Context Collapse: 🎮Unity Did A Silly Thing
Gaming industry politics have big effects: CC #235
I have a few declarations to make.
Declaration 1: Games will become prestige media like movies and television in our lifetime.
Declaration 2: The general public has absolutely no idea how game development works.
Which brings us to Unity changing their pricing model and how Unity’s quest to make more money is about to nuke the entire gaming industry.
SO LET’S GO!
1. Neal - What are you talking about? None of these words make any sense to me.
Unity makes development tools for video games, motion pictures, television commercials, virtual reality, amusement park rides and a bunch of other things. Unity Engine, their flagship product, is a 3D development engine that has probably been used to make visuals for your favorite video game.
Their main rival is Epic Games’ Unreal Engine and there is also a free, open-source competitor called Godot that has a large fanbase. Unity is the industry leader, but they don’t have a monopoly by any means.
Anyway, Unity just changed their pricing model so that larger customers will be charged a flat rate based on the number of times their game has been installed. According to The Verge’s Ash Parrish:
On Tuesday, Unity announced that on January 1st, 2024, it would be implementing a pay-per-download pricing scheme that would charge developers a flat fee any time a game using Unity software is installed.
“We are introducing a Unity Runtime Fee that is based upon each time a qualifying game is downloaded by an end user,” the company shared on its blog. “We chose this because each time a game is downloaded, the Unity Runtime is also installed. Also we believe that an initial install-based fee allows creators to keep the ongoing financial gains from player engagement, unlike a revenue share.”
Unity went on to explain in detail how this new program works, but here’s the gist: before a game is charged with these new fees, it must meet a specific revenue and download threshold that changes based on which tier of Unity subscription a developer pays for. These fees are further broken down depending on where a game is purchased, meaning that a game bought in the US, UK, and other “standard” markets is assessed a higher fee than when it’s bought in “emerging” markets like India or China.
This is a big change from Unity’s previous pricing model, and it’s closer to what you see in the B2B enterprise software world than in the art-school-kids-and-programming-nerds-making-earthshaking-media atmosphere of the gaming industry.
Unity’s decision, rooted in the solid capitalist tradition of maximizing revenues while ignoring core customer bases, will probably have some very interesting side effects.
2. Unity has a nice moat… but not a deep moat.
Unity and Unreal Engine are the main players in their game engine world. Unity is the industry leader because it’s slightly easier to work in their ecosystem, but there are plenty of developers who are fluent in Unreal.
Remember what Warren Buffett said about moats?
“The Oracle of Omaha has been referring to his moat analogy for decades. In order to be successful, a company must have a definite moat, aka a competitive advantage that allows it to maintain pricing power and better than average profit margins.”
Unity has a wide moat as the leading gaming engine. But it’s not a deep moat. Which is… not good when the company announced the change hastily and alienated many core users. From Alyssa Mercante in Kotaku:
Though it won’t start until January 1, 2024, the Runtime Fee will apply to any game that has reached both a previously established annual revenue threshold and a lifetime install count. 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.
Shortly after the policy was announced, Rust developer Garry Newman wondered if “Unity [wants] us to start paying them $200k a month” before doing the math and realizing that Facepunch Studios would owe the game engine company about $410,000 total.
“While this isn’t much, here’s some stuff I don’t like,” Newman shared to X (formerly Twitter). “Unity can just start charging us a tax per install? They can do this unilaterally? They can charge whatever they want? They can add install tracking to our game? We have to trust their tracking?”
Switching away from Unity to Unreal or another rival is difficult because you can’t just switch engines in the middle of game development. Developers are locked into their preferred engine, with rare exceptions, for the whole of the game development cycle—which may be quite some time.
Which, I’m guessing, was why Unity is doing this.
3. Weird economy, gotta find profit margin everywhere.
Unity Technologies went public in fall 2020 during the peak of the COVID home media consumption boom. As I write this in fall 2023, both the economy and the gaming sector have gone through multiple boom-bust convulsions that are still ongoing. Are we in a recession? Are we in a period of job growth? Is media consumption booming? Are game studios laying off employees left and right? All of these things can be true at the same time, some can be true, none can be true. Who knows!
Unity’s pricing change:
Was not clearly communicated to game developers.
Is opaque and not easily understandable to game developers.
Brings business models from outside the game development realm to gaming.
Exposes the company to competitive challenges when Unity does not have an absolute lock on market share.
Which, at the end of the day, is secondary for a publicly traded company looking to maximize their revenue. But is still, honestly, surprising for a tech company that doesn’t have a lock on its niche and has rivals comparable in scale and functionality.
Next steps: See what happens next with Unreal and Godot.