Epic's latest deals will bring The Outer Worlds and Control to the Epic Games Store, and not the PC's largest distributor, Steam. These are the latest in a string of exclusivity deals that Epic feels are necessary to challenge Steam, paired with an 88 percent revenue share for developers (at least if they self-publish), which it believes should replace Steam's 70 percent rate industry-wide.
For those frustrated by the recent wave of exclusives, relief may be in sight. During a GDC 2019 Q&A panel today, Epic Games Store head Steve Allison said that Epic won't keep doing this forever.
We will definitely not be doing it on the scale we're doing it on now for an extended period of time.
Steve Allison
"I don't think we plan to [negotiate exclusives] forever," he said. "We'll probably do it for a while. It's just about pushing the business model, helping people thrive, but at some point hopefully people just come, or the industry moves down and matches us ... I understand the sentiment about it, so I'm pretty sensitive to how I answer this question, but the answer is yes, at some point we could go to zero, or we could go to very, very few major exclusives in any given year. We will definitely not be doing it on the scale we're doing it on now for an extended period of time."
The panel, which also included director of publishing strategy Sergey Galyonkin and head of business development Joe Kreiner, elaborated on Epic's strategy in other answers, as well.
"We're trying to socialize a new financial model for developers that they can thrive on," said Allison earlier in the panel. "What happens is developers have some reasonable success, half-a-million units, that's a lot of units, but in a 70/30 situation, depending on their publishing situation, or maybe their cost structure, maybe they just survive when they should thrive. So we want to see them thrive, and the difference in the business model is substantial.
"We need to help people get there, and if we have someone who decides to go—from a business case perspective, they want to see what they can do for their business—if they go into five stores, four of which have a 70/30 business model and one that has 88/12, and their sales get spread around at any proportion, kind of less than 70 percent than their total sales, their going to get a blended result that is probably not going to change their minds in any way, shape, or form. We're trying to change the minds of our developers. The best way we can do that is have the majority or all of their sales happen here."
Answering a different question, Galyonkin said that Steam's model was a great thing for the industry back when the only other option was retail, where developers earned far less than 70 percent of their game's the total revenue. But as server and payment processing costs have gone down, Allison says that a 12 percent cut makes sense at Epic's scale.
This is not a teaser rate, and Epic is going to make a healthy profit from this 12 percent model.
Tim Sweeney
"This is the price of distribution today, in digital, especially on PC," he said. "I hope to see everybody get there. If they do, when they do, we'll be the first people to say 'awesome.'"
Without a response from Valve, Epic has been dominating the conversation about how big of a cut game stores should take. Earlier this week, I asked Epic CEO Tim Sweeney for his answer to accusations that the rate is unsustainable. "We've long said that 12 percent is our permanent rate," he said. "This is not a teaser rate, and Epic is going to make a healthy profit from this 12 percent model."
What it costs to publish a game
Sweeney broke down the costs Epic takes care of each time a game is sold: 2.5 to 3.5 percent for payment processing, at least in "major, developed economies," approximately one percent for CDN bandwidth, and another percent for customer service. Doing my own math, that comes to around 5.5 percent, leaving Epic with 6.5 percent of a game's price after each sale. For a $60 game, that's $3.90 for Epic, $52.80 for the publisher/developer, with $3.30 going toward payment processing, bandwidth, and customer service.
"We've operated a digital commerce around Fortnite at a large scale, on PC, for more than a year now, and we're very aware of the costs," said Sweeney. "We're operating a sound and lasting business on the basis of 12 percent, and we will not raise that rate. That's the fact of it."
