Microsoft set to accelerate push to cloud gaming

May 11, 2021

Greg Sigel

VP – Partnerships

The race to keep existing games, developers on board and attract new ones to their platforms is heating up after Microsoft announced plans to reduce the percentage fee it takes from sales of PC games on the Microsoft Store from 30% to 12%.[i] The figure now matches that deducted by Epic Games since its launch in 2018, a company that both produces its games (notably Fortnite) and sells some made by others on the Epic Games Store.

Apple reduced the fee it charges for mobile games sold via its App Store from 30% to 15% on 1st January this year for developers that make under US$1m a year (the 30% fee is reapplied to all of that revenue if and when sales exceed US$1m in any 12 months). Google too has announced it will lower its fees from 30% to 15% for the first US$1m earned by the developer per year from 1st July 2021 onwards.

The big question now is whether Valve will now follow suit. Like Epic, the company also makes its own games and sells those of its rivals. The crucial difference is that it still takes a 30% cut of any revenue that third-party game developers make from selling their titles through Valve’s Steam distribution service. Steam does give a discount on games that make tens of millions of dollars, but other distributors’ new rules favour smaller, rather than larger, games developers.

Unhappy developers and legal pressures

Games developers have long complained that it is hard for them to make sustainable profits from their titles while the game distribution platforms maintain lucrative margins. This is particularly true for the smaller firms and one-person companies, which account for most titles sold via digital storefront libraries and regarded as the main drivers of innovation in the gaming industry, particularly for mobile devices.

GDC’s 2021 State of the Game Industry Report conducted a poll of almost 3,000 game developers to see whether they thought a 30/70 revenue share on any digital storefronts was justified. Only 3% of respondents said that it was (down from 6% in a 2020 survey), although they all primarily rely on Steam, GOG, Google Play, Apple’s App Store and the Epic Games Store to sell their games. Almost half (46%) thought it acceptable for app stores to take a 10-15% share of sales, indicating that the new distribution fees may be in the more acceptable ballpark.

Other pressures beyond the risk of alienating their core customer base also come to bear on digital storefronts. Apple’s fee reduction announced in the wake of a payment disagreement with Epic Games, which subsequently led to it blocking Fortnite from its App Store. Epic promptly launched legal action, and the dispute is being contested in a US court hearing this month (read my recent blog for more details).

The European Union (EU) has now announced it is charging Apple for breaking competition rules over the way it runs its App Store.[i] Swedish music streaming company Spotify originally made the complaint. The European Commission (EC) observes that Apple’s rules constrain competition by driving up the costs of other music streaming app developers, leading to higher subscription prices for consumers using iOS devices.

Industry expansion needs developer success

Ultimately the gaming industry relies on developers creating new titles and updating existing ones to drive growth, while millions of people use various hardware devices to play. Newzoo estimates that the total games market revenue expanded almost 20% year on year to US$175bn in 2020, for example, and is set to grow further to reach US$218bn by 2023.

Mobile games accounted for the most significant single slice of that total (US$86.3bn) in 2020, up 26% YoY to account for 49% of the market. GDC also estimates that 23% of developers derive up to half of their turnover from iOS platforms and 27% the same amount from Android. Around a third (31%) of those polled by the company also said they were building titles for Android and iOS smartphones, ahead of PlayStation (26%) and Xbox (24%) consoles and second only to the PC (53%).

Nobody wants to see that artists are not creating new titles because of concerns around monetization. Just two years ago, a 30% cut of the fee for digital storefronts was the industry standard, but that may be changing, much to the delight of the developers.

[I] Microsoft Reduces Its PC Game Sales Cut From 30% to 12%,, 29th April 2021

[ii] Apple charged over ‘anti-competitive’ app policies, BBC, 1st May 2021

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