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OPINION: Red’s Read on Exclusives

By Red Thomas on August 08, 2019 | Columns | Comments

OPINION: Red’s Read on Exclusives

My social media feeds were recently overwhelmed following news that Piranha Games had signed an exclusivity deal with Epic to distribute Mechwarrior 5 through their platform.  The expected firestorm immediately ensued with videos, articles, and tweets blaming the developers, blaming Epic Games, and blaming the industry as a whole for allowing such a transgression against the established norm.

I’m going to dive into the deep end and present a few of my own opinions on the matter.   Today, I’ll talk a bit about exclusivity from several perspectives.   We’ll look at whether or not it’s good for the consumer.  We’ll also consider the importance of the impact on the developer, and of course that also leads into a question about how exclusivity impacts the industry as a whole over the long term.

One thing we won’t be talking about today is whether or not Piranha Games or any other specific developer is right or not in their decision to partner with a distributor exclusively.  That’s a business decision that only they can make and the results are up to their Boards of Directors and investors to consider and deal with appropriately.  Each company handles that announcement in their own way, and the morality questions related to those situations are each unique and out of the scope of what I’d like to explore today.

Exclusivity vs Open Distribution

The first question is whether or not exclusivity is good for the company.  On the surface, it seems a pretty easy answer.  If exclusivity saves in the cost of distribution and the lost potential revenue from the limited distribution is smaller than the cost savings, then it’s a net win for the company.  I’ll save you a bit of time and tell you right up front that the actual answer is a little more complicated than that, and in the end is relatively indeterminate on this point.

The road to exclusivity is filled with pitfalls, each one a potential landmine of lost revenue for the company.  On the other hand, exclusive contracts are rarely indefinite, and the company will typically have the right to distribute their product through other methods after some amount of time.  If you’re a small developer, this could be the difference between life and death.

Steam provides saturation that no other platform can compete with at the moment, but at a cost.

I’ve been told that Steam charges 30% to distribute on their platform and I’ve heard that Epic is offering 15% for titles that launch exclusively in their Epic Store.  This effectively becomes a math question for a small company.

For many indie projects, the first few hours after launch is their make or break moment.  If they can achieve enough sales while they’re listed on the new titles section of the Steam Store, then they have enough concurrent users to push themselves into users’ carousels and the customized discovery queues.  Steam’s advantage is in the number of potential customers and in that continued internal and automated marketing they provide.  That’s what they give you for their 30% cut.

Epic isn’t as feature rich and doesn’t include a lot of that integrated marketing and promotion in the same way that Steam does.  That said, 15% can be huge to a small project.  Most new games are sold in the first week or so, and while a company might make enough over time on Steam to overcome that extra markup, capital is king in startups.  New companies often are barely scraping by with past-due loans and backpay is usually expected right after launch.  Getting $170,000 of your $200,000 in sales as opposed to $140,000 could mean the difference in solvency or bankruptcy.

Of course, if the Steam marketing machine can push your sales to $400,000 and net $280,000 in revenue to the company in the same time period, then the situation is very different.  The problem is that this becomes very speculative, and thus where some of the stress of being in the gaming industry comes in.  There’s also the problem of going over to Steam after the exclusive period is over, but not having enough copies sold on Steam to ensure you get adequate automated promotion.

In the end, it’s just a crap shoot and a lot of factors go into calculating the value of each option.  Plus, there’s all the intangibles and risks of flubbing the announcement and the impact that sort of thing can have on sales.  It’s complicated enough that there’s just no clear best choice, and all each project can do is develop a strategy and go for it.

I’ve bought games through Epic, but I have several configured to launch via Steam so that I can use Steam’s chat.

Consumerism vs Capitalism

Whether it’s good for the consumer or not is a much easier answer, though most people won’t really like it.  Competition is always good for the consumer.   Yes, I know a lot of people have their hearts set on the Steam Store and really don’t like the idea of having another distribution system, but they need to think about it with a little more objectivity.

For one, most of these games can be launched outside the distribution’s wrapper application.  You can also add non-Steam games to your Steam library.  Simply add your game purchased through Epic directly to your library in Steam, and congratulations, you now have all the convenience of Steam (well, most of it) without having to worry about running a second launcher at the same time.  A lot of games can even be added to Steam later, depending on the deals signed, so you may even be able to eventually add a game purchased through another vendor to Steam as if you’d bought it there in the first place.

There are two ways this competition is going to directly help the consumer, though.  First, if the competition is successful, Steam’s rates will drop over time and that will either make games less expensive, drive down sale prices, and/or put more money in the pockets of developers to build better games.  Any and all of that benefits the consumer.

The consumer also benefits in another way - Market-based pressure to innovate.

Innovation vs Established Norm

Steam has no reason to innovate or improve their product so long as they’re the only show in town.   You do see occasional improvements in the platforms, but most of those improvements have come in the way of new sales or new Steam events that are really more marketing than pro-consumer development.

New players in the market will have new ideas for enhancing the consumer experience and will also push existing providers to stretch themselves a bit to enhance their own solutions.  The service in general is improved and consumers have access to more options to enjoy their games the way they want.

Steam has done a lot for the industry. Curated recommendations, and even curated reviewers and groups for even better recommendations. Maybe they’ve innovated enough, maybe not. The market will eventually decide.

There’s something to be said for tried-and-true methodology, but it’s never been said of entertainment.  Innovation is critical in entertainment.  Not only does it drive the artist in pushing themselves to be more creative and more expressive of new ideas, but it also drives the consumption of art.

Not long ago, movie theaters were all owned by a few giant Hollywood production companies.  The movies a person got to see depended on which company owned the theater in their town, which limited choices for the vast majority of the country.  Later, TV began to cut into the market share for the large cinematography companies, and while that pushed out an era of large-budget epic films, it ushered in an era of independent filmmakers and massive creativity.

This new period for distribution may prove to be similar in some ways.  Breaking the Steam monopoly on distribution opens the doors for new ideas and new ways of doing things.  We can’t possibly know what cool new idea could be next, but we’d never know as long as indie distribution projects were competing against all-powerful Steam.

Besides, most of the complaining against non-Steam exclusivity deals stem from pure convenience.  In the short term, that’s a valid objection.  It fails when placed in the larger context, though.  If Steam hadn’t come along as a viable alternative to physical stores or the disparate digital delivery solutions of old, we wouldn’t have all the cool integrated features that Steam provides us with today.

The same is true of whatever the future platform is, whether Steam or some new contender.  Competition breeds innovation and innovation is always good for the consumer and the industry, both.  Even if new ideas don’t improve on convenience and save money, competition will drive down the cost to publishers and developers.  Lower costs to them will result in savings for the consumer, and more importantly, open the door for smaller indie studios that might not have survived otherwise.

I have well over 300 games on Steam, not counting free-to-play games, and there’s a part of me that doesn’t want to be forced to have games in multiple places. Then again, I felt the same about Steam when it first came out.

Red’s Ruling

I expect growing pains due to exclusivity.   Some distributors will make poor decisions and it’ll cause temporary problems for consumers.   There’ll also be a period where everyone gages each new option against Steam and not on its own metrics.  Eventually, we’ll get past that rough spot and consumers will simply be offered a range of new options on how to purchase and consume their entertainment, and that is most definitely a good thing.

The largest benefit to competition has to be the cost to developers and publishers, though.  Steam’s gotten greedy.  We know that because we wouldn’t have new systems popping up everywhere if Steam were more palatable from a costs perspective.  When you get frustrated over having to access your game though another UI, stop to think about that for a moment.   Steam offers so many advantages and tools to companies publishing games, and yet despite the risks of making a sizable portion of your audience mad, companies are still spending money to develop their own solutions or signing exclusivity deals with other distributors.

Consider that fact for a moment.  How bad does it have to be before this seems like a good option?  In the end, I don’t think there’s any other answer that’s better than that.  If it’s that bad for developers, then it’s well past time we had competition to drive those prices down and to improve the product and processes.

Whether companies navigate the path to exclusivity safely or not, that’s a totally different issue.  That said, I’d still tend to be a little more lenient because there’s no established norm yet for how a company is supposed to approach that PR problem.  Some companies will be worried and approach it with greater timidity, but others will just come straight out with the announcement.

Personally, I prefer the latter because it prevents misunderstandings, but it’s not likely to be common.  The internet being what it is, every time a company flubs the announcement, the torches and pitchforks will appear for their hour upon the stage.  Their furious sounds will only be significant in that it’ll make some companies be more timid about announcing their exclusive deals, and that’s not particularly helpful.

In the long run, exclusivity deals will be a necessary evil.  As rates normalize, we’ll see them less often, but eventually rates will normalize and everyone will be better off for it.  While I don’t care for exclusive contracts, they will be required to give new-comers to the field a chance at success.  I do see that being ultimately better for game companies, consumers, and the industry as a whole.

Red Thomas / A veteran of the US Army, raging geek, and avid gamer, Red Thomas is that cool uncle all the kids in the family like to spend their summers with. Red lives in San Antonio with his wife where he runs his company and works with the city government to promote geek culture. Follow him on Twitter: