Platform Wars Update: Epic Store Losing $330 Million Per Year To Acquire Customers

from the oof! dept

It's been a while since we've checked in on how the PC gaming platform war is going. If you'll recall, the Spring of 2019 saw a new entrant into this ongoing battle, with Epic releasing the Epic Store. Epic's plan appeared to be essentially a PR battle at first, drawing in the public by proclaiming that Steam's revenue splits with developers and publishers were bad for the gaming industry and by drawing in publishers and developers with a better version of those splits for them. On top of that, Epic used those splits to gobble up a bunch of exclusive or timed exclusive releases of games, which ended up pissing off many in the gaming public and, of course, Steam. Then came Epic's free game releases, where the platform worked out deals with publishers to offer up AAA game titles for literally no money as a method for getting gamers to adopt the platform.

All of this didn't come with zero fallout from what Epic was doing, of course. The public doesn't like exclusives generally. Crowdfunding got weird due to the exclusivity. And the launch of the Epic Store in the early days was not without its hiccups, either. Now that we're 2 years on, how has this all shaken out?

Well, Epic is getting a decent chunk of market share with its tactics, even as the platform takes on major losses in doing so. The reason for those losses? Well, largely they have to do with all of those free games and timed exclusives. And we have Epic's battle with Apple to thank for the information.

The raw numbers, as reported in a "Proposed Findings of Fact and Conclusions of Law" document Apple filed last week, show massive incurred and projected losses for Epic's game download hub, which launched in late 2018. Documents and testimony from Epic itself show a $181 million loss for the store in 2019 and projected losses of $273 million in 2020 and $139 million in 2021.

You might think Epic is incurring those losses because it only takes a 12 percent cut of third-party game revenues, compared to the industry-standard 30 percent cut on other digital storefronts. On the contrary, though—in its own court filings, Epic says that 12 percent revenue chunk has been "sufficient to cover its costs of distribution and allow for further innovation and investment in EGS."

The main driver of EGS' losses, instead, is Epic's generous program of "minimum guarantees." These encompass the advance payments Epic has used to attract so many timed exclusives to its storefront and seemingly also cover the free games Epic makes available to Epic Games Store users every week.

Now, while this isn't precisely the type of method for using "free" as part of a business model as we've talked about in the past, it's close enough to count. The upshot of all of this is that commentary from Epic's folks makes it clear that they're well aware of these monetary shortfalls... and are largely just fine with them. The whole point of all of this is to make as big a dent in market share in a short time period as possible. And, of the two ways Epic saw to do that, taking on initial losses like this was the better option.

"There are two ways to bring users into something," Epic Games co-founder and CEO Tim Sweeney told Ars in 2019, just after the launch of the Epic Games Store. "You can run Google and Facebook ads and pay massive amounts of money to them. But we actually found it was more economical to pay developers [a lump sum] to distribute their game free for two weeks... We can actually bring in more users at lower cost by doing all these great things for great people rather than paying Google and Facebook."

That effort is starting to work. Last June, Sweeney told PC Gamer that EGS had about 15 percent of the PC gaming market. That's not great, but it's not bad considering the near-monopoly power Steam has in PC gaming downloads (Sweeney estimated Steam's share at 90 percent in 2019, though that could be a bit inflated).

In court documents, Epic went on to note that it expects its storefront to start turning a profit in 2023, so it looks like it has some runway there as well.

So, what does this all mean? Well, at the very least it's an interesting experiment in using free loss-leaders to gain customers and give them reasons to buy elsewhere on the platform. Epic hasn't pulled some magic trick to suddenly unseat Valve's Steam platform as of yet... but it's also apparently playing the long game here.

Filed Under: epic store, platform wars, steam, video games
Companies: apple, epic, valve

The Gaming Platform Wars Are Beginning To Screw Up Crowdfunding Games

from the collateral-damage dept

We've talked a great deal of late about Epic Games' kicking off a PC gaming platform war with Steam through its own Epic Store. What the whole thing comes down to is that the Epic Store offers game publishers a revenue split that takes away half as much revenue from the publisher compared with Steam, coupled with a program for gobbling up 6 to 12 month exclusivity deals on many games that keep them off of Steam during that time period entirely. While Valve responded saying this would hurt gamers, and much of the public appeared to agree, Epic's Tim Sweeney has twice now spoken publicly about his plans, while also stating that what Epic is really after is a better gaming marketplace and to get Steam to increase its own revenue splits, promising to end the exclusivity program if its rival does so.

Many of our readers have noticed that I'm somewhat open to Epic's strategy here, although I'm not certainly buying into it fully. Many of those same readers have rightfully pointed out that, whatever Epic's longterm goals, the platform wars still aren't good for the gaming public in the immediate. They're absolutely right about that and one perfect example of how platform wars and exclusivity deals can hurt fans of PC games has shown up in the form of Shenmue 3.

Shenmue 3 was launched via a Kickstarter campaign way back in 2015. Like any Kickstarter campaign, there were different tiers by which one could support the product. Many of those tiers included day 1 Steam keys as a reward for supporting the game's creation. Then this happened:

Last month, the makers of Shenmue III announced that the game will be a timed exclusive to the Epic Store on PC, a move that angered quite a few people who had helped crowdfund the game. After all, when Shenmue III first launched on Kickstarter in June 2015, the developers had offered Steam keys as a reward option. When the game comes out in November of this year, however, Steam keys won’t actually be available. It’ll be on Steam in November 2020.

Those who backed Shenmue III in 2015 and wanted Steam keys for their efforts have a few options. One is to take an Epic Store key. Another is to switch platforms. A third is to get a Steam key one year after launch, once the exclusivity window is up. And a fourth, the developers said today, is to get a refund.

On one hand, yes, the developer is offering a refund to backers for its inability to actually deliver on the day 1 Steam keys it promised. That same developer has also announced, however, that tiers that backed the creation of certain gameplay elements within the game cannot be given a full refund since the gamemakers did in fact deliver on those gameplay elements. That obviously sucks for the Steam gamer: great, you made the thing in the game I wanted you to make, but I cannot play it where I play my games because you're not giving me the Steam key you promised me at the time you promised it.

And, on a higher level, it would be entirely understandable for a backer of this project that only wants to use Steam to say something along the lines of, "Screw you entirely you damned liars." After all, the game developer entered into an exclusivity deal with Epic having already made a Kickstarter deal with the actual backers of the game. That's pretty shitty.

And, of course, those who want a refund don't even have a way to get one... yet.

More details on how to get a refund “will be announced in a following update,” the developers said, although they also warned backers that if they picked one of the tiers including in-game content that’s already been implemented into the game, a full refund won’t be available.

So whichever side you take in Epic's declaration of war on Steam, it cannot be denied that there won't be collateral damage.

Filed Under: crowdfunding, platform wars, shenmue 3, steam keys, video games
Companies: epic, valve