Steam could be profitable with an 8% cut rather than 30%, says Tim Sweeney

Tim Sweeney

Would you say digital distribution has been a good or a bad thing for the games industry? Compared to going to a brick-and-mortar shop, it offers customer convenience and - supposedly - greatly reduced costs for developers.

But Tim Sweeney, the co-founder of Epic Games and the man behind the Unreal engines, says the system still has serious problems - to the point of being “broken.”

No transaction costs for you - unless you like cosmetics - in the best free PC games.

“The game market system is pretty unfair,” Sweeney explained at a keynote address as part of Gamescom’s Devcom. “All of the app stores take 30% [of revenue per transaction]. That’s strange, because Mastercard and Visa can do a transfer for three dollars.” Sweeney also gives the example of a hundred million dollar transaction that just took place with Bitcoin, with a total transaction cost of just a couple of cents.

To name names, both Steam and GOG take 30% of your money when you buy a game on their platforms. Given the minimal costs to them, Sweeney reckons there’s no reason for such a high cut - even if it is a better deal than devs would get at a physical store.

“CDN [Content Distribution Network] Value is one percent of your revenue,” Sweeney says. Given this, “it’s very difficult to see that app stores need more than seven to eight percent of revenue. I think you could quite easily run an app store on [a cut of that size] and still make a significant profit. They’re not really helping any more.”

Sweeney also says that, because the most marketed games get the most sales, developers still need to spend big to turn a profit, irrespective of the advantages of digital distribution. 

“Top charts are dominated by games that are spending huge amounts on marketing. So we have to spend on user acquisition, we can spend on ads - companies are paying approximately three dollars per install. We have to acknowledge this as a market failure. Most of the money made goes to middlemen: app stores, social networks. This is broken. I don’t know how we can solve this.

“We should not accept this as a status quo,” Sweeney continues. “We should constantly be on lookout for better solutions. We should look for ways to cut past the middle men.”

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Darkedone02 avatarMrJinxed avatarJezcentral avatarDroniac avatarDecal141 avatar「Spaerk」 avatar+5
Droniac Avatar
103
3 Months ago

The comparison to payment providers is silly. MasterCard doesn't host servers that provide you your product, nor update that product, nor maintain it, nor maintain backend services for its (ongoing) development, nor invest heavily in development of its systems and new features, etc, etc.

He's probably correct in stating that 30% is way more than they need to make a profit. 8% may even be accurate. But that comparison is just completely off - app stores are not comparable to payment providers.

9
hfm Avatar
249
3 Months ago

I came here to agree.

1. Payment Provider

2. CDN (it does cost to have worldwide data centers)

3. Community + User submitted content

4. Overlay tools

5. Game updates

6. DLC integration

7. Mod integration

8. Paying development staff

9. Making keys avaialble for packins

10. Platform gift certs

11. Lawyers for legal problems

the list goes on and on and on..

Arguing that a complete platform like steam is the same as a payment provider like Mastercard or even Paypal is just the definition of false equivalency.

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NihlusGreen Avatar
640
3 Months ago

Also, unlike a traditional retailer (whom often have the same 30% margin), Valve doesn't have overheads of advertising, shop frontage, shop rental, storage and distribution of physical goods, all across multiple sites in multiple cities with employees to match.

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「Spaerk」 Avatar
90
3 Months ago

They don't just offer the transaction service though, they offer their userbase and the ability to advertise your product towards them.

The larger publishers could easily distribute their software themselves, and a couple of them do.

The problem of having to advertise wouldn't diminish if Steam took a smaller cut and I somewhat doubt that the games would get cheaper, too.

4
Darkedone02 Avatar
106
3 Months ago

If Valve and GOG took Tim Sweeney's word, would this mean reduced prices overall on steam and gog?

1
Jenks Avatar
346
3 Months ago

I've only read this brief article and not anything else he's said on the matter, but I don't see "his word" implying anywhere that prices would be reduced. He's talking at a developers conference, and I'm pretty sure is the implication is that developers should see a larger cut of each sale, rather than middlemen (storefronts).

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Decal141 Avatar
47
3 Months ago

Has anything ever resulted in reduced prices?

All this means is Valve would inflate the prices or force the companies to raise their prices.

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DustyGerkin Avatar
190
3 Months ago

Nope. The games would still sell for exactly the same price, creators would get more but they would very likely keep the prices the same. Why change them?

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MrJinxed Avatar
909
3 Months ago

I hope something comes along that will outdo steam. Valve was great for kicking off the digital games era, but I'd much prefer if we had some choice, so we weren't essentially forced to go with Steam for everything. Yes, sure, there are other ecosystems, but they aren't anywhere near as good. Origin, Uplay, Gog. Even if you were combine the three, they still wouldn't be a serious competitor to Steam.

1
Lolssi Avatar
350
3 Months ago

Gog is far superior to me since I can play those games stand alone without Galaxy if I want. Unfortunately not many big developers sell their games there.

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MrJinxed Avatar
909
3 Months ago

And that's why they're not a serious competitor to steam.

1
Jezcentral Avatar
520
3 Months ago

I'm all for Valve giving up a piece of their cut if it makes them concentrate on earning money by making games. *whispers* Left 4 Dead 3, Left 4 Dead 3.....

0