Valve's new revenue split with big game developers is a sign of weakness

Valve's stranglehold on PC gamers is slipping and this latest concession is a sign of weakness for Steam in the Launcher War.

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Valve recently announced changes to their Steam software revenue split with developers. Going forward Valve will only take a 25 percent cut of a game's sales over $10 million and a 20 percent cut of game sales above $50 million. The majority of Steam games that don't sell over $10 million will still pay a 30% cut to Valve. This is a regressive rate structure that hurts indies, but it is also a sign of weakness at Valve. 

Begun, the Launcher War has

Yoda is pretty bummed out about how many launchers he needs to enjoy PC gaming.
Yoda is pretty bummed out about how many launchers he needs to enjoy PC gaming.

Many game studios have created their own storefronts and launchers on PC. Origin, Uplay, Bethesda Launcher, Battle.net, Discord, GMG, itch.io, GOG Galaxy, Humble Bundle, Twitch Prime, Oculus Home, Viveport and Epic Games have all entered the fray and have provided gamers with ways to buy and launch their games without giving Valve a dollar. Microsoft's Windows Store has also thrown their hat in the ring with some more PC competition for Valve. Xbox Game Pass will be making a bigger splash on PCs for gamers in the near future.

Last year, Activision Blizzard announced that Destiny 2 would be released on Battle.net as opposed to Steam and this year the company followed up with releasing Call of Duty: Black Ops 4 on their own launcher as well. These are multimillion dollar franchises that are not coming back to Steam anytime soon. Valve's new revenue split policy is clearly an attempt to win back these larger developers. The obvious problem with this strategy is that Activision Blizzard has no motivation to give Valve 20% of sales when they can keep all of their revenues while selling on Battle.net.

Fortnite isn't helping

Epic Games Launcher is the PC destination for the most popular game in the world.
Epic Games Launcher is the PC destination for the most popular game in the world.

Fortnite is the biggest game in the world right now, with more concurrent players than all of Steam combined. This juggernaut of a game showcases how higher-tier studios view Valve. Epic Games has over 200 million gamers playing Fortnite across a vast array of platforms and has taken some dubious steps to maximize profits. Most notably is the company's Android release of Fortnite that avoided Google Play's app store entirely. Epic couldn't pull that off on Apple's closed off App Store ecosystem, but Android allowed for the company to keep all of their sales with one hilarious workaround. In a different time, Fortnite could have been a huge windfall for Valve as the company has rested on its laurels for years scooping up 30% of other developers' sales.

Steam is still unique, for now

It is not all doom and gloom for Steam. Valve's storefront still offers developers free matchmaking services, mod hosting, and free cd key generation as parts of the Steamworks API, alongside merchant services. These all add value to that 20-30% cut of game sales that the company is taking, but most likely will not interest the big studios. EA doesn't necessarily care about FIFA mods, and Bethesda is happy with keeping 100% of Fallout 76's sales. Steam truly offers value to indie developers who are trying to grow their brand, and it is sad to see Valve apply a revenue split that penalizes smaller devs while rewarding studios with massive profits. 

Perhaps there would be a shift over from Steam if another platform begins to offer competitive services, but it seems like Valve has indies between a rock and a hard place. Steam remains a very large storefront for new and smaller devs to promote their titles. GOG, Humble Store, itch.io and several other smaller outlets are attempting to pull indies over to their stores, but Steam remains atop the market for now. 

Valve can fix this by making games

Valve needs to make games to keep Steam relevant and profitable.
Valve needs to make games to keep Steam relevant and profitable.

Valve needs to remember what made Steam unique in the first place. They created the store and launcher for themselves. Sure, there were other games that took advantage of the platform in the early 2000s, but what made many PC gamers download the Steam client was the migration of Counter Strike 1.6 onto the platform. Valve later made Steam the definitive place to buy Half Life 2 in 2004, carrying the momentum from nearly half a million CS players joining in the prior year. It wasn't until the next year of Steam's existence that third party developers began to flock to the store. 

Valve released Artifact just last month, with some mixed reviews, but it is a start and sign of things to come from the company. Valve needs to keep making games in order to keep Steam relevant and profitable. Gabe Newell has been on the record several times saying that Valve is going to get back to making games. The acquisition of Firewatch developer Campo Santo could be a sign of things to come. There are even rumors swirling about a Half Life VR game to launch with a Valve VR HMD. Whatever is going on inside the company, it is more apparent than ever that the best way to replace the lost revenues from the Launcher War is to make Valve games again. These 5-10% cuts in fees are weak sauce, and will not bring back games from companies who have proven they can have 100% of their cake and eat it too.

CEO

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

From The Chatty
  • reply
    December 3, 2018 1:00 PM

    Asif Khan posted a new article, Valve's new revenue split with big game developers is a sign of weakness

    • reply
      December 3, 2018 1:52 PM

      At this point, valve needs to do something to differentiate itself again. Multiplayer, anti cheat, store front, huge sales, the other store fronts have caught up.

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        December 3, 2018 2:29 PM

        I would like to see them make games. Really interested to see what comes out of the Campo Santo acquisition.

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          December 3, 2018 4:32 PM

          Firewatch choose your own adventure... on Netflix

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        December 3, 2018 3:48 PM

        I know a lot of Shackers hate the early access, but I do find myself spending most my time playing indie games than major titles.

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        December 3, 2018 4:09 PM

        they have market share, other store fronts are nowhere close. valve makes so much money

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          December 4, 2018 5:52 AM

          The article is about other store fronts encroaching on this market share.

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          December 4, 2018 12:55 PM

          That kind of thinking will make them obsolete before they know what hit them. If the AAA titles go away what is Valve going to survive on? Indie games and their own tiny and stagnant library of games?

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      December 3, 2018 2:57 PM

      It's too little, too late. Should be 20% across the board starting with zero sales at this point.

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        December 3, 2018 2:59 PM

        Starting at zero sales, I mean.

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          December 3, 2018 3:42 PM

          It is ridiculous that they are treating indies this way.

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            December 3, 2018 3:54 PM

            It is so transparent how the revenue splits are trying to stem AAAs from pulling games entirely onto their own services. If the change had been across the board then that case could still be made, but it would at least be buffered by the benefit to smaller developers.

            This revenue split isn't even trying to hide that, it is broadcasting to the world "Hey Ubisoft and CDPR, please continue publishing your new games on Steam!"

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              December 3, 2018 4:36 PM

              Word

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              December 3, 2018 7:29 PM

              they couldve just did it across the board and pretend all the indie games are 1 big AAA title. but oh well

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            December 3, 2018 4:31 PM

            I've gone from being hardcore steam to incredibly negative. When Gabe brags about being more profitable per employee than Microsoft instead of games, he's flat out admitting losing touch.

            Valve has 5 franchises and should be releasing a new game at minimum every 18 months. They are a shell of what they used to be and pretty much run themselves like a short-sighted shareholder controlled company.

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              December 3, 2018 4:39 PM

              I think this is also one of the reasons why I'm also don't have steam on startup anymore. Everything that they offer can pretty much be offered by other launchers and their current selection of modern games are not interesting to me at all

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                December 3, 2018 5:47 PM

                I miss our chats.

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                December 4, 2018 1:09 AM

                Their current selection is every game except battlefield


                I guess you play battlefield a lot

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                  December 4, 2018 5:34 AM

                  Battlefield, fortnite, overwatch, anything blizzard...

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              December 3, 2018 8:03 PM

              What AAA developer releases a new game every 18 months outside of EA's sports franchises? It takes DICE 600+ employees to put out a new BF game every 1-2 years, which is mostly the same game with a new coat of paint. Single player AAA games takes years and boat loads of money to make. Just look at Rockstar's release schedule over the past 15 years, everything has slowed down.

              Valve is interested in building platforms for their multiplayer games and digital storefront. The idea that they should be releasing Portal 6 or Counter-Strike 8 doesn't make a whole lot of sense to me.

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                December 4, 2018 3:45 AM

                Which studio is bigger - Valve or DICE? I honestly do not know. My point was with 5 premium and popular IP's, there is no reason at all (besides lazy steam money) that Valve could not have released several titles within the past 10 years.

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      December 3, 2018 2:57 PM

      you are dead on with this one. Good work sir.

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      December 3, 2018 3:21 PM

      Valve can fix this by making games? hahahahahahahahha.

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        December 3, 2018 3:52 PM

        It’s funny cuz it’s true.

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          December 4, 2018 5:48 AM

          They don't have the organization to support developing a game that compete with EA and UBIsoft let alone multiple games a year. They would have to do a made buying spree of other companies and keep them external of Valve to pull something like that off.

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        December 3, 2018 4:03 PM

        Yeah games!

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        December 4, 2018 2:44 AM

        But actual games not just "technically a game"!

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      December 3, 2018 3:47 PM

      Absolutely correct. The best way Valve can take control of their destiny is by making their own exclusive high quality content for Steam, and they know it. The ship has already sailed on publishers making their own launchers.

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        December 3, 2018 4:01 PM

        It's mostly too late. Hundreds of millions of people already have Origin, Epic Launcher, etc. so at this point people don't have a strict allegiance to Steam anymore. So many exclusives to other storefronts/launchers have eroded Steam user loyalty.

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          December 3, 2018 4:36 PM

          Agreed. I think a lot of people forget that there's a new generation coming up that is even bigger than the one that its replacing. Those millions and millions of 8-14 year olds playing Fortnite on Epic's launcher probably don't have the massive Steam collections us old people have are also doing comms on Discord. There are about 150 million people on Discord and they recently launched a store and subscription service that gets you a well curated library. Same with Twitch, especially if you have an Amazon Prime account, there's an instant library there as well. Its fun to hate on EA but Origin Access is IMHO the best deal in gaming right now. If Microsoft gets Xbox and 360 games onto Game Pass for Windows, that's another serious contender. I've already said enough about how Cyberpunk 2077 is CDPR's Half Life 2 if they make it exclusive to GOG.

          IMHO what Valve is facing over the next decade is a much bigger existential crisis than the theoretical one they faced in 2013, when they announced SteamOS and Steam machines because there was the slight possibility that Windows would shut out third party installers with their own digital storefront. I think this is a positive though, the erosion of Valve's competitive moat means there's finally real incentive to publish their own games again.

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      December 3, 2018 4:59 PM

      I haven’t really jumped on board with other distribution platforms. I think I’m only on steam and GOG. That’s because of my use-case. I have access to the games I want to play, but...I’ve really given up on gaming on my laptop? Last game I really dug into was Stardew Valley. A few years before that, I was on Steam like a MF.

      At that time, I was living in a barebones apartment with not much else to do with my free time. After I few years I furnished my apartment, acquired a PSVR and switch, and gradually moved away from gaming on my MBP.

      I’m not really sure what the point of my post is, but I think I just wanted to express that this article made me think about my steam usage and how it’s changed. Also I want HL3 and although I’ve been holding out for it to happen, the company is just not the same. Whether it’s even capable of doing such a thing is a big question mark for me.

      They’ve been telling us for years that they CANT do it because they insist it has to match the impact that the first titles had.

      Anyway, just ranting here on my commute atm, but god damnit!!!

      if the Black Mesa Source team could finally release their game, I still believe valve or some other developer could give us the conclusion to the series.

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      December 3, 2018 6:15 PM

      Great article Asif. When my shacknews hoodie arrives I will wear it with pride

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      December 3, 2018 7:21 PM

      Between Overwatch and CoD Blackout I haven't logged into Steam to play a game in forever. Having multiple launchers doesn't bother me at all.

      Honestly if Blizzard added more games to Battlenet I'd be ecstatic.

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        December 4, 2018 1:00 PM

        The idea of having to install multiple launcher used to bother me but Valve's arrogance and utter disdain for it's fans has made the idea much easier to swallow. I hate giving money to Valve these days.

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      December 3, 2018 7:25 PM

      Lol 5% with restrictions

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      December 4, 2018 1:23 AM

      There is no fixing, they earned more money than they should have been allowed by the competition, and we on the other hand got a ridiculous amount of new launchers with questionable quality and features not to mention an everlasting flow of patches.
      It's also a perfect example of why the PC is such a clusterfuck when it comes to games, and why Consoles will prevail for ever.

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        December 4, 2018 1:40 AM

        PC and console gaming are about equal in terms of overall revenue. Mobile gaming is larger than both of them combined.

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          December 4, 2018 2:49 AM

          Interesting, do you have anything that backs that up, i would like to read about it.

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      December 4, 2018 1:38 AM

      The competing publisher storefronts are Steam workarounds and not good faith attempts at building a platform that brings value to customers.

      Discord seems like the only platform that poses a serious risk to Steam.

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      December 4, 2018 5:36 AM

      Very good article! Reflects my own thoughts on the matter.

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      December 4, 2018 1:14 PM

      I hope Epic takes a huge bite out of Valve's marketshare. If ever a company needed a big kick in the ass Valve does.