Revealed: Tim Sweeney's 'Epic' rant to Valve re: 30% platform cut

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[The GameDiscoverCo game discovery newsletter is written by ‘how people find your game’ expert & company founder Simon Carless, and is a regular look at how people discover and buy video games in the 2020s.]

Welcome back - and thanks for supporting this newsletter! We’re reminding you that responses to our short, anonymous Steam ‘wishlists to sales’ surveyclose at the end of this Friday (March 15th!) Please fill it in and we’ll present you results very soon…

And: we were heading in a certain direction for today’s newsletter, but a five-alarm fire in another area of town redirected us. And that would be - new (redacted) documents finally being released in the Valve vs. Wolfire antitrust suit. Let’s get to it…

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Valve / Wolfire: let the lawsuit discovery spice flow

OK, so let’s rewind. Small game dev Wolfire filed a U.S. antitrust lawsuit against Valve (& Steam) back in 2021. And then in May 2022, the suit failed to get dismissed at the first hurdle - though claims like ‘the Steam store and Steam are different products’ did get kicked out, lol. This meant that things proceeded to the ‘discovery phase’.

What did this lawsuit say? We covered it at the time, but the main claim that made it through the first part of the lawsuit was that “Valve is enforcing pricing parity… “[Valve] imposes a [platform most-favored nation] regime to non-Steam-enabled games to ‘prevent price competition from rival storefronts’”.”This is basically a price fixing accusation…

‘Discovery’ means that both sets of lawyers were allowed to subpoena relevant companies, depose people for interviews, and hire experts to argue their side of the case - it’s a mammoth effort, last seen in our space in the Apple vs. Epic lawsuit.

And yes, this means internal Valve data and emails are part of the suit. But of course, they are redacted - by mutual legal agreement - outside of the judge’s view. And the redactions in the court docs seem larger and more competent than the Epic suit.

There’s been some question about how this lawsuit is funded on Wolfire’s side, btw - it must be costing millions for the discovery. We think it’s probably related to funders thinking there will be enough money paid out in a class action suit to pay legal fees. But we’re hazy on that. (There’s no shadowy backer a la Thiel/Gawker, right?)

Anyhow, the Wolfire team has come back with a petition for class certification [.PDF] and restating of the lawsuit. Quite a bit of it is redacted, but: ‘RESOLVING THE DISPUTE AS A CLASS ACTION IS SUPERIOR TO ANY ALTERNATIVE’ is the indication of direction they would like to go in. Here’s some highlights:

• The main thrust of the argument is that Valve’s policies “prevent any publisher that sells its game on Steam… from (a) providing additional game content on another platform that it does not make available on Steam (content parity); or (b) selling a game for a lower price on another platform (price parity).” (Unclear if true, right?)

• Valve has argued that it does make restrictions on Steam key re-use, that’s its right since those keys are its property, and it’ll remove Steam keys if that’s shown to be legally dubious. But Wolfire claims: “Valve regularly confirmed to publishers in no uncertain terms that its [Platform Most-Favored Nation] Policy (including pricing parity specifically) applies in equal force regardless of whether Steam Keys are involved.”

• The evidence for this? Much of it is redacted. But looks to us like Wolfire are conflating Steam key and more general restrictions, and also saying PMFN was unwritten rules: “Microsoft employee asking ‘does Steam require price parity?’ and another responding “Yes – they absolutely do. . . . Its [sic] not formally listed in documentation in Steamworks, but always addressed in-person.”). (stating that Valve “always addressed” its PMFN Policy “in-person” with publishers).” Ah yes, unwritten rules, famously easily to prove in a court of law.

The suit also goes through the platforms that have tried to compete with Valve and failed, suggesting: “Because Valve’s PMFN Policy precludes publishers from differentiating content offered on Steam and [Epic Games Store], publishers have little incentive to offer games on EGS and consumers have little incentive to use the platform.”

To which we’d say - really? Is it differentiated content - even if that is being blocked, which is unclear - that is the game changer here? Might it just be that players have their catalogs on Steam, generally like the platform, and don’t want to move?

Wolfire also brings the ‘clever people’, including a 150 page research document [.PDF] from UCL prof Joost Rietveld, whom we coincidentally featured comments from in this very newsletter last week! (This is mainly unredacted, but redacted in key areas.)

He says: “Absent Valve’s content-parity requirements, competing platforms could better cater to different audiences by offering game versions that are differentiated from their Steam equivalents.” Big ‘Yoda in Soul Calibur IV on Xbox’ vibes here - which is to say, we’re still not convinced this is the a big sales driver for other platforms. (Sorry, Yoda lovers.)

And they also wheel out economist Dr. Stephen Schwartz, who “finds that the yardstick approach ultimately indicates ‘the market but-for commission rate would be between 15% and 20%’ in the market for third-party digital PC game distribution via platforms.” And talking of ‘lower commission’ prices… here comes the Tim!

Unleash the Sweeney: Epic CEO’s emails to Valve..

The most interesting material that’s unredacted in this suit so far? Definitely a pair of emails between Valve’s head Gabe Newell and Epic’s CEO Tim Sweeney - with Sweeney doing most of the talking, by the way.

The first is a Sweeney/Newell email chain back in 2017, which starts with Newell mailing Sweeney to ask “Anything we doing to annoy you?”, and referencing a post from Valve’s Sean Jenkins about restricting Steam keys given to devs. (There were probably some Sweeney Tweets directed at Valve around this time, right?)

Sweeney says it wasn’t about that, and then replies to Valve’s Newell and Erik Johnson on the larger topic: “Generally, the economics of these 30% platform fees are no longer justifiable. There was a good case for them in the early days, but the scale is now high and operating costs have been driven down, while the churn of new game releases is so fast that the brief marketing or UA value the storefront provides is far disproportionate to the fee. If you subtract out the top 25 games on Steam, I bet Valve made more profit from most of the next 1000 than the developer themselves made.”

The second Sweeney email from December 2018 makes it very clear that Sweeney is even more mad at Valve, likely because they’d just implemented a ‘sliding scale’ royalty change which reduces Valve’s cut to 25% and even 20% on high-grossing games - citing ‘network effects’ of big games.

At this time, you can see that Sweeney was already spoiling for a fight with Apple over control and revenue split: “Later this week, we'll be escalating a conversation with Apple in which an authoritarian government (not China) is demanding that either Epic alter Fortnite on iOS or Apple block it, and we'll be responding with a memo on the human rights principles that would be violated by either action. We'll be refusing and asking Apple to either continue to carrying Fortnite or to permit Epic to distribute it directly to customers through an Enterprise Certificate, and escalating as needed.” (Epic’s final fight vs. Apple leading to its removal happened in August 2020, by the way.)

Anyhow, Sweeney says that they “believe the best outcome can be achieved if Apple speedily concludes that the combination of an app store monopoly and 30% fees is untenable, and that opening iOS up is the best stop-loss strategy”, but piles on to Valve in the email, during which he also trails the announcement of Epic Games Store on PC:

“Right now, you assholes are telling the world that the strong and powerful get special terms, while 30% is for the little people. We're all in for a prolonged battle if Apple tries to keep their monopoly and 30% by cutting backroom deals with big publishers to keep them quiet. Why not give ALL developers a better deal? What better way is there to convince Apple quickly that their model is now totally untenable?”

Valve’s ‘sliding scale’ royalty split going down only for big games is - inarguably - practical economic theory winning out over ‘help the little guy’ sentiment. You are welcome to have feelings about that! And Valve isn’t immune to complaints that they’re just sitting there, raking in the cash.

In fact, there’s a document released in the lawsuit featuring Valve employees informally working out how efficient the company is, ranking it above even Facebook in net income per employee and net income per employee per hour. (So, more than $780,000 net income/profit per employee - but we have no idea how much more.)

But is being efficient and incredibly profitable actually illegal, in the good ol’ U.S. of A? We don’t think so. In our view, Steam has a near-monopoly on PC game distribution because players like using it, not because of nefarious goings-on.

However, while we’re not sure Wolfire has a great case, it also doesn’t have a non-existent one. And given the judge in this case is 83 now, and probably not au fait with Steam key distribution complexities - and nor is the law in general, frankly - it is not 100% clear how this suit will end. We’ll be watching it all the way.

The game discovery & platform news round-up…

OK, well that was a whole thing! Finishing things off, we have some interesting links to throw your way:

• Some complaints over the state of the funding market from Keoken Interactive (Deliver Us The Moon) here, which says the current market “seems to be very hard to make profitable for a developer, as I think most (good) games take a long time to recoup (if at all).” Which is precisely why less funders are stepping up, we guess.

• Disney’s CEO Bob Iger went on the record about the $1.5 billion Epic investment [.PDF] during that Morgan Stanley conference: “When I looked into the future, I realized we're underrepresented in games. We've had a decent licensing business, the Spider‐Man game and Sony, for instance, one of the most successful games of 2023, I thought we could do more.”

• ‘In ‘big shooters are platforms too’ news, PUBG is “taking the fight to Fortnite with destructible environments and more transportation items in 2024”, and Overwatch is crossing over with Cowboy Bebop - I love the dev note here that Overwatch 2 characters are ‘in-universe cosplaying’ as those characters, not becoming them!

• Valve’s Tom Giardino is once again, like Bernie, telling you: “Valve does not offer customer support or account security help via other platforms or chat apps. If someone contacts you on Discord offering Steam account support, report them and visit our help site.” (This is happening a LOT.)

• Former PlayStation boss Shawn Layden sat down to talk to VentureBeat and was pretty unguarded about the state of the PC/console biz and Sony’s choices: “When your costs for a game exceed $200 million, exclusivity is your Achilles’ heel. It reduces your addressable market…. The business is all about conversion. You have to improve your odds by cracking the funnel open. Helldivers 2 has shown that…”

• Here’s a useful blog post - on how to get more and better Steam reviews for your game. A lot of this is in the game design, of course: “have a look at see what mistakes your inspirations made and don’t do them yourself.” (Also referenced: QoL improvements like lack of keybinding, which are a frequent review bugbear.)

• Twitch’s CEO Dan Clancy has published an open blog post on the platform’s 2024 plans, highlighting better sharing on social media, improved collabs with Stream Together, better Twitch mobile access, improved monetization, and better enforcement around breaking community guidelines.

• In more ‘would you like this fruit, but we spilled some poison on it?’ news from iOS opening up in Europe, “Apple is planning to make further changes in EU countries to allow some developers to distribute their iOS apps directly from a website”, but with a litany of complex restrictions. (Notarization, data collection, >1m downloads per year.)

• According to The Intercept, ‘gaming companies’ - including Roblox and Discord - are “coordinating with the FBI and Department of Homeland Security to root out so-called domestic violent extremist content.” (Sounds like game platforms and extremism have come up in U.S. Congress more than once.)

• Microlinks: Google’s Deepmind is presenting“a general, instructable game-playing AI agent”; Apple is putting out a new Puyo Puyo game on Apple Arcade in April, alongisde a Sago Mini kids title; why we may be at the end of the MrBeast era on YouTube (we’ll see!)

Finally, we were absolutely fascinated to see Danny O’Dwyer (Noclip) and veteran indie dev Alex Austin front a longform video about low-poly multiplayer game Stunt Derby and its attempts to find a publisher.

Spoiler: they haven’t, despite a lot of initial interest. And Danny talks extensively about the “one-sided power communication” that led to multiple publishers ghosting them, in some cases after weeks of stringing them along. This is a must-watch:

[We’re GameDiscoverCo, an agency based around one simple issue: how do players find, buy and enjoy your PC or console game? We run the newsletter you’re reading, and provide consulting services for publishers, funds, and other smart game industry folks.]