Epic takes a serious swing at Steam's indie game supremacy with $1M revenue change

Epic Games, the studio behind Fortnite and the Unreal Engine, has updated its royalty sharing agreement to makes its game development engine more attractive to developers. Games developed using the Unreal Engine will not be hit with a royalty fee until they surpass $1 million in gross revenue, after which developers will begin paying Epic a 5 percent royalty on sales including DLC and any other game revenue. The previous threshold was $50,000.

Unreal Engine games on Epic's own Games Store see the 5 percent fee waived no matter their total sales, therefore enticing developers to build games with its engine and share them in its Games Store. There's still a 12 percent revenue split on any game sold in the Games Store, regardless of what engine it uses, but that's less than the baseline 30 percent charged by Valve in its incumbent Steam store.

Epic demoed its latest Unreal Engine 5 yesterday and showed off some impressive capabilities.

Good for the little guy — Epic's change in royalty structure could be particularly attractive to indie developers who likely wouldn't hit the $1 million threshold to pay royalties anyway. The average game in Valve's Steam store makes roughly $16,000 in its first year of sales, according to recent estimates. These developers wouldn't pay a royalty to use the Unreal Engine, and in Epic's Games Store they'd be paying less of their overall revenue than on Steam. Developers may well feel enticed to make their games exclusive to Epic's store, an increasing focus for the company.

Unity, a game engine that competes squarely with Unreal Engine, doesn't take royalties for use, instead charging an annual subscription fee of $1,800 for games that do more than $200,000 in yearly revenue. Unreal gives indies more wiggle room up to that greater $1 million threshold as the PS5 and Xbox Series X get closer to launch.

Unseating Valve — Epic has long been trying to compete against the Steam store, which has been around since 2003. Steam has for a long time been considered the primary way for developers to get distribution for their games thanks to its huge userbase. But that dominance also means it hasn't felt much pressure to lower the commissions it charges. Epic is frequently praised by game developers for its more friendly attitude towards them.

Game developers have been increasingly frustrated with Valve as it continues to charge high commissions on game sales. Compared to Epic's 12 percent cut, Steam takes 30 percent on sales under $10 million. For sales between $10 million and $50 million it drops down to 25 percent, and 20 percent for anything above that. Valve previously took a flat 30 percent on all sales but had to respond to Epic's incursions.