can distribute a free game and then do your own payment processing as a developer if you want, or you can use our payment service. It’s up to you. We don’t ban cryptocurrency apps, because that’s just another way of payment gatekeeping. We want to give developers as much freedom as possible.
Our own services that we build and give to developers don’t gatekeep. Epic Online Services, it’s another free bundle of services that developers are free to use to ship anywhere. If you use that, you get the same platform cross-play features that we have in Fortnite. Voice chat between every console and every smartphone and every computer platform. It’s not locked to our store. All of Steam’s social services are locked to their store. PlayStation Network, Xbox Live, and Nintendo’s services only work on their own platforms.
We just want to help developers build awesome experiences. We think that if we have enough of these services to choose from, then we’ll be successful. It’s on us to make our services attractive enough that developers choose to use them, rather than forcing them through payment terms, like we’re fighting in the case of Apple.
Allison: A good example is Riot Games. We were thrilled to have them join the Epic Games Store a couple of years ago. Their games do really well here. They use their own payments. We’re happy to have them bringing a giant audience to us that interacts with their games every day, but is also in our ecosystem. It’s been awesome.
GamesBeat: How important are those tentpole games for you? Obviously Fortnite helped make the store what it is. Do you feel like you need another Fortnite?
Allison: I hate to refer to Steam so much, but it’s a good example. They were borne on the back of Counter-Strike. If you look at their top revenue grossers every day, Counter-Strike is somewhere between number one and number five for the last decade. They have DOTA. They have Team Fortress 2. They have other things like Left 4 Dead. We have things analogous, our versions of that, like Fortnite, Rocket League, and Fall Guys, as well as all the games coming from Epic Games Publishing.
Do we need another Fortnite? I don’t know that it should be another Fortnite. It’s a wildly successful thing. But we do have these seeds of existing audience that–I think you do need to have that to compete at the level we want to compete. Fortunately we have that.
GamesBeat: Do you feel like the other guys are going to, at some point, have to play by the rules you guys are setting?
Allison: It’s up to them, I think. We’d like to see that, but that’s up to them.
Sweeney: Competition has been working. Some parts of it work slowly, but it’s all happening on PC, where stores are able to compete with each other. On the eve of us launching Epic Games Store, after we’d disclosed the terms to lots of developers, Valve lowered their top take rate from 30% to 20%. Suddenly it became a lot more profitable to be a game developer. Microsoft eventually lowered their store fee to 12%. They removed the requirement to use their in-app purchase system for payment from non-game apps. We also host other stores in our store. We host itch.io. We host Humble. Microsoft does too.
The PC landscape is shifting. The top three PC stores have evolved their policies in response to competition. I think that’s just beginning. Epic Games Store has not yet hit the tipping point where a developer can profitably choose to release on EGS first, in order to get the higher revenue share first, at least in the general case. Some online games, which have higher costs–Genshin Impact chose to launch on their own service, and then launch on Epic Games Store. They chose not to come to Steam, because those store fees really cut into their business opportunity.
That will happen for more and more categories of games as Epic Games Store grows, to the point where when developers start foregoing Steam because they just take too much money, Valve will have to make some hard choices. When mobile platforms are opened up to the same form of competition – and that day is coming – we’ll compete there too. Ultimately their day of reckoning will come as well, where stores have to compete on their merits and margin to win business from developers.
Allison: We’re on the fringes of that tipping point now. If 30% of your business comes from the Epic Games Store, for example, three out of 10 units, that’s actually 40% of your bottom-line revenue. There are several partners of ours who’ve figured that into their own go-to-market. It’s up to them. When we get to a point where we’re closer to 40% on certain releases, it will be more than half. We see it now. Not en masse, but we definitely see people successfully going after that margin. When that tipping point comes, we hope we see a behavior shift. Not because we want the money – our developers are getting the money – but because it will be better for developers everywhere. Whatever way they maximize their bottom-line revenue makes us happy.
GamesBeat: Do you see that feature that the court ruled upon, where you can have alternative stores for developers themselves, and they get to advertise them as opposed to having the gag that Apple imposed–do you see that coming around as being an important feature in some ways? Is it an important win for developers?
Sweeney: That ruling by the District Court of Northern California in Epic vs. Apple was stayed by the 9th Circuit Court. It’s heard a hearing on the topic and will be issuing an appellate ruling on the case soon. Their review of the law in the case–they’re considering it from the ground up again. That was one glimmer of hope, but it’s far short of what’s needed for real competition.
Apple doesn’t even allow developers to tell customers they can go to their website from their app, much less link to it. You’d have to leave the game, Google for it, and so on. They create a dozen more steps to processing a payment out of that than is required in-app. They’d still be giving themselves a grossly unfair advantage. One click versus a dozen to use a third-party payment processing service. That’s not fair competition.
In order to have true, fair competition on mobile platforms, which exists everywhere else in the U.S. economy, you need to do three things. Number one, you have to enable competition in payment processing. Apple’s payment processing service that can compete with Epic’s payment processing service, plus Stripe and Paypal and everything else, on equal terms. You need to have store competition, so that mobile users can choose to use the iOS App Store, or choose to use the Epic Games Store, or even Steam if Valve chose to bring it to mobile.
Finally, you need to do all of this without allowing the platforms to use their control of one market, the operating system market or their monopoly store platform, in order to impose a monopoly rent – basically a tax on other markets, such as in-app payment processing or other stores – as a term of access to that platform. This is what the Sherman Antitrust Act is supposed to put in place. One monopoly in one market can’t use its control of that market to impose rents, to take money from other markets without providing services to those markets in a fair, competitive state.
That day is coming. Europe has already passed the Digital Markets Act, putting these principles into legislation. They’ll begin enforcement next year. There’s a law in Korea. They’re still scuffling with the different platform providers. They’ve opened up their platform in a fake way while still imposing their tax. The monopoly rent is still there. There’s legislation pending in the United States that was taken on last year, and it will be taken on next year, as well as the many cases going through the court system. We ought to be able to use existing antitrust law to reform these practices. Change is coming. It’s just a matter of time now.
GamesBeat: Did you have to make some big investments, technology investments, to make the self-publishing part happen? Is there anything else behind the timing of rolling this out?
Allison: It’s a huge effort by our team to build these tools and make them available hands-off. It’s an investment of both time and dollars. But it’s been a big investment and focus for us.
Sweeney: We’re building this in a way that’s appropriate for this era. The expectations of game developers and ecosystems are far higher than ever before. You can look at the FTC settlement that Epic entered into recently as evidence of that. Expecting commercial practices of companies to go far beyond what was ever laid out before in either regulatory guidance or legislation. Similar laws, some in place and some coming in Europe–the expectations of quality of service and commercial practices for future ecosystems are really high.
Every other platform, other than PC, has already adopted proper rating systems. The rating system on consoles uses IARC ratings. Google users IARC ratings. Apple has their own system, but it’s still a real, administered system. Whereas on PC game stores it’s just the wild west. Without ratings you can’t have proper parental controls gating access to games. On a store like Steam where most of these indie games are unrated, because the developers don’t have the resources to get a rating, if you set up parental controls that say you can’t play unrated games, you just can’t play games. That’s not how these systems are intended to work.
With the Epic Games Store and the IARC ratings, you can set up parental controls on a kid’s account. The kid will be able to access games that are appropriate to their age. There’s a parental PIN system for bypassing that when a parent feels it’s appropriate. It’s a full ecosystem that’s built out with all of these features that are expected now in the modern era. This is the first of a lot of changes that I think will probably come to the other platforms over time to catch up.
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