As I’ve mentioned in this space previously, the Epic Games Store is challenging Steam. I liked the company’s initial idea to attract developers by offering them a bigger cut of sales, although I’m not impressed with Epic’s primitive and underdeveloped storefront. It’s good for developers, but it’s not so good for consumers. This makes it even more frustrating that Epic Games is offering lump sums of money to get developers to agree to sell their titles exclusively through the EGS. Being denied a choice of platform is bad, but being obliged to use the most unfinished and feature-poor platform is downright frustrating.

Last week Epic Games founder and CEO Tim Sweeney issued an interesting challenge to Valve:

Be sure to read the entire thread for the full context, but basically Sweeney said that if Valve would lower their cut from 30% to 12% to match what EGS is doing, then his company would stop buying exclusives. Sweeney doesn’t like that Steam takes 30% of sales from game developers who sell their games on the platform, and he presents this challenge as his way of fighting back.  

I can see where Sweeney is coming from. Retail gaming outlets struggle to keep just 12% of the sales price for themselves, and those places have to pay for buildings and employees to move goods around, secure the merchandise, and process transactions. On the surface, it seems pretty unreasonable that Steam gets to keep so much of the sales price when they don’t have any of the overhead of traditional stores.

I’m really enjoying watching these two companies slug it out. I’ve been complaining for years that nobody seems to want to fight Valve for control of the digital storefront. GoG doesn’t have deep enough pockets. EA doesn’t seem interested in using Origin to do anything but sell EA games. The rest of the platforms all have problems that keep them from being a serious threat to Valve. The Epic Games Store is the first contender with both the will and the resources to fight in Valve’s weight class.

Maybe you’re a fan of the narrative that greedy, incompetent Epic is attacking games by bribing developers into making their titles exclusive to the EGS. Maybe you’re a fan of the viewpoint that upstart Epic is just trying to help the industry break free of Valve and their blood-sucking 30% cut of game sales. Either way, we need some context before we can understand this battle.

In Defense of the Steam Cut

The assumption seems to be that Valve is sitting back and soaking up all this money without providing any value to the consumer. Sweeney even calls them “the Game Developer IRS.” This is a popular viewpoint, but it’s not really accurate.

Back in March, Valve employees gave a talk at GDC where they revealed some details about the Steam infrastructure. Apparently Valve Software has a presence in 30 major cities around the world, and they have their own direct connections between these locations that are independent of the public internet. It’s like a backup internet running on top of the public net. This network handles content delivery and gameplay data. The advantage of this setup is that it insulates Steam users from internet congestion. The example the developers gave at the talk is the release of an episode of Game of Thrones, when millions of people all begin streaming HD video at the same time. Gamers might still experience delays due to local congestion thanks to lousy internet providers, but Valve’s backup internet gives everyone the best chance to enjoy speedy downloads and lag-free multiplayer games.

Last year, the Valve network handled two exabytes of data. That exceeds the entire global internet traffic load of 2003. If some node of this network were to fail, or if someone were to attack it, the system is designed to seamlessly reroute Steam’s traffic over to the regular internet until the problem is resolved. Valve has built a network with a global presence, multiple layers of redundancy, and staggering throughput. This network is available and free to use for any game that releases on Steam, regardless of where that game was sold. This means that if you release a game on Steam and also on GoG, copies sold on GoG still can enjoy the multiplayer benefits of Valve’s content delivery system. This is pretty generous considering how easy it is to get a game on Steam these days. It means almost any starry-eyed developer has free access to this massive system for their game.

It takes an enormous investment of cash to design, build, and maintain a global system like this. You can criticize Valve for a lot of things, but it’s pretty hard to sell the notion that the company doesn’t care about games and just wants to rake in a big pile of money.

Valve has also adapted their store to work within a myriad of different countries. In Japan, gamers don’t buy things online using credit cards. Instead, they go to a convenience store to buy store credit. Essentially, this system allows consumers to buy things online using cash. It might seem odd to Westerners, but this is how Japanese urbanites want to buy things. If you want to do business with them, then you need to do it on their terms.

Lots of countries have their own particular preferences for how people expect to buy things, how local businesses behave, and how local governments regulate and tax transactions. Again, it takes a big upfront investment to create a system that allows you to do business globally.

Why Valve Can’t Match the 12% Cut

When you buy a gift card in a retail outlet, the retailer usually keeps between 10% and 15% of the face value. So if you buy a $10 Steam card at Walmart, then Walmart might keep $1.50. Valve would get the remaining $8.50, and they’d give you $10 of Store credit. Since Steam keeps 30% of the purchase price of a game, Valve can afford to eat this $1.50 loss. However, if Valve took Sweeney up on his challenge and lowered the Steam cut to 12%, it would make selling gift cards a losing proposition. Sweeney is acting like he’s fighting for a better cut for developers, but he’s also demanding that Valve agree to lose money on every game sale in Japan forever.

Sweeney’s store is a barebones skeleton, so it’s easy for his company to take such a small bite of sales. That’s fine, inasmuch as it gives developers a choice. If they just want a place to sell games, they can go with the Epic Games Store. If they want a full-featured store then they can go with Steam.

The problem is that Sweeney is pretending like his company is offering the same service that Steam is. It’s like if McDonald’s challenged a fancy restaurant to lower the price of steak to the price of a Happy Meal and then acted like they were fighting for the little guy.

I agree with Sweeney’s principle that Valve takes a huge cut and the market could use some more competition. Not every game needs the vast resources of Valve’s sprawling global infrastructure. If I make a simple single-player 2D game and I don’t have the means to localize the game for non-English audiences, then I don’t need the high-speed content delivery network or multiplayer framework, and I don’t benefit from the ability to access foreign markets. I’m probably running a small operation with just two or three people. When Valve keeps 30% of my game’s sales price, they’re taking money that’s important to me but peanuts to them. They’re taking money I need in exchange for a lot of services I don’t. It would be great if Steam offered some sort of bargain for those of us who don’t need or want the full slate of Steam features.

The irony is that Steam is the only major platform that will welcome those broke indie developers. Obscure indie games that don’t need Steam’s extra features and can’t really afford the 30% cut would be better off on a minimalist platform like the Epic Games Store, but EGS is a curated platform that’s only interested in titles with mainstream appeal. Epic is avoiding helping the small fry operations that need the EGS the most, and instead signing deals with major titles that really ought to be using the Steam network infrastructure.

I’d be more inclined to side with Epic if the platform was more robust. The company is working on it, and the feature roadmap makes it seem like Epic is aware of the EGS’s many shortcomings. But Sweeney daring Valve to match Epic in price when EGS isn’t even close to matching Steam in features isn’t reasonable or fair. Sweeney needs to spend less time issuing challenges to Valve and a little more time overcoming the challenges his company has in front of it.

Shamus Young
Shamus Young is a game developer, critic, and novelist. He's just published a new cyberpunk novel. Check it out!

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22 Comments

  1. Great article.

  2. Sadly games like Anno 1800 or Metro Exodus are not selling what they could, in my case I do not buy anything outside the Steam store, because of exchange rate issues, mods, and mainly, trust.

  3. That whole tweet didn’t even sound like a challenge. It just sounded like he was trying to boast. Why exactly would Epic want to backpedal on one of the edges it has over Steam? Corporations don’t do this shit. It’s trying to compete with Steam, and that’s one of their strongest weapons. He’s full of shit.

    Steam honestly needs things to challenge it, but it’s just kinda dumb it’s coming in the form of Epic’s store which isn’t really getting Steam uncomfortable, just pissing people off because Epic is making the stupidest mistakes and going about this in some ridiculous ways.

  4. If I had any faith in Epic, I’d say maybe loss leader. Keep prices low till the competition’s dead, then crank em back up again. Trouble is, this isn’t like Uber squaring off against a local taxi company. Steam’ll match em for years if they have to.

    What the Epic games store really is, though, is “Gosh, Fortnite’s making a lot of money, isn’t it! We probably ought to invest that into something. Anyone got any pet projects on which to waste some? Challenge Steam, ya say? I mean, that seems obviously ridiculous, but I bet they used to say that about Karl Benz’s horseless carriages. Here’s a billion, knock yourself out.”

  5. If Steam’s private backbone is worth their larger cut, then at some point it will become apparent. EGS isn’t able to hemorrhage money on exclusives forever, and in the meantime a handful of game development companies are getting very rich off of EGS’ marketing budget.

  6. One way Steam is short changing developers is using exchange rates fixed on 2010 or something. When steam started accepting brazilian real (R$), they used a US$ 1 = R$ 2 rate of exchange. It was close to the actual exchange rate at the time. Recently US$ 1 came close to R$ 4, but steam keep using the default exchange rate of R$ 2.
    You can change the price for each country manually, but you need to know the exchange rate, the average price for similar games in that country, etc. It’s not easy for developers to do so.
    The real issue is 1. developers are not aware this happens and they cannot realistic correct it themselves, it’s a huge ethical problem. 2. This can mess with the cost structures for a game. Some developers might be selling at a loss and the return is a lot less than expected.

    As a consequence, the same game that costs US$ 30 both in steam and in the nintendo switch’s store has a huge price difference internationally.

    The only good point is that Steam’s negligence/choice made games more affordable during a time when everyone has been getting poorer.

  7. Hmm so Epic won’t be getting any big games that sell in the japanese market then. I guess that’s why they’ve grabbed games like metro and borderlands that hardly matter in japan.

  8. For Origin, may I remind you that it’s also selling non-EA games like the Witcher II & III, Tropico 6, they are billions, Banner Saga III, Prison Architect… For obscure indie games, there’s itch.io, where the devs can choose their cut.

    Also I’m a little disappointed that one of the only time where I listen to the diecast, Shamus choose to re-write it. 😐

  9. Steam’s cut is generous. Epic’s cut has one purpose, to attack Steam. They are trying to take down the best ship in the ocean. The losers who are jumping ship for Epic can have their shit launcher and client. The Steam ship sails strong. Us on it are glad to still be here.

    1. Of course it’s going after Steam. It’s called competition. And honestly, even though Epic is doing some shady, ridiculous, and sometimes flat out pants on head retarded shit, Epic does look legitimately better for developers to an extent. It’s not really that great for consumers, but for devs I can’t really blame them for wanting to partner with Epic.

      Steam needs something to challenge it. Because Steam obviously won’t get off their ass to improve some very clear issues they have if it can sit comfortably all the time. It’s a shame the competition is coming in the form of Epic as they’re not a great alternative for the most part, but why don’t we stop it with the arbitrary, stupid blind loyalty to corporations that don’t actually give a fuck about you?

    2. My gaming PC has enough SSD for two clients and launchers.

  10. Talk about the case of “the lesser of two evils”.

    Not really keen on Epic gaining ground with their exclusives. However, Value/Steam brought this upon themselves. They’ve grown too complacent over the years with zero oversight on what ends up in their store. Yahtzee summed it up perfectly with his review on Hunt Down The Freeman. Now all their chickens are slowly coming home to roost.

    1. A heavily curated store could also lead to all sorts of problem as we’d have a handful of people decide what kind of game WE the customers like or don’t like. Video game market is unpredictable. A game that we may not like now, may become popular in the next month. There’s market for all sorts of video games out there and its up to the consumers to decide what kind of games we want. A handful of people curating their store such as Steam, which is the biggest digital platform in the world, would most certainly jeopardize that kind of freedom to choose. Not to mention actual good games / hidden gems might not make the curated cut and / or have delayed release window since said handful of people would have to sort hundreds if not thousands of games in a daily / weekly / monthly basis.

      And here’s the other thing. With an open storefront that is Steam now, for every bad / asset flip games, there’s 5 to 10 more actual good games, both from indie and AAA, that are worth the money, games that are so good and yet never seen, heard or experienced before. Gamers / gaming culture on PC is more diverse and we have more choice of playing various kinds of games from various genres than ever before. And its been made possible because of Valve’s approach of having an open storefront. And of course, Steam already has its internal curation system that leaves crappy games in the dust as well as several filtering tools that we customers can always use to find any kind of particular game/s we’re looking for on Steam. At the end of the day, it works out for all parties involved. Developers can release their games freely on Steam without any additional roadblock or fear of getting their games rejected and we customers get to decide if their games are worth our hard earned money or not.

    2. What’s the problem with Hunt Down The Freeman? It’s a crap game. Don’t buy it.

  11. it’s also disingenuous bullshit, Epic would never stop buying exclusives because it’s the only edge they have right now to get any market share.

    1. I have to disagree here. If Valve were to match Epic’s cut, Epic would stop buying exclusives because no one would take their exclusivity deals anymore. What reason would they have? The lower cut is the one and only reason publishers and developers are making deals with an inferior store that attracts much less public. A store with Epic’s cut and Steam’s popularity would be the best deal and they’d be dumb not to take it. And if Steam was that store, Epic would be ruined.

    2. Yeah, he’s making that challenge precisely because he knows that Valve can’t possibly match it.

      There’s also something else to keep in mind: Valve primarily pays the bills through their cut of Steam sales. They’ve got a few live titles that make good money, but they don’t have extensive investment funding or a lot of other revenue streams.

      Epic currently makes little of their money through the Epic Store, and they’re almost certainly running it for a loss right now given the Exclusives they’re tossing out. They can afford to do that due to Fortnite being the world’s biggest game currently, and the license fees from other developers using Unreal 4.

      Not to mention an extensive amount of investment by a large, multinational corporation.

      Basically, Valve can’t afford to lose money on Steam. Epic can easily lose money on the Epic Game Store and not give a shit for a while, not if there’s the potential to become the new, biggest store in town.

  12. The PC games market is about to get ugly.

    1. Not really. An obnoxiously loud minority of fan boys on either side will make headlines but this isn’t anything like consoles for example.

      There is 0 parity in PC gaming digital distribution. Steam currently offers the best service for consumers in the short term. Hands down, no contest, no one else is even in the race despite protestations to the contrary. It would be better if someone did challenge them on their level, and it could happen, but it’s going to take a lot more than the mouth noises Epic is currently making. Right now Steam is entrenched, offering a crushing level of service from the consumer point of view, and it will take quite a bit to get people to shift from their existing libraries and features and communities.

      It would be better for the entire industry and consumer base if Steam wasn’t a defacto monopoly, that’s a fact. But until someone actually puts in the work to provide something even in the same arena that Steam is operating in all the Social media challenges, timed exclusives amount to so much sound and fury signifying nothing.

    2. Would you say the console market is ugly what with the countless exclusivity deals they’ve seen throughout the ages, like Rise of the Tomb Raider and Street Fighter V to name but a few? Doubt it.

  13. Great final two lines.

    Epic feels determined to learn the hard way. People always overlook infrastructure, and all the other hidden benefits, that go beyond price.

  14. Who made this article. please stop it! 30% cut is the industry standard. Why should steam lower it? because for one child? please…

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