Zen Of Design

The design and business of gaming from the perspective of an experienced developer

Category: Business Models (Page 1 of 10)

The Epic/Steam War is Here And Game Devs are All For It

April 6, 2019 /

It is possible to both think that Steam has been a remarkable and amazing part of the gaming ecosphere, and still be excited that they’re no longer getting a free ride.
I’m not kidding.  Steam is great.  It’s the first thing I install on any new computer I acquire. It’s intuitive at what it does, full featured, and run by a generally responsible organization.  It probably single-handedly saved PC gaming, definitely has been the engine that drives indie gaming for the last decade, and will be a pillar of the industry for years to come.

That being said, I’m super excited by the Epic Store as a developer, and I hope they get more exclusives.  I summarized my theories in this thread – this blogpost expands that thread.

Let’s back up.  This week, it was announced that Gearbox and their publisher would release the PC version of Borderlands 3 on the Epic Store as a six month exclusive.  This prompted the easily excited outrage monkey portion of the video games audience to lose their shit — I mean, really stupid shit.  So let’s break this down a bit.

The economics of the games industry are dumb.  AAA games have cost $60 bucks for a long time.  It’s a weird purgatory – the price hasn’t increased with inflation, largely because the beancounters think that if you go higher than $60, a game is more expensive that something that Grandma will want to buy little Timmy for Christmas.   On the flip side, and I swear this is true, gamers are so used to $60 price tags for games that they immediately suspect that any game with a lower price tag is automatically lower quality.  So AAA games have stuck at $60 as the default price for a while.

You ever wonder, when you spend $60 bucks for a AAA game, where it goes?  Here’s one breakdown.  If you buy the game at Best Buy, less than half of that ($27) goes to the developer/publisher. If the developer and the publisher aren’t the same entity, the developer gets a small portion of that – 20% maybe.  So call it $5 bucks, and the developer doesn’t see a cent until the development costs of the game are recouped.

Eagle eye observers will note that a lot of these costs just don’t APPLY to Steam.  Steam games (and all box PC games) don’t pay platform royalties.  They don’t have to print CDs.  The costs of handling unsold inventory are unnecessary.   So while Steam demands a slightly higher percentage (30%) than Best Buy (25%), the lack of other costs meant that Steam was a better deal for developers.  Put another way, Activision makes about $27 selling a Playstation Call of Duty at GameStop, and about $42 selling a PC CoD to you on Steam.  That’s… pretty awesome!  Developers vastly preferred it if you bought their games on Steam, because we like paying our mortgages. Yay Steam!

In late 2018, Steam improved that number dramatically for AAA developers (because screw indies, amirite?) so that once you sell more than $10M, their cut drops to 25%.  Sell more than $50M, their cut drops to 20%. Suddenly a megahit like Call of Duty is earning $48 per copy (once they sell a few hundred thousand copies).  Outstanding!  And you also get Steam features like Cloud Saving.

But then Epic upset the apple cart.

The Epic Store deal is really good. Epic is undercutting this deal significantly, taking only 12% of a cut. Suddenly, devs/publishers are splitting nearly $53 per box.  You don’t have to meet any kind of minimum threshold to get this.  This is really good.  REALLY good.  Yay Epic!

But it’s more than that.  Sales on the Epic Store also wave the licensing cost of the Unreal engine if that’s your engine of choice.  I believe that Borderlands 3 is using the Unreal engine. If that’s the case, that’s another 5% in their pocket that they don’t lose if you buy on steam.  Put another way, Take 2/Gearbox puts $52.80 cents in their pocket for every copy they sell on the Epic Store, and only $39-$45 for every copy you buy on Steam. 

According to Steamspy, Borderlands 2 sold 5-10 million copies on Steam.  Now then, not all of those copies were actually sold on Steam and certainly some of those copies were sold at discount prices during Steam Sales and the like.  Still let’s do some back of the envelope math here and pretend that B3 ‘fails’ by only reaching the lowest number there (5 million)

  • If 5M people bought the game on Steam, Gearbox/2K would enjoy a royalty rate of 30-20%, and they’d have to pay a 5% engine licensing fee to Epic anyway.  They’d get $222 Million, or $44.4 bucks per copy
  • If 5M people bought the game on Epic, no engine licensing fees, and a 12% cut, gets them $264 Million, or $52.8 bucks per copy.  

So in the worst case scenario, Borderlands stands to make $42 Million more dollars for 2k/Gearbox.  That’s a LOT of enchiladas.  I don’t know if Epic paid Gearbox/2K for the right to exclusively launch on the Epic store but they didn’t really NEED to – If Epic launched on both, they’d lose about 9 bucks per copy of Borderlands 3 sold on Steam.

The very nature of the Steam Revenue split encourages exclusives. Look at the revenue split for AAA again.  You only get the GOOD revenue split if you hit $50M in revenue.  My back of the napkin math means that you need to sell 834K copies before you start getting that number — on all copies AFTER that.  What this means is that, if you’re on Steam, every copy you sell on Epic Games or Discord or whatever is a copy that’s not pushing you to that threshold.  

The guys who came up with it probably thought they were encouraging developers to choose between one platform or the other.  They were probably right.  They’re probably just surprised as to which direction developers (especially those around the Metro-Borderlands size) are going to decide is the logical direction to go.

Exclusives are how platforms are sold. People keep saying ‘Epic should compete on its own merits, and not have to depend on exclusive content’ but, um, exclusive content has always sold new platforms – and that’s definitely what this is.  It’s a cornerstone of console gaming, for example, with great exclusives like God of War, Horizon Dawn and Spiderman being a cornerstone of why Playstation is kicking XBox’s butt this generation.  Console developers do this by buying studios entirely usually. But yeah, paying for the privilege of exclusive content is NORMAL.

And unlike exclusives for PC, there is a $400 price tag on the console if you want to play Horizon on top of the cost of the disc.

It’s not just games.  Exclusive content is the cornerstone of the business model of HBO and Netflix for example.  And let’s face it, Steam has thousands of de facto exclusive games, because that’s the only place those games can be played. 

In the absence of exclusive content, players will typically choose the platform that has the most inertia.  And to repeat, every copy of Borderlands 3 that is sold on Steam costs Gearbox/2K about 9 dollars.

Gamers should want more of the money they DO spend to go to game developers and publishers.  Games are expensive to make, and they get more expensive every year, as salaries rise, technical complexity increases and the costs of making content go up.  And yet, the box price of games has stayed constant. 

If more of this box price goes to the people who design, art, engineer and market these games, it reduces the need for us to have to resort to sell sparkle ponies and loot boxes or to increase the costs of the games in order to cover those increased costs. 

 People who think that the Epic Store means significantly fewer sales than Steam are probably deluding themselves.  First off, Borderlands is a huge, well-respected and beloved IP.  People will seek it out.  Selling your small, funky indie title on the Epic Storefront may not be a great idea because the store doesn’t yet have a critical mass – it’s not a place people go to shop for games yet.  But if you have a big, well-anticipated game like Borderlands (Borderlands 2 is still in the top 10 for daily plays on Steam), players will go and seek it out.  Being a seperate launcher didn’t hurt Starcraft, or Destiny, or the Sims.  Players will find Borderlands 3, wherever it lives.

And where it lives is pretty good.  Epic has the ability to drop an ad for Borderlands 3 in front of 250 Million Fortnite players with over 78 Million Monthly Active Users.  This is actually greater than Steam’s 67 MAU, although Steam still has a higher daily concurrency and everyone who opens steam is coming to shop, not play Fortnite.  Still, the people who think Devs selling on the Epic store think it will have a much smaller reach are probably in for a disappointment.

But still, the proof is in the pudding. And we have one test case so far, where Epic’s first exclusive (Metro Exodus) did 2.5 better on the Epic store than its predecessor did on Steam. And to some extent, you have to wonder if the relative sparseness of the Epic Store is helping.  Epic’s store is currently a highly curated experience of high quality titles.  In Steam, Metro was competing against dozens of similar titles, some years old.

Yes, this is capitalism — and the audiences are what’s being sold.  A lot of gamers are saying things like Epic is trying to be ‘monopolistic’ or that this isn’t capitalistic.  That’s because they’re mistaken about which customers are what are being fought over here.  

This is an EXTREMELY capitalistic, EXTREMELY competitive dance happening. But the customers being courted are developers/publishers like Gearbox/2K and 4A Games. What is being sold is the playerbases. YOU’RE the product.

Steam’s sales pitch is a 30%-20% revenue split, with the strongest PC customer base in the world and a robust, full featured back end and well-integrated payment systems that work with almost any payment system on planet earth.

Epic’s sales pitch is a 12% revenue split, with an audience that is as large (but unproven spenders), a free engine license and a much more curated store. And did I mention just a 12% revenue split? Did I mention that Borderlands is looking at somewhere around 40 MILLION DOLLARS in additional revenue that goes to game creators and publishers instead of the store?

Valve could end this quickly if they REALLY wanted to.  Their install base is hugely attractive.  If their revenue split were suddenly match Epic’s – or even get close – choosing Epic would be a very hard choice.  But doing so would mean losing a HUGE amount of revenue.  Valve is, I believe, taking a ‘wait and see’ approach to see if Epic congeals into a serious threat to their bottom line.

Anyway, if Red Dead Redemption also goes the Epic route, things are going to get heated very quickly.

I don’t want Epic to ‘win’ this war.  That would be just as bad as Steam keeping a monopoly on the marketplace.  I don’t want any one store to have a monopoly everything.  I want competition.  I want these guys competing for games to publish.  I want these guys to compete for customer eyeballs. 

Competition is GOOD. I’m happy that we may end up in a situation where there are two stores competing to make lives easier for game devs. I’m happy that Steam will be forced to clean up it’s act, and that Epic is hungry to offer innovations. And I’m disappointed that gamers are pissed off about it, and that some observers are milking this outrage for clicks and views.

Magic and Planned Obsolescence, Revisited

February 18, 2016 /

Last week, I wrote an article about how Hearthstone’s copying of Magic’s strategy of obsoleting old cards will probably result in very good things for Hearthstone.  One of the things that I forgot to mention is that Magic, themselves are changing the rules.  They are SPEEDING UP the obsolescence pattern.  And players are thrilled.

Magic used to ship a core set, a big base set and 2 smaller sets every year, and only cards shipped in the last two years were usable.  For a long list of reasons, they are switching to only two-set blocks (a large set and a small set), and every year they will ship two blocks.  And here’s the important thing: they are moving from a 2 year obsolescence pattern to one that is 18 months.

However, what’s notable is that people are thrilled not just because of the addition of new cards, but the removal of old cards that had caused the game to stagnate.

Development was trying to tackle the metagame problem of Standard getting stale too quickly. This new rotation would shake things up a little but it wouldn’t have enough impact to solve the problem. You see, a metagame is more shaped by what leaves the environment than what enters.

Put another way, currently everyone who doesn’t play with a card named Siege Rhino hates the card named Siege Rhino.  It’s so dominant a card that the entire format warps around it – either you play it, or you have to play cards specifically to deal with it.  Before the format change, players who were sick of this 18-month old card would have to endure it until this Autumn.  People at my gaming store are dancing a jig that it will rotate out this April instead when we return to Innistrad.  Magic routinely has had trouble selling their spring sets – most people instead choose to play less until the ‘big set’ comes in the fall if they don’t like the current metagame.  Clearly, they are hoping this changes.

Meanwhile, another format called ‘modern’ is completely fucked.  And the new set released a card that created a new deck so powerful that 44% of all magic games in that format now run that particular deck.  People are talking about this like it’s the armageddon.

Now is the part of the show where we have to understand that, logically speaking, the decks that are coming out of the woodwork to beat Eldrazi will not always beat it, and the decks that Eldrazi already has a very healthy matchup against (like Burn for instance) will still lose to it. This places Eldrazi in very terrifying company, because it means that it’s one of the most powerful decks in Modern that can still beat the decks dedicated to stopping it.

Modern will likely only get fixed by banning something – a path they are generally loathe to do, but likely will have to do in order to stop the collapse of what is normally a very popular format.

As for Standard’s move to 18 months – one interesting part of this shift in business strategy is that Magic announced this… in 2014.  I.e. they announced it before the cards they were about to ship would shorten to have only an 18 month lifespan in standard, in case that affected anyone’s purchasing decision.  I only call this out because it underscores how the Wizards of the Coast team is, and has been for some time, one of the class acts of the game development industry.

(And while we’re at it, Mark Rosewater’s weekly column is perhaps the best game design column there is).

Planned Obsolescence Will Probably Save Hearthstone

February 4, 2016 /

This week, Blizzard announced a new mode of play in Hearthstone called ‘Standard’ play.  In this mode, you can only play with the most recent set of cards.  If you want to play with every card you’ve ever collected, you can play in Wild mode.  But it’s almost certain that Wild mode will get less supported as time passes – they’ve already announced their eSports will focus on the new Standard mode.

I’ve seen some amount of outrage over these changes, but in truth, this has happened before – in Magic: the Gathering.  Magic spent years trying to figure out how to add exciting new cards to the game before stumbling upon the same solution.  Why does it work?

It makes for a much more confined problem set for design.  Magic is 20 years old.  Magic also has a non-standard version of the game called Legacy where players can play whatever they want – with only a handful of exceptions.  Turn 1 kills in Legacy are routine.  Because when you can combine every card that ever was, you can combine them in extremely unpredictable ways.  It’s impossible for the design team to foresee every possible broken interaction, so an ever widening pool of cards forces designers to make safer, lamer cards.

Even when there was a small number of cards – back in the Ice Age/Homelands/Alliances era, designers were desperate to not creep up the power.  The result was releasing a whole bunch of cards that were worse than the cards you already had, which resulted in Wizards not selling many cards.  Why buy new cards if they aren’t better than the old cards?  But if you make them better than the old cards, then the whole game starts to warp in unusual ways.

It allows for Magic to fully reinvent itself.  Red in Magic will always be about fast decks.  What a ‘fast deck’ means, though, varies wildly from set to set.  They can try truly different game mechanics, and really reinvent the game, which helps keep the game interesting.

It allows for Magic to fix mistakes.   A couple of years ago, Wizards printed a card called Thragtusk.  This card was so broken powerful that many decks would splash a little green mana just to cast it.  Wizards now admits it was a mistake.  But there’s a simple remedy to them – they just let the card rotate out of standard after a year.  And there was much rejoicing – much as there will be rejoicing when Siege Rhino goes away this fall.

It makes the game approachable for new players.  Yeah, a top-tier Standard deck will still cost you a pretty penny – I frequently run decks that run a couple hundred dollars.  However, a single copy of the best magic card ever printed has an asking price of $6500.  That’s a steep price to get into Legacy (and a reason why most game shops who do Legacy tournaments allow you to have some number of proxy cards).  That’s a level of investment that’s going to spook anyone thinking about getting into the game.

It sells cards – and people love it.  Yes, it’s true.  Crassly, this is a philosophy that will sell more Hearthstone cards.  And crassly, the Hearthstone team is in it to make Blizzard money, largely so they will still get to have a job.  But here’s the thing that’s lost – this is a planned obsolescence model that works.  Magic players LOVE when a new set comes out.  The game is reinvented.  Annoying strategies stop working.  New, interesting combinations become possible.

The standard format that Hearthstone is copying is what rescued Magic.  And not only that, it’s the cornerstone of why Magic is now enjoying some of its broadest popularity of all time.  Blizzard ain’t dummies – they know what works, and anyone who loved Magic was pretty much expecting Blizzard to eventually come to the same conclusion.

Derek Smart vs Star Citizen: Round Two

July 17, 2015 /

Derek Smart is still continuing his ongoing crusade against Star Citizen, most notably “the bullshit that is the ‘vaporware’ […] that RSI/CIG have foisted on […] legacy backers”.

“These bastards, most of whom were probably running around in diapers, rubbing poo-dipped hands on their faces, when I was earning my chops as a hardcore Internet Warlord, simply don’t know who they’re dealing with,”

Well, okay then.  Smart is responding to the fact that CIG responded to his initial calm, reasoned complaints by refunding his kickstarter.  This didn’t sit well.

“All you’ve done, is strengthened my resolve, and unwittingly broadcast to the world that you have something to hide by kicking me out as a backer,” he says. “I’m going to take out a full page article in the NY times, just to prove it.”

Feel free to click through to see (I am not making this up) Derek Smart’s list of demands.

Derek Smart Would Like To Talk About Star Citizen and Crowdsourcing

July 7, 2015 /

Yes, the Derek Smart who spent the 90s promising the moon before discovering that game designs should be small enough that they’re achievable.  Anyway, he’s learned a lot on the way, and that’s helped him forge some opinions on the current state of Star Citizen in the face that a planned FPS module of the game might not make it in, despite being originally promised.  And, for what it’s worth, I think he may have a point, and that point comes down to what it means for Kickstarter and games in the future.  But first, the basic conversation starter from Derek:

“This game, as has been pitched, will never get made. Ever. There isn’t a single publisher or developer on this planet, who could build this game as pitched, let alone for anything less than $150m.

Smart posted a longer update detailing his logic behind this, and to his credit, cites his own experience making the ultimate space game as a good start.

Continue reading

On Charging for Mods

April 26, 2015 /

This week, Valve released their pitch to allow mod creators to, in conjunction with the people who created the original game, sell their mods on Steam.  The whole thing erupted into quite a ‘thing’ on the internet, prompting Gaben to come placate the masses, and in general put me into the uncomfortable position of generally agreeing with Milo and Brad Wardell,.  So that’s weird.  But hey, at least the same article points out that Mark Kern is wrong.

Brad’s points not withstanding, when I think about mods, I think about game events that unleashed real, marketable change on the entirety of the games industry.  Off the top of my head, I’m thinking of LMCTF for Quake (among many others), Curse Add-on Management for WoW, DotA for Warcraft 3, and Team Fortress (1) for Half-Life.  In many cases, mods are as popular (if not more) than the base game.

One of the things that bugs me deeply is the team that had the idea for DOTA aren’t the ones that got rich off of it.  That honor went to Riot, who released the excellent if not entirely original League of Legends off of the core mod’s design.  Meanwhile, most mod creators, even if they are downloaded millions of times, are thankful they can turn that into a bullet point on a resume to get an entry level job.

It’s a sucky position for mod creators.  Many times mods amount to XPack quality of content that extend the life of their base games for years – they are vital in some game communities – and yet, mod creators rarely get anything for their passion other than an ‘attaboy’.  We would see more good mods if the mod creators got some revenue that reduced pressure on them to maintain a day job.

From that thread:

Considering valve is a company that owes many of its early games to mods, do you think that if you had to pay 5 dollars for the original Counter Strike, or Dota mod, would they have ever taken off?

Depends on so many things.  This includes the pricing, whether or not there was a free variant you could play, etc.  But it also includes the fact that Valve and Blizzard are more inclined to support and market mods that earn them a revenue stream.

Mods should remain free, yo!

Why should Bethesda and Valve get such large cuts of the profits?

Well, because Bethesda spent about $85 million dollars creating the artwork, engine and dev tools for the game that is central to the mod.  And Valve is providing an invaluable service in distributing the mods cheaply and easily.

Valve should let players donate what they want, including $0!

Valve has announced that that is part of their plans.

What if some mods suck?

You have 24 hours to turn around and ask for a refund.  The refund will go into your steam wallet.  Don’t pretend you’re not going to find something on Steam to spend your wallet on.

No, I mean, some of these mods REALLY suck.

In that case, you really want an integrated download system that allows for players to rank and comment on mods so you can review them before downloading.  You know, one kind of like Steam.  At any rate, half-baked stuff is no stranger to PC gaming.  Early Access remains highly controversial, yet some love it, while many (probably most) others have learned that anything on that part of Steam is caveat emptor.

At any rate, selling mods IS NOT NEW.  Wardell’s company has done it for years.  Second Life has done it for years.  Nexus has done it for a while now.  Why people choose to get worked up because one of the most trustworthy names in the market has come along and said they want to extend that level of trustworthiness to a new arena is one I find kind of baffling.

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