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Valve creates new revenue sharing tiers to give big sellers a break

156 points| 2calazm | 7 years ago |gamasutra.com | reply

184 comments

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[+] PakG1|7 years ago|reply
I actually am surprised that services like Steam, the Apple App Store, and Google Play are able to command as high a margin as they do for sales commission. I mean, it's obviously possible because it's reality, but it's nonintuitive. I wonder if it will continue to be that way. For iOS, you don't really have a way to install apps outside the app store without jailbreaking, but you do for macOS, and I've seen a number of high-profile macOS titles decide they're not going to sell on the App Store anymore. That's gotta damage the moat somehow and thereby damage the App Store's ability to maintain its commission margin (eventually?). I wonder what it would take to get that to happen on the iOS side. So long as the iPhone remains a market leader, I guess I don't see anything changing.
[+] jrockway|7 years ago|reply
Collecting money is an important part of a business, but also not trivial. It therefore makes sense that people would outsource this. If you get big enough, you probably don't want a middleman in the way; this is why companies like Blizzard have their own store/launcher app. For everyone else, whatever they take is cheaper than having their own army of software engineers, lawyers, billing phone support, etc. In a world with Steam, as a game company, you don't have to worry about collecting money (and the associated customer support) and distribution. You can focus on your game. That is valuable, which is why people pay for it.

I work at an ISP. Billing is a constant influx of "interesting" requests that I would love to outsource so our software engineering team could focus on stuff specific to our business. But we never found a service that could do it better than our homegrown system.

Every week there are several one-off issues like "I overpaid because I didn't see the service credit" or "I would like to pay for the next 3 months in advance" or "my accounts payable department sent the wrong check, can you shred it and we'll pay with credit card". These things have to be handled manually. Not to mention people calling to change their payment method because they don't remember their password to the website, or just want to chat. All that is a drain on actually running the business, but unavoidable. You can't just say "nah we won't shred your check", so someone has to go find it and deal with it. While they're doing that, they're not making our product more innovative or reliable. They're running a check through a shredder. Anyone could do that, but unless you have 8 hours of check shredding to do a day, you are spending CFO salary on the task instead of check shredder salary on it. Therein lies the problem.

If this could all be outsourced, I'd pay a lot of money for it. So would any business. Billing is something you have to do if you want to collect money, but it's a time sink. Game developers don't have to worry about this, and generally seem OK with that. I don't blame them. They are lucky Steam exists.

[+] dogma1138|7 years ago|reply
Brick and mortar stores pay about $45 for a $60 dollar game, and have additional bonuses for sales targets.

Some larger publishers operate on a different scheme similar to the large DIY and big box stores in which they “rent” shelf space, pay for promotional services and share a smaller percentage of each sale revenue.

A lot of times there are other restrictions such as game stores need approval for things like unofficial bundles e.g. if they want to bundle a specific game with a console outside of officially branded promotional bundles.

I think the big problem with Steam at least as far as big publishers go isn’t that they charge 30% this is about the same as other channels but that the big publishers have their own distribution platforms atm.

If you buy an EA, Activision or Ubisoft game on Steam atm you don’t download it from Steam you’ll download it from the Publisher via their own client.

Granted they caused this problem to themselves by trying to compete with Steam but they still bare the majority of the cost these days.

[+] methodover|7 years ago|reply
> I am surprised that ... are able to command as high a margin as they do for sales commission.

Yep. Me too. I’ve long thought that Steam charges way too much considering the platform. There would seem to be tons of room for a competitor to undercut Steam. I’m excited about Discord’s new store.

Revenue share is a killer for a business, especially as one as volatile as computer games. Any game needs to be 25% better than it otherwise would have been because of Steam’s revenue share. Does it really bring that much to the table? In 2018? Enough to justify their absolutely enormous cost?

[+] TangoTrotFox|7 years ago|reply
Then you have the privilege of having not been in independent game development before Steam then! Steam takes about 30% and that comes with little to no stipulations. You can go put your product on other platforms, you can generate steam keys and then sell those keys off platform (and take 100% of the revenue), and from the very first sale you get ~70% of the revenue.

In the age before Steam you had to approach a publisher to get your product out there. And in those days getting a 70% deal would have been amazing. Except back then 70% meant something rather different. The publisher was getting 70% and you received 30% in "royalties" (and generally substantially less than 30%). Oh and you received $0 in "royalties" until the publisher cleared 100% of their costs. And finally of course you had to relinquish nearly every right to your IP as well.

I wouldn't underestimate the value that Steam adds. They take care of all financial related issues including trust, facilitate 'advertising', provide a captive audience upwards of 125 million, take care of data hosting (which can be a very significant issue in large-size products), and more. I'm sure they could get by with a smaller margin, but at the same time I think 30% is a pretty reasonable rate for the value they add.

[+] mbesto|7 years ago|reply
> are able to command as high a margin as they do for sales commission.

People are surprised that the entity that controls distribution and maintains the relationship with the customer can command whatever premium they want?

I don't know how to say this any in any non-snarky way, but this is business 101. Control distribution = control the market.

[+] user5994461|7 years ago|reply
>>> I actually am surprised that services like Steam, the Apple App Store, and Google Play are able to command as high a margin as they do for sales commission.

What makes you think that they have high margin? It's not like each game creators could run a worldwide distribution and payment operation with just a few percent more of revenues.

[+] AmVess|7 years ago|reply
25% is a steal. They handle all the financial transactions and host and distribute the game files on the most popular client on the planet. They also handle the security.

Handling your own billing is expensive and time consuming. Setting up your own distribution and hosting is also expensive and time consuming, and then there's the bandwidth cost.

All this adds up rather quickly. Having someone else do the business end of selling games, and only for 25% is a bargain.

[+] mtgx|7 years ago|reply
The reason Google and Apple are able to command such high commissions, it's because they are monopolies in their own markets. Most people who want iOS can only buy iPhones and use the app store. Most people who want to use Android, tend to buy Android phones and don't switch to iPhones.

As such, Google and Apple's app store's don't really have strong competition against each other. Plus, most developers pretty much have to build apps for both anyway. Their respective markets are huge enough.

Steam, on the other hand, although it had its own monopoly of sorts in terms of "central gaming repository", it's always had high competition from game developers releasing their games outside of Steam, and more recently GOG has become a direct competitor, and EA and a few other huge gaming companies started their own central repositories and keep their games off of Steam.

This is what forced Valve to make this move now. Competition virtually always favors the consumer (the companies, too, in the long term, as they are forced to improve their products, but that's another issue and most companies are too short-sighted to see that by themselves), and we're seeing yet another example of that.

[+] 55555|7 years ago|reply
Monopolies often charge around 30%. Google ads, App store, Play store, cell phone billing for subscription numbers, etc
[+] c3534l|7 years ago|reply
I tried to look up what Steam's profit margins are, but I can't find any good information on it, just a lot of confused people pretending as if they're an authority on Steam's finances, but who don't even know the difference between revenues, profits, and commissions. Does Steam have a high margin? I don't know. It could cost more than you think to run Steam. Or maybe it costs a lot less - I really don't know.
[+] sorenjan|7 years ago|reply
Epic haven't put Fortnite on Play store, they distribute it themselves instead. It's probably easier on Android than iOS.

30% is ok for small to medium developers to not have to deal with payment and distribution, but large companies like Epic, Blizzard, EA, and so on doesn't need that. 30% is way too much, Google and Apple doesn't add 30% of the value to a AAA game.

[+] ineedasername|7 years ago|reply
Think of it like having your food brand be in the supermarket. Sure you can open your own stand alone stores but then you have to build and manage that infrastructure yourself, and your audience is a very small fraction of the traffic the supermarket gets. Practically no one sees your product without even more overhead in advertising and marketing.
[+] pier25|7 years ago|reply
It's not surprising. Users want convenience, specially on mobile. Even on Android very few users would buy outside the Play Store.

On desktop it's different, at least for a portion of users. I prefer buying outside the Mac App Store, but I know users that were first introduced to the ecosystem in iOS and had never considered you can but software outside the MAS.

[+] wdr1|7 years ago|reply
> I actually am surprised that services like Steam, the Apple App Store, and Google Play are able to command as high a margin as they do for sales commission. I mean, it's obviously possible because it's reality, but it's nonintuitive.

Why?

[+] wging|7 years ago|reply
For the iPhone monopoly, I think you should keep an eye on Apple Inc. v. Pepper.
[+] jamp897|7 years ago|reply
Many larger studios are working on self publishing and have projects in the works. The percent that Valve takes even at 20% is still too high, but the bigger issues is that Valve locks up your users so when you make your next game you have to reacquire them, ownership of ones users is the key due to this issue. We’ll see how they fair over the coming years but this does look like they’re starting to wake up a bit to how unhappy execs have been with Steam stagnating and reaping 30% still.
[+] Praxish|7 years ago|reply
As an entrepreneur in this space, I'd be okay with 20%. The issue is the current thresholds. I'd want it to be 20% over $1M not $50M. Around a million it starts being worth it to handle credit card processing, chargebacks etc.
[+] acomjean|7 years ago|reply
This makes sense. the share drops to 25% after 10 million in sales. and more after. One would imagine that there is some fixed cost for adding new titles and maintaining steam store. After a certain amount of sales the cost per title is just bandwidth so steam is making more per game anyway.

Its also a hedge to prevent every large game seller from setting up their own store. Even if you are large its cheaper to use steam.

[+] jsheard|7 years ago|reply
> Its also a hedge to prevent every large game seller from setting up their own store.

That ship has already sailed - EA has Origin, Ubisoft has Uplay, Activision/Blizzard has Battle.net, Microsoft has the Windows store, and Bethesda and Epic have their own launchers.

Nearly every major publisher has already made the investment to develop their own store and digital distribution infrastructure, so they have little reason to pay the Steam tax now.

[+] cma|7 years ago|reply
I'd say it is almost 100% the latter and the former barely plays into it. Their announcement even essentially says they are compensating the big players for the "network effect" their games provide to Steam.

Big publishers and games have been going on their own and doing ok. This is a move to keep them around, while using the players that they bring to sell other games at the old Steam margin.

[+] kbwt|7 years ago|reply
> One would imagine that there is some fixed cost for adding new titles and maintaining steam store.

I would imagine that it's mostly automated, similar to the Google Play store. If anything, it's the developer bearing this cost to create the listing.

[+] seanalltogether|7 years ago|reply
Some of the big publishers have been requiring user accounts on all their AAA games sold through steam, so I think Valve knows it won't take much for these guys to switch to exclusive sales through their own platforms if Steam becomes too costly.
[+] scoot_718|7 years ago|reply
Is that what's behind that crap? Too many games require some fucking account I don't care about, when it should be linked to steam.
[+] beerlord|7 years ago|reply
I feel uncomfortable that smaller developers will be less profitable because they... don't have as much negotiating power?

Valve is being very Walmart-esque with this move.

Already game developers are the lowest paid workers in the IT industry - and a lot of it has to do with the huge revenue shares ('platform taxes') charged by the monopoly platform holders.

I'm not arguing against any change, it just seems spiteful that Valve are sticking it to the little guys who can't go anywhere else. If those tiers ($10m and $50m to reach 25% and 20% respectively) had a zero removed from them, I would be more understanding.

This could have been a great chance to improve Steam overall, by reducing the commissions for all developers (in order to fend off a future Epic store - one undoubtedly tied into UE4, and probably with a 12% commission, based on statements from Tim Sweeney), and increasing the quality on the low-end slightly with a Steam Direct fee increase from $100 to $500.

[+] philjohn|7 years ago|reply
On the other hand - the big publishers need Valve less, so from a purely business perspective it makes a ton of sense to keep them on the platform, which is the biggest storefront for purchasing games.

Yes, smaller developers have to pay more, but they're getting a heck of a lot of exposure for that take, without having to spend big on traditional advertising like the large publishers have to.

[+] simias|7 years ago|reply
>Already game developers are the lowest paid workers in the IT industry - and a lot of it has to do with the huge revenue shares ('platform taxes') charged by the monopoly platform holders.

I'm not convinced. IMO game developers are lowest paid because it's one of the rare segments of software development where there are no shortage of applicants. It's glamorous, all the kids want to make video games when they grow up, it's more rewarding to tell people that you've been working on the latest Red Red Redemption than that you've been debugging an SPI driver all week.

So you end up with an industry with a lot of turnover because they mostly hire hopeful young devs, underpay and overwork them until they burn out. And then you have 10 new freshly graduated folks waiting to take their place.

I seriously doubt that things would be massively different if platforms where cheaper or more open. I mean, AAA studio like Rockstar are known for their terrible working conditions, I don't think that's because of "monopoly platform holders".

[+] rochak|7 years ago|reply
That will be sad since most of the games I buy are from indie developers. They put good amount of work in their games and don't charge much too. If Valve keeps doing this kind of stuff and forces them to move to other marketplaces, I will move too.
[+] zeroname|7 years ago|reply
> Already game developers are the lowest paid workers in the IT industry

That is not true if you factor out all the people developing games independently on their own dime, against better financial advice. To counteract that, there just aren't enough developers working on enterprise Java architecture for no money, out of passion.

It's also only fair that people who get to work on "fun" things like games are paid less. If they don't think it's fun, they can switch industries and earn more. Nobody is doomed to be a game developer.

> I'm not arguing against any change, it just seems spiteful that Valve are sticking it to the little guys who can't go anywhere else.

The little guys can go to itch.io, which charges as low as 0% commission. They may even have more visibility on there than on Steam, given that it's a smaller pond. There's also the Humble Store, which leaves commission up to the buyer.

> This could have been a great chance to improve Steam overall, by reducing the commissions for all developers...

They did reduce commissions for everyone by 5%. The extra 5% is for those who are at risk of moving off the platform because they can create their own visibility.

[+] newnewpdro|7 years ago|reply
It seems obvious to me that Valve should have a micro tier for the small indie space, by effectively making everyone else subsidize them. Something like 5% until crossing $30,000 in revenue.

This can be a life-changing difference for individuals couchsurf-hacking while trying to break into the game industry on their own; 28.5k vs. 21k. I highly doubt this would move the needle at all on Valve's end.

Do they already have anything like this or are the little guys paying the ~30% I see being thrown around?

[+] ksec|7 years ago|reply
So what exactly is "Valve" now without Steam? They don't have new games any more ( And none of the the "newer" ones were anywhere as good as CS ). They don't improve or compete in Game Engine any more, which they did in the Golden Era between Unreal, DOOM, and Source.

What have they got left? Steam OS and Gaming Machine got no where. HTC Vive doesn't look like they can compete with Sony or Oculus.

[+] mentos|7 years ago|reply
As an indie dev this is great news for me. Hoping Valve may come around and just drop the share to 20% for everyone eventually and then I won't have to forgo a salary to keep my 4 person studio alive.
[+] beerlord|7 years ago|reply
Valve have shown that they will do nothing unless their hand is forced.

Your best bet is an Epic Store, which will hopefully charge commissions of 8-12%.

https://www.neogaf.com/threads/tim-sweeney-not-sure-why-stea...

https://www.theregister.co.uk/2018/08/29/app_store_duopoly_3...

Valve and the other large platform holders know that if they abandon 30%, there is no going back. Over time that 'platform tax' will get pushed lower and lower, until it basically reaches the marginal cost of transacting the sale and bandwidth. They are trying to hold that off as long, long as possible. At this rate it could be 100 years though.

[+] theclaw|7 years ago|reply
Why? You are now paying a higher rate than the big guys. 20% across the board would have been the right move, not this.
[+] franknine|7 years ago|reply
This is definitely going for big AAA publishers. As Activision moved their latest Call of Duty from Steam to Battle.net, there are only Take-Two and Square Enix who haven't rolled their PC store.
[+] georgeecollins|7 years ago|reply
Part of the reason why this is happening is because Twitch and Discord are going to compete for this market. This is good news for game developers and I am glad Steam is doing it.
[+] simplysimple|7 years ago|reply
So Valve is giving breaks to the big developers/publishers that don't even need them?
[+] adamrezich|7 years ago|reply
I don't know if anyone's noticed the unprecedented price-slashing that's been happening in AAA games this year but I think we may be in for another AAA game crash. For indies I don't think it's much better unless you're one of the Big Names in that space.

(Incidentally, getting into making games professionally through any means other than self-funding seems basically impossible at the moment.)

Any other perspectives on this?

[+] Zelmor|7 years ago|reply
Valve's cuts are fine. I remember the times when developers were glad if they got 20-30% of the profits in general, with publisher deals starting at 70% cuts for IP-first game releases, and way higher if it was your first game. This after you pitched the game with a tech demo running, of course.

Steam is a blessing on digital distribution, and the most competent platform to date, albeit it has its problems.

[+] Zren|7 years ago|reply
* First $10M = $3M Valve + $7M GameDev

* Next $40M = $10M Valve + $30M GameDev

* Next $50M = $10M Valve + $40M GameDev

Assuming your game is expected to generate $50M in revenue, is giving up $13M (26% of revenue) for bandwidth + servers + store handling credit card info + credit card fees + technicians + support staff worth it over rolling your own? Or $23M if it's expected to make $100M?

[+] spatz|7 years ago|reply
> for bandwidth + servers + store handling credit card info + credit card fees + technicians + support staff

You're forgetting exposure and huge player base. That's got to add some revenue...

[+] swift532|7 years ago|reply
Don't forget exposure and people like me who can't be bothered to buy a game if it's not on Steam or GOG.
[+] shmerl|7 years ago|reply
They should have given even a bigger cut to those developers who release Linux versions. It would be a good incentive to push more of them releasing for Linux.
[+] campercoder|7 years ago|reply
Thats great.. charge big companies less. :(