Is the 30% revenue cut history? – “It does in general feel like devs and publishers are becoming more and more annoyed by the 30 per cent take”

The seemingly endless Epic v Apple legal battle has been claiming a lot of headlines over the past few weeks, with the ongoing case exposing much of the inner workings and thinking of some of the biggest names in the industry. By now it’s likely rolling on to appeal.

Perhaps more than any other, the legal spat has forced one topic directly into the spotlight: The issue of the 30 per cent revenue cut for platform holders, taken from so many games sold.

The 30 cent share has been the industry standard for years now – largely maintained across PC, consoles and mobile platforms. While developers and publishers may have privately grumbled against their 70 per cent share, only recently have we begun to see a significant public pushback against it.

It’s not only the centrepiece of the Epic v Apple debate, but Valve are now also facing a lawsuit, with developer Wolfire Games describing the 30 per cent revenue cut as being “extraordinarily high.”

This public backlash has given rival platform holders an opportunity to capitalise with a lower revenue split. Epic’s own storefront, the Epic Games Store, offers publishers an 88 per cent cut of their profits. And just last month, Microsoft announced that, as of August 1st 2021, developers will receive an 88 per cent share of all Microsoft Store PC game sales as well.

THE STANDARD

Joost van Dreunen,
co-founder of SuperData Research

These cuts have come alongside developer-friendly language from Microsoft, and outright criticism of the 30 per cent status quo from the likes of Epic Games’ Tim Sweeney.  But if the 30 per cent cut is so unjust, how did it become the industry standard in the first place?

“The games industry inherited the 30 per cent rate from adjacent entertainment markets that are largely commodity-based,” says Joost van Dreunen, co-founder of SuperData Research. “In the context of selling a discrete song, an album, or a movie at a set price, a platform holder makes money only one time, during the transaction, regardless of how many times you listen or watch it.

“That is different in the case of games, especially free-to-play titles, where players make repeated purchases. Games are not commodities; they are assets that appreciate in value over time.”

“In the premium games space, I think 30 per cent was a compromise based on a typical past share for retailers of physical games,” adds Ampere Analysis’ Piers Harding-Rolls. “A 30 per cent cut was adopted by Steam, then adopted by the console storefronts and then subsequently used by the App Store when it launched in 2008. It’s worth noting that 30 per cent is a standard across a lot of storefronts and territories but not all. In fact third-party Android app stores in China routinely take a 50 per cent revenue share.”

It’s important to note that not only can the revenue split be much higher, but that sometimes 30 per cent can be considered a fair split – depending on the platform, anyway.

“I think there are a number of platforms where 30 per cent can roughly be the “right” platform take,” says No More Robots founder Mike Rose, “especially platforms that provide way more than just a place to publish your game – analytics, signal boosts, QA, great store tools etc.”

With that said, how unpopular is the 30 per cent cut really? Is it a legitimate burden on developers, or has this conversation been drummed up to help sell the Epic Games Store? Well, it depends on when you asked that question. In many regards the 30 per cent cut made a lot more sense in the past than it does today.

“When first introduced, 70 per cent revenue share was appealing because the cost of physical media, the license cost (for console games) and the distribution meant that digital sales offered more margin than physical sales,” says Harding-Rolls.

“Attitudes have changed towards these shares I think partly because multitudes of smaller developers have come into the market enabled by cheap distribution via Steam and the app stores, and because a major share of content monetisation is now through IAP or in-game spend. The continual storefront ‘tax’ on this recurring spend for all games irrespective of how much they are making couldn’t have really been predicted when the 30 per cent share was first established.”

And to be fair, developers and publishers aren’t exactly going to ask for less money, now are they?

“It does in general feel like devs and publishers are becoming more and more annoyed by the 30 per cent take,” says Rose, “but realistically, that’s the only way it could go, right? No-one is going to be saying “I think platforms should be taking more”, so really the only two responses are ‘30 per cent is fine’ or ‘30 per cent is not fine’, and arguably we’re going to hone in more on the negative responses.”

PR PUSH

Piers Harding-Rolls, Ampere Analysis

Still, regardless of how a majority of developers and publishers feel, the pushback against the 30 per cent cut has less to do with passing on profits to game creators, and more to do with competing with platforms like Steam.

“Epic and Microsoft’s decision to relent on their store rates on PC is part of a competitive push to capture market share,” says Van Dreunen.

“By subsidizing creatives, they hope to attract more and higher quality content for their platforms and grow their overall audience. Valve had no choice but to follow Epic’s example to prevent an exodus. It is important to note that Microsoft did not change its rates on its console.

“What used to be a platform war between dedicated hardware devices is now one between digital store fronts. Their most effective weapon in competing with each other is lowering rates.”

“Epic coming in with the 12 per cent cut certainly kicked this whole argument into the stratosphere,” adds Rose, “but on a cynical level, I don’t think Epic really did this to be ‘the good guys’ – they did it because they knew that launching a new store, and being able to say ‘our competition take 30 per cent, we take 12 per cent’ would be great fucking PR. Epic are also so loaded, that taking 12 per cent and making a loss isn’t an issue for them. So if I was being super cynical about it, this whole argument–conversation has started from a weird marketing ploy in the first place, which makes it a bit icky for me.

“Anyone offering 12 per cent or similar is just doing it as a way to make people talk about them more. I mean look, if we’re honest, 12 per cent is nothing – I imagine it’s barely enough to cover most of the costs that come from the side of the stores. So I personally just feel a bit weird about the 12 per cent. I can understand people saying that 30 per cent is too much, but arguably, 12 per cent is just too little, and doesn’t even give the platform enough skin in the game to care about your sales.”

Maybe 12 per cent is too little in some regard, but if Epic wins its case against Apple, there’s potential for serious ramifications across the industry. If Epic is victorious in its case, will that have a knock-on effect across other platforms?

“Yes, and I think ultimately this could be highly disruptive to the console market,” says Harding-Rolls.

“It’s clear that Microsoft is already considering the idea of reducing its take rate on Microsoft Store on console, but has deep pockets and probably wants to harmonise its storefronts anyway sometime in the future.

“It just reduced its PC storefront to 12 per cent. Sony is more exposed to an industry shift of this kind as it has a substantial digital business and would need to think of other ways to replace this high margin revenue stream. Nintendo is less exposed because of the dominance of its first party content, but it is building its digital business strongly and will also be negatively impacted by any change in policies.”

AFTER THE BATTLE

Mike Rose, No More Robots

Although that’s if Epic wins, which is certainly not a foregone conclusion.

“I do not think Epic will win this case in legal court,” says Van Dreunen. “However, it has managed to successfully expose Apple as a rent-seeking landlord in public court, so to speak. And while this may impact the rates we see elsewhere, I expect there to be varying store rates across different platform categories: console are relatively expensive and will therefore continue to charge more than, say, PC.”

“I think whether Epic wins or not, we’re already seeing a knock-on effect, and we will continue to do so,” adds Rose. “The pressure that continues to mount is definitely a good thing for dev and publishers, but again, I just kinda wish it wasn’t coming from such a weird place!”

So, hypothetically speaking, let’s imagine that 12 per cent becomes the norm across the industry. What benefits would there be for both game creators and consumers?

In their lawsuit against Valve, Wolfire games claims that the 30 per cent cut results in publishers charging higher prices for their games. If 12 per cent were to become the norm, would those savings be passed onto the consumer?

“Not likely,” says Van Dreunen. “The cost of game development and marketing always rises. And you have to remember that no one is making the argument that players cannot afford games; they argue that platforms claim too much for the services and access they provide.”

“I highly doubt consumers would see the benefit directly,” adds Rose. “From my perspective, this is a way to make our industry a more viable place to actually build a career, not to pass savings on to consumers. Maybe some studios will see it that way! But I imagine 99 per cent will just be happy to actually make some money.”

Much of this conversation is hyper-focused around PC and mobile storefronts, thanks in no small part to Epic Games. But what about consoles? The major platform holders in the console space all claim 30 per cent too, are they doing enough to justify that?

“‘Enough’ is a tricky term here,” says Van Dreunen. “But it is important to remember that a large part of the console market still relies on the distribution and sales of CD-ROMs. The distribution of physical units is an important part of what console platforms provide publishers. Sony, Microsoft, and Nintendo also invest more in the ecosystem than their mobile counterparts.”

“The console market is structured differently to the non-dedicated device markets,” adds Harding Rolls, “as there are costs involved in hardware R&D and selling that hardware for a loss in many cases. On average console gamers are very engaged and spend a lot on content, so delivering that dedicated audience offsets the share taken by the storefront to an extent. This is still better for the publisher than selling physical games. However, if there is a general industry shift away from 30 per cent and Microsoft was to adopt it on Xbox, I think the pressure on the other platform holders would grow.”

Still, the conversation for now will likely remain centred around PC and mobile platforms. Which brings us back to Steam. Given its dominance over the PC marketplace, is there currently any real incentive for them to drop their cut, despite the criticisms?

“It depends if there is an industry shift across most storefronts,” says Harding-Rolls. “I could see Valve making more concessions if there was a substantial swing away from 30 per cent.”

Although Van Dreunen is less convinced about that…

“Sure. Valve will lower its rates immediately after it releases Half-Life 3.”

About Chris Wallace

Chris is MCV/DEVELOP's staff writer, joining the team after graduating from Cardiff University with a Master's degree in Magazine Journalism. He can regrettably be found on Twitter at @wallacec42, where he mostly explores his obsession with the Life is Strange series, for which he refuses to apologise.

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