Maybe Epic's Claims For Exclusivity Strategy To Benefit The Gaming Industry Isn't Entirely Crazy

For some time now, we’ve been discussing gaming company Epic’s entry into the gaming platform wars. Epic made waves shortly after the launch of the Epic Store when it began gobbling up exclusivity deals for games, whereas the PC gaming industry has mostly been free from the kind of exclusivity wars that have plagued the console gaming industry. Steam, the enormous competitor in the market, responded to Epic getting some AAA game exclusive deals for the first 6 months after launch by complaining that its new rival’s strategy was hurting gamers more than anything else. In response, Epic’s Tim Sweeney jumped on Twitter and promised to end the exclusive game strategy if Valve’s Steam platform would offer gamemakers the same more generous split on revenue that Epic is offering. See, Steam offers game publishers roughly 70% of game revenue back to the publisher to be on its platform, whereas Epic offers a flat 88%.

This initial stance from Sweeney was laid out as altruism, with claims that what Epic was really after was a better gaming marketplace to allow more reinvestment in games, more games for the public, and thereby a happier gaming public. Much of the gaming community met this argument with narrow eyes. Epic, after all, is a business and businesses are designed to make money. Sweeney has since followed up on Epic’s stance in a recent tweetstorm responding to public complaints about exclusive games. There’s a lot in the 9 tweets from Sweeney, but let’s start with the rationale for exclusive games on the Epic Store.

This question gets to the core of Epic’s strategy for competing with dominant storefronts. We believe exclusives are the only strategy that will change the 70/30 status quo at a large enough scale to permanently affect the whole game industry.  In judging whether a disruptive move like this is reasonable in gaming, I suggest considering two questions: Is the solution proportionate to the problem it addresses, and are gamers likely benefit from the end goal if it’s ultimately achieved?

So what’s the problem Sweeney is trying to solve? It’s the Steam 70/30 split, yes, but ultimately he claims that such a split prevents more games from being produced due to the financial strain that split puts on game developers and publishers. He claims that a more generous storefront split will allow game publishers and developers to use that money to bank profit, reinvest in making games, or lower the prices of their games. Assuming a healthy competitive marketplace with more games being produced, the money is most likely to go to reinvestment and lower prices. Both are good for gamers. His argument is that, yes, exclusives are annoying to gamers, but if exclusives ultimately produce a better gaming marketplace, that outweighs the annoyance.

In a subsequent tweet, Sweeney claims this is win/win for Epic and gamers alike.

If the Epic strategy either succeeds in building a second major storefront for PC games with an 88/12 revenue split, or even just leads other stores to significantly improve their terms, the result will be a major wave of reinvestment in game development and a lowering of costs.  So I believe this approach passes the test of ultimately benefitting gamers after game storefronts have rebalanced and developers have reinvested more of their fruits of their labor into creation rather than taxation.

For the math to work on this, Epic will both have to succeed in getting gamers to adopt the platform and get Valve to budge on Steam’s current revenue splits. Neither are sure things. Still, the biggest barrier to people accepting this argument is it’s still all being framed as an altruistic attempt to do good for the gaming public and that same gaming public is far too cynical to believe that’s the only reason Epic is taking these actions.

But, as the Kotaku points out, perhaps this isn’t so much win/win for Epic, but win/win/win.

In short, he’s basically saying yeah, this is causing problems for some gamers, but the issue Epic is trying to solve is worth the hardship. Most interesting is what he says that issue is: it’s not necessarily for their own store to make money and become more powerful, but for Epic’s pricing model—which gives far more money to developers and publishers than Valve’s current split—to be implemented across the market, whether it’s driven by their own success or by rivals adopting a similar model.

That might seem potentially counter-productive; why would it not really matter if your own store survived or not? Then you remember that Epic sells engines as well, and that if Sweeney’s stated goal of seeing a rise in games development investment is achieved, then there’s going to be an increase in the licensing of the Unreal Engine along with it.

I’m irritated with myself for not thinking of this on my own. Epic’s Store can make it money in two ways. First, its exclusive deals and revenue splits can propel it into a major gaming platform successful in its own right. Second, its strategy could force other platforms, especially Steam, to take actions that it believes will result in tons more games being made, many of which will license Epic’s Unreal Engine to make them.

Either way, Epic could win out here. And that’s pretty brilliant, whatever you think of PC game exclusives or how believable you think Sweeney’s claims of altruism are.

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