The race to the bottom

Original Author: Jake Simpson

Recently, Mr. Mike Capps – CEO of Epic Games, makers of the Unreal Engine and Gears of War franchise – mentioned in an interview with Industry gamers that “99 cent games will be the death of the industry”. – you can find that interview (brief though it is) here – http://www.industrygamers.com/news/epic-99-cent-apps-are-killing-us/

Now Mr. Capps brings up an interesting question. How, exactly, did we get to the point where large (ish) games are being sold for $0.99 on the appstore? How did this come about?

I think it’s a truism to say that LOTS of the games / apps on the app store are made by one or two man companies – people working on the side to develop something because at the scale of what the mobile community expects and wants, this is a possible thing to do. You *aren’t* building $60 games, thus you can both charge a lot less and the actual work and scope are a lot less.

So basically, at this point, the reason we see a lot of $0.99 games is because the developers are doing it in their spare time and don’t value their time enough. It’s got nothing to do with what the market will bear – the market will bear a lot more than $0.99 games, that’s for sure, just look at the Nintendo DS – but because that’s what a lot of people have set their pricing to be – to be enticing, undercut competition or whatever – that’s now what the market is set at. We made our own beds here, lets be clear.

But the practical effect of this has been very interesting. The ripple effect is now that you *cannot* price a game correctly according to scope and effort, because so many games are *not* priced that way (or you can and just not see anyone buy it). For Epic, this is a very real problem. Infinity Blade was created as basically a giant Advertisement for Unreal on the iphone. It’s very pretty, it’s quite fun but lets also not forget that I think it’s a safe assumption that it’s got over $250k’s worth of development time of assets in there. Assets of that quality don’t come cheap.

So while it’s a great ad for Unreal, it’s effectively a loss leader, even being charged out at $6 a pop (I say it’s a loss leader, however it’s probable it *did* make a profit simply because of novelty value. It looks nice, Epic is shouting about it and it makes people feel good about spending so much money on a phone because “look what it can do”. What I mean by loss leader is that if it didn’t make a profit then oh well – it doesn’t matter because it would be worth the expenditure based on new engine business this would bring in.).

However, what Epic is running into is the same scope problem that everyone else does on IOS – the fact is that people are buying Infinity Blade based on visual acuity / novelty, but it cost a metric arm load to produce. As has been said, assets of that quality are expensive to produce – and in a market of $0.99 game expectations, who can actually front the amount of money to produce those high quality assets given the absolute uncertainty of revenue from the appstore? While Epic can put marketing behind a game they release, can anyone else?

To put it another way, the risk for development using a high power engine that a) requires you to hand over 25% of your profits, past the first $50k on an app store where b) the median price of a game is $0.99 (thereby requiring you to sell a lot of them to make any kind of profit at all) and where c) the market is so saturated and hard to be seen in, that marketing will cost $ as well, is now so great that the Unreal offering really isn’t that attractive to most smaller developers.

Granted, you don’t have to spend so much time and $ on creating awesome looking assets, but if that’s the case, why bother with Unreal at all? If you aren’t going to use the tools they provide to create great looking content, why let Epic take 25% of your potential profits? Why not just go Unity instead, spend $1500 up front and be done with it? Or, better still, roll your own engine?

To actually use Unreal as it’s intended to be used – to create the stunning visuals that gamers are now coming to expect from Unreal powered games – requires a huge investment of time and potential earnings for a market that is simply too cheap and risky to support it.

From the perspective of the indie developer, Epic is, in fact, doing us all a bit of a disservice with games like Infinity Blade because all they are really doing is educating the game purchaser that you _should_ be getting assets and scope of the value and quality of their offerings at a $6 price point, while basically putting everyone else who does this for a hobby – who cannot produce this level of quality – out of the running. It’s basically “We have the money to make this AAA quality and can afford to sell it for $6, shame you can’t”. Except it isn’t, because, as they are finding, actually making a profit on that level of quality given the way the appstore pricing expectations have been set is extremely difficult.

The bottom line is that Epic is offering a AAA solution into a market that is ill equipped to handle it. Epic is right though, $0.99 does tend to handicap everyone on the app store, – unless you are the statistical anomaly that is Angry Birds, – and we need to bring that lowest price point up (unlikely as that realistically is). But what a $0.99 price point also does is make the running harder for Epic to license their engine even more than it damages individual developers which is why they are complaining about it.

So what do we do about it? I don’t really know, and I don’t even know if we should be doing anything about it – the price is set now and while as an indie developer I’d definitely like to see each indie earning more from their individual sales, I’m not sure I really want to do that just to make the market wealthy enough for Epic to swoop in and gather up all developers using their UDK and have them make money out of us. They do enough of that in the AAA console development arena:)

I suspect that the reason we see Unreal on IOS at all basically because some of the devs at Epic wanted to see if they could do it – which is a laudable thing. Now it’s there though I’m not sure I see much of a real business niche for it in mobile – I’m not sure I believe that there is a AAA market for mobile devices, at least in the quantities to make it cost efficient to produce large scale budgeted games that Unreal excels at.

Still, time will tell and Epic has a way of making things work for themselves.