Unity’s pricing is a symptom, not the cause of tougher times ahead for the games industry
Photo: Tim Gouw
Earlier this week, Unity announced that from 2024 it will start charging developers for the number of downloads / installs of their games.
Developers unsurprisingly threw their proverbial toys out of the pram following the news. I have not seen the f-word (i.e., ‘’fair”) thrown around this much by the games folk for a while. As a side note, I always find it quite amusing when for-profit companies (in this case, most developers) accuse another for-profit company (in this case, Unity) of being unfair by wanting to make more money. But to be clear, I can understand their shock and pain some of them will have to deal with.
Profitability is becoming increasingly important in the adverse economic climate
When it comes to ‘fair’, it usually depends on who you ask. From Unity’s (and likely its shareholders’) point of view, it has technically been subsidising developers’ work (i.e., operating at a substantial GAAP-basis loss) every year since inception (despite posting a profitable Q4 2022). In the current macroeconomic climate, money is expensive, and investors are increasingly looking for returns rather than non-profitable revenue growth. Unity was able to rely on the growth narrative of the overall games industry propelling it to a sweeter future, but of course, the games industry declined in 2022, so that ‘brighter future’ argument became a lot tougher to buy into.
Symptom, not the cause of trouble for developers
Since the initial announcement, Unity clarified the nuances of the pricing statement, underscoring that this is not some sort of draconian move to try to squeeze every last cent from games demos and charities (both of which are excluded from this pricing). Though this will represent a bit of a headache for some developers’ cashflow planning, it will not affect the overall games developer landscape in any meaningful way (though yes, indies more so). Those who were cutting it a bit too close with their business model might be cut out (that is what happens when you don’t have a solidly profitable business model, by the way). But this is less so because of what Unity did, and more so because of the current dynamics playing out in the games industry (and entertainment more broadly).
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Find out more…The combination of the saturated attention economy and entertainment industry KPIs having gradually shifted from unit sales towards time spent (especially in games), alongside high inflation and interest rates, are showing its teeth.
Simply put, the number of games (and developers) has been growing faster than the industry revenues. Furthermore, revenues are increasingly tied to time spent (due to the rise of F2P and live ops), which puts a very real limit on future growth prospects of the average developer. This is because there is simply no incremental available time to gain – others need to be dethroned to maintain growth of time spent. Similar to what happened in music with artists, this is now happening with developers in games. There are more mouths to feed, but not proportionally more food with which to feed them.
Meanwhile, time-spent-centric business models mean that games are not competing with just games (like they once used to), but with other entertainment propositions for the limited 24 hours of the day.
To be clear, this is not to say that the approx. $200 billion games industry is going away. But, the growth hey-day of the games industry is over, and consolidation in the developer and publisher landscape is inevitable. (Stay tuned for our games industry forecast coming out in the coming weeks and let us know in the comments if you would like to be notified when it is published. Though we are seeing a number of important inhibitors, there are still plenty of revenue drivers out there for the next decade too).
With the rise of free-to-play, cloud gaming and live-ops, the power (and revenue) will increasingly become concentrated among a smaller number of games companies as games production and publishing become a lower margin business (just like any business that experiences content commoditisation via streaming). The number of installs / downloads / plays will not go down (neither will the number of gamers), but the number of developers and publishers likely will.
Hence Unity’s per-download pricing decision. It is recognising tougher times ahead and de-risking against the coming consolidation of the games industry’s landscape – which is, strategically speaking, sound thinking for a company that spent a lot of time and money to move towards profitability and is looking to maintain it in the current landscape.
Developers who are angry at Unity should note that this pricing tactic is not the cause, but rather a symptom of the tougher times ahead for games developers and publishers.
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