Perplexing Partnership between Stardock-Ironclad and Epic Games Store
Published on Sunday, September 25, 2022 By
I am perplexed by the partnership between Stardock-Ironclad and the Epic Games Store.
I have seen Stardock staff state two justifications for the partnership; these two justifications are the foundation for my confusion.
1) The B2B revenue split. As far as I am aware, most other digital distributors, including Steam, have a 70-30 revenue split, where the developer keeps 70% of revenues generated by the game and pays the distributor the remaining portion, 30%, for the services provided.
By comparison, Epic Games Store has an 88-12 revenue split.
2) The Cash Advance for Development, where Epic pays the developer an advance payment to support the development and reduce risk.
Stardock staff have implied that without this cash advance, Sins 2 would not get made and hence would not exist at all, so the Epic exclusivity deal is the lesser evil.
Stardock is a software company with a simple business model. They develop software they sell to the market to fund the business's costs. That's the model. If Stardock does not sell software, it cannot support its costs and will go out of business. If Stardock has no software developed, they cannot sell it.
Concerning 1:
While on superficial examination, it makes sense that Stardock would choose the deal that gives them the larger fraction of the pie, this decision doesn't stand up to deeper scrutiny.
In 2021, Steam revenues were 6600 million, whereas EGS revenues were 840 million.
70% of 6600 is greater than 88% of 840.
A smaller fraction of a larger pie is greater than a larger fraction of a much smaller pie.
Also, with the established history of EGS giving away free games to entice customers to use their web store, I very much doubt that EGS users have the same spending propensity compared to users of other distributors.
Concerning 2:
The Cash Advance for Development topic concerns risk vs reward. The developer invests money and gets a return on their investment. There is a risk that their investment will not yield the expected return.
It makes sense to minimise risk and maximise reward from a business perspective.
Therein lies the rub; it has already been established that the potential reward (revenue from sales) is higher with Steam than with Epic. Going with Epic appears to me much riskier than going with Steam. Although there is a guaranteed cash advance when going with Epic, the potential sales pool is much smaller throughout the exclusivity period, which is a substantial source of risk in and of itself.
It's also surprising that Stardock requires a cash advance for the development of the next game in the pipeline to be viable, given the simplicity of their business model.