“We f*cked up on many levels. No other way to put it: a new business model for Unity was announced in a way that was hard to understand, but it also missed a bunch of important ‘corner’ cases, and in central ways ended up as the opposite of what it was supposed to be. Now to try again and try harder. I am provisionally optimistic about the progress. So sorry about this mess.” -Former Unity CEO Matt Helgason, 9.18.23
Matt, Thank You For Your Honesty
Following their shocking new terms, we still await official news from Unity. Both the former CEO’s comments above, along with a report from Bloomberg, indicate that it is coming soon.
Many complained (see developer reactions below) that the terms were devastating to indie developers, while less impactful for AAA developers. The company even said that these fees only affect 10% of all developers using their services. What Unity may have missed - the bulk of all game developers are indie. And as creator platforms proliferate, along with accessible tools, the number of games made by smaller and smaller teams will also proliferate. On the consumer side, indie developers create the bulk of hyper casual games, which are played by billions. Understanding the culture and mindset of game developers is something that we admire about Epic Games’ CEO Tim Sweeney, who has surely picked up significant share since this news hit.
Despite the drama, the fact is that Unity provides tremendous value to the video game industry. We have always viewed Unity’s game engine and Epic’s Unreal Engine as two ships which will both benefit from a rising tide of a proliferation of game engines, both in gaming and outside of gaming. Big picture, as we continue to see economies bubbling up in online spaces, these game engines will grow in use beyond the gaming sector. One might even argue that Unity is further along than Epic in the quest to seed other markets with game engines. On that point, I was in a friend’s Rivian recently and got to see in-person Epic’s Unreal Engine at work.
Could this move by Unity have been prompted by a struggle to make money? In its most recently reported quarter, losses came in at $193 million, down from $204 million. So if these new terms were unsuccessful, what might work? From many conversations with developers, we have heard, ‘we need to make money to be able to pay suppliers.’
If all game engines are priced at the same 5% of a developer’s revenues beyond $1m after the dust settles, Epic Games has a distributor in its back pocket, and Unity brings an advertising business. If the developer uses Epic’s Unreal Engine, and then decides to distribute the game through the Epic Games Store instead of market leader Steam, they would only pay a 12% commission for distribution (instead of 30% to Steam, Apple, Google, Xbox, and everyone else), i.e., Epic will waive the 5%. As we have said over and over since 2016, Epic Games is our North Star business model. As Harvard Business School Case Study in 2019 explained - Epic Games’ business pillars, all of which have a low cost or free aspect to them, grease the Epic flywheel, especially when used together. Still, there is room in the market for two engine providers, and our bet is still on these two.
Unity - What Happened
Unity said developers would pay a Unity Runtime Fee for any game that surpasses a revenue and lifetime download threshold of $200,000 and 200,000 downloads in the preceding 12 months. To put this into perspective, we checked in with some game developers. One cited their last game with a $.50 LTV (lifetime value), or money spent per player. After deducting Google’s $.15, the publisher was left with $.35. With this change, chopping off another $.20, profitability goes from $.35 to $.15 - meaningful! Another mention was hyper casual viral games on TikTok that might net $.10 per player. How can I stomach a $.20 download on top of this? Even back in 2020, a great year for game revenues, press reports cited hyper casual games at an LTV of $.20 to $.40. Assuming $.30 minus $.09 to Google, Apple, or other distributor nets $.21. And now one must think about another $.20 cut?! Another question we did not expect to hear - how can I make sure that my content doesn't go viral, just in case I can't afford to pay Unity?
Backdrop: This announcement comes a year after Unity raised prices for the enterprise and professional versions of its game engine subscriptions. Games developed with the lower-cost Unity Personal and Unity Plus plans reach that threshold at $200,000 of revenue in one year and 200,000 lifetime installs, while Unity Pro and Unity Enterprise accounts must reach $1 million in revenue and 1 million lifetime installs for the fee to kick in.
Unity currently does not charge a royalty on games built using their engine and have stated that they believe “an install-based fee allows creators to keep the ongoing financial gains from player engagement, unlike a revenue share”. A few hours after the initial announcement, Unity clarified that the fee will apply only to monetized titles and excludes charity games and bundles.
After the announcement there was a lot of speculation about how developers would have to pay this fee every time a game was deleted and reinstalled, opening up avenues for “bad actors” or “install bombers” to tap into this vulnerability. The initial press release mentioned Unity’s ability to use fraud detection tools and allow developers to report possible instances of fraud to a compliance team. After the announcement was met with an almost universally negative response, Unity updated the FAQs to read “if a player deletes a game and re-installs it, only charge for an initial installation.” Some developers have even asked how one would even be able to effectively track this, especially in Europe under GDPR.
Further, any “early access, beta, or a demo of the full game” will induce install charges, according to the FAQs, as can even streamed or web-based games. For free-to-play games, the developers will have the option to offset the fee by adopting other services that generate revenue for Unity, such as the LevelPlay ad mediation service. The one-time fee is not retroactive, reaching back into the past.
The subscription tiers that Unity offers to developers are below. The company also announced the discontinuation of the Unity Plus subscription, a $399/yr plan, and is switching all subscribers to its Pro subscription, a $2,040/yr plan, starting next month. It is offering the switch to members at the Unity Plus subscription price for the first year.
Developer Reactions
Since this announcement, a slew of developers have taken to social media to voice their disappointment for this change.
Brandon Sheffield, an indie game developer at Necrosoft and contributor to Game Developer, wrote an article about the fees and other problems with Unity titled, “The Death of Unity.”
“My game company Necrosoft has used Unity for every commercial project it has ever made. But now I can say, unequivocally, if you’re starting a new game project, do not use Unity. If you started a project 4 months ago, it’s worth switching to something else. Unity is quite simply not a company to be trusted.”
TinyBuild CEO Alex Nichiporchik said,“There’s not a single dev out there that would look at the announcement and think it was a good idea. We often factor in engine fees when making decisions on projects, and at face value the math goes towards Unreal Engine if we factor in free installs of demos, free to try versions on iOS, and playtests on Steam. I find it hard to believe this will actually go through.”
Susan Cummings, CEO of Tiny Rebel Games, said in a post,“I get that times are tight but a revenue share like Epic’s would surely be the way to address. Especially considering that we already pay handsomely per seat for our licenses. I don’t understand why this move was made so abruptly and surely consultation with game developers would have been the prudent move, first? I think they have no choice but to revert on this — developers are going to flee en masse to Epic and other middleware for future games.”