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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.”

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“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.”