In December 2018, Epic Games announced the “Epic Games Store,” a direct competitor to Steam to sell digital PC games. To help entice developers, they advertise a 88/12 cut in favor to developers, and a full 100% of profits to games that use Epic’s Unreal Engine. To entice gamers, they made several announcements of exclusive indie titles for the platform. Steam tried to counteract this by offering a new profit-split deal, and Discord’s Game Store announced they would beat Epic’s revenue split (90/10) sometime in 2019. For the first time in nearly a decade, there is genuine competition in the space.
That escalated quickly in just a few weeks, didn’t it?
Just a handful of stores to sell your indie game in 2019…
First, let’s talk about the profit-split deals. I think most of the general public isn’t aware that stores (both physical and digital) have different agreements with the companies that stock its shelves: both the store and the producers have to make money in the end. It’s common practice for there to be a revenue split: unless one party gets a flat rate up front, they might agree to split the profits of a sale 50/50, or 70/30, 80/20, etc., usually in favor of the producer. But this means a developer isn’t getting all of your cash: if you buy a digital game for $29.99, the developer only gets a portion of that.
Being a developer with items on Steam, I am not allowed to say exactly what the revenue-splits are, but their recent announcement confirms that their typical revenue split is 70/30, with 70% to the developer. Another forgotten issue is income tax: Steam is a US company, so international developers will automatically have withholding tax from the IRS applied to payouts. That tax is approximately 30%, meaning a developer’s real payout is about 49% of a sale. Yes, smart accounting and business registration can reduce that number, and yes, income tax is unavoidable on all types of income, and yes, I can typically claim that foreign tax on my local forms. But that maximum withheld percentage is significant (and contrary to popular belief, most US citizens pay more income tax than Canadians from their wages), and if profits were high enough, it would require I fill out income tax for 2 countries in April, another expense in time and money. Anyway, as an indie developer, my games have been priced at a modest $4.99, and at full price, I get about $2.49, NOT the full $4.99. And when counting the numerous sales a game has, I get even less than that. Business accounting isn’t fun.
That withholding tax is legally necessary, although some store services (either small, or working outside of the USA) will not bother keeping the money and telling their country about it. In many ways, that makes things much easier at the end of the year: one country to fill out income tax to, one calculation to figure outstanding owing amounts. But for larger stores actually worth being on, that withholding (and reporting by the store) isn’t easy to avoid. It’s more of a legal thing rather than a fault of any storefront.
But this also makes giving as much profit to the developer important. Epic’s Store claims a standard 88/12 split, which is better deal than most storefronts have had (70/30 was a common standard). And they waive it entirely if your game was using the Unreal Engine? Fantastic! The idea is that developers using the Unreal Engine have to start paying Epic after a certain profit is made anyway, but for small developers that never reach that threshold, that could be an opportunity for a full 100% profit to those that need it most. They also state carefully that users of Unity3D would have to pay Unity3D after their own threshold, PLUS the 12% split to Unreal, a clear move to try to get more developers to use their own engine (Unity3D really gave them a run for their money in the last decade). Another noteworthy thing is that Epic is being public about this split: most stores require contracts that forbid developers from making that type of information public, to avoid this type of competition.
Steam’s split was 70/30, but how has it changed? They say it will remain 70/30, but goes down to as much as 80/20 IF your game makes over $50 million USD in sales. Which… sounds disgusting, honestly, and most developers and fans have agreed. This is a clear move to convince the likes of Unreal, EA and Ubisoft to return to selling their games on Steam again, specifically targeting the big players that bring the biggest profits to the store. There are now tens of thousands of indie developers that basically have an open door to sell on Steam, and they have no intention to make their store even more inviting to an already over-populated genre. From a business perspective, this makes total sense. And they are big enough that it won’t ruin their ability to get indie games on their storefront.
Discord also announced that they will beat Epic’s revenue-split, down to 90/10 sometime in 2019. Which is great… except that I didn’t even know Discord HAD a store to begin with. And what about the others? GOG reportedly has a 70/30 split. I can’t find information about Greenman Gaming, although despite being (somewhat) popular with an older audience, most of their games smell of suspicious activity: as far as I know, most developers don’t sell games directly with them at all, and GG just obtains Steam keys from other sources. Humble Bundle actually has two different platforms, which is confusing: you can sell on their store and get a 75/25 split, with part of the 25 going to charity, OR you can use their widget to sell directly on your own webpage, and get a whopping 95/5 split, a value maintained for several years now (the user still needs a Humble account to get their purchase). And itch.io, the darling of the non-profitable indie community, lets the developer decide the revenue split, even going as far as 100/0, but also pushes allowing the purchaser to dictate their own price when they buy a game. Of course, making your own online store and accepting payments is easier than ever, so a developer could by-pass everything and sell directly on their own site.
I haven’t talked about any other storefronts, because frankly, I haven’t heard anyone talking about releasing indie games there, or even purchasing AAA games there… there are only so many competitors one industry can have before things have drowned out. Anyway, there are many options for the indie developer to get the best revenue split. In the best-case scenario, if still applying IRS withholding of 30%, I could be making as much as $3.49 per purchase instead of $2.49. Wow, a $1 difference… well, that can add up, and could be a lot better if living within the USA, or if dealing with a company outside of IRS jurisdiction. We haven’t discussed payout minimums either: a store might state they withhold money until a minimum payout can be made, be it $100, or $1,000. For really small developers, that secret number could also matter a lot.
But just getting the best revenue-split isn’t the only factor. Which platform should an indie developer target to get the most sales?
This is a tougher question that I can’t answer. In 2015, almost all of my sales (in the 1,000’s of copies) came from Steam, and I received literally no sales on indie store Desura (now defunct), MacGameStore, or Humble Bundle, and only minimal sales on IndieGameStand (now defunct). At the time, it was possible to make at least some money on Steam, even with no marketing, simply by listing your game on the store. But since then, Steam has shut down their audience-curated program and allowed anyone to sell on the platform (for a relatively small fee), so I have no idea if any sales can be made without a significant audience existing beforehand, part of a much larger issue of content excess, where the amount of entertainment made only in 2018 could last the world a lifetime. GOG is the only other platform I can think of with any merit, and they curate game submissions directly, ultimately limiting indie games significantly (I haven’t been accepted, so I have no idea of their market share today). Based on my experience, and from what I heard from other developers, Steam is still the king of audience reach, even if that reach is lower than ever before for new developers.
That image I put at the top of the page? Think of it as the top being 100% of sales, and about halfway being 1% of sales: that’s how big of a drop we’re talking about.
But how did Steam do this? I’ve already written about my experience of Steam circa 2006: PC games were still sold on DVD, but by then, almost all required a Steam account as DRM management. The platform would wait about 5 seconds to check if a DVD existed to install the game, else it would automatically try to download it online. My DVD drive took at least 6 seconds to read the DVD fast enough to know it existed, so it took several attempts to skip downloading from the Internet. And at the time, my household still had dial-up. Yes, those were dark times, and at the time, Steam just plain sucked. Now, it’s significantly better, all because of the assumption that a gamer will have access to a high-speed connection and will be downloading all of their games.
But how did Steam get so many AAA developers on board, even at a time when it was a pain to use? DRM management was a legitimate issue, and still is today. Most developers tried to host their own account system and software to manage it. This meant if you bought 5 games for your PC, there was a good chance you would need to create 5 online accounts, with 5 passwords, etc. And depending on how invasive the DRM software was, it would simply be easier to get a pirated version of the game. Steam wasn’t just a single place to manage a game library, but also a single access point to control DRM management, the closest thing to a standard we have today.
But EA and Ubisoft had their own solutions, why would Steam be the chosen platform? Because it was created by Valve. I think this is a huge reason to why it was a success: Valve is simply a trustworthy company and developer, putting out genuinely great games that the industry respected. EA and Ubisoft had bigger successes, but also much bigger failures, so audience sentiment never reached what Valve had. And what about GOG.com, the only competitor I consider to have come close in terms of respectability? That is maintained by CD Projekt Red, the famed developer behind the recent Action-RPG series “The Witcher,” also equally respected and without fan remorse (that the store offers only DRM-free games, both modern and classic, is a bonus).
See a pattern here? The only other developers I can think of that can immediately get notice from fans and developers, without being suspected of anti-consumer strategies, is Blizzard, maybe Bioware, Rockstar, and… maybe Epic Games. Epic had been out of directly developing games for a long time, but has a long history of maintaining a popular game engine (developers respect them), and recently had a massive hit with their free-to-play game “Fortnite.” It’s also announced several games that will be exclusive to its platform, forcing gamers to come over if they want to buy a copy. And unlike other stores, they might actually be trusting and willing to do so, instead of reverting to piracy. They are well-positioned to be a genuine competitor, to surpass GOG, and maybe challenge Steam.
But it will take years before it can really come close to the audience that Steam has. And if Steam’s treatment of indie games is considered a failure in any way, Epic will have to figure out a different strategy (for now, they say they will curate things themselves, but open up more in the future… possibly following exactly what Steam had done). The general developer strategy was always to “just put your game on as many platforms as possible,” but I disagree. Every store takes several days to prepare images and store pages, and needs to be regularly maintained to setup sale dates and receive payments. Even if I want to cater to fans from all places, it isn’t worth it when it feels like over 95% of sales come from one place: Steam. But I’ll keep my eye on Epic, at least for now. A lot changed just in the last few weeks, and things could change a lot more in the next year.
