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Valve don't release pricing information for the Source Engine, but they say it's competitive[1]. One of their competitors is id, who charge $250k plus 5% of who

Valve don't release pricing information for the Source Engine, but they say it's competitive[1]. One of their competitors is id, who charge $250k plus 5% of wholesale[2] for id Tech 3. I'd say it's probably nice side income. Epic charge $350k plus 3% of wholesale[3]. For 18 games (if I counted that wikipedia list correctly), that should be a fair take, but it would seem like more of a side income when compared with Steam :) [1] http://source.valvesoftware.com/SourceBrochure.pdf http://source.valvesoftware.com/SourceBrochure.pdf [2] http://www.idsoftware.com/business/technology/printdoc.html http://www.idsoftware.com/business/technology/printdoc.html [3] http://udn.epicgames.com/Main/Licensing.html http://udn.epicgames.com/Main/Licensing.html

psykotic 16y ago
Well, $350k is UE2's price but that's an outdated engine. A license for the current generation engine, UE3, will cost you around $1MM for a flat deal, less with back-end royalties. Epic makes significantly more from their games than from their licensing. Here's the math. The Gears of War games had sold 12 million copies as of April last year. Most were sold close to release at $60 but some sold later at a discounted price. Let's say the average sales price across the 12 million copies was $50. A top-tier developer like Epic can command a 40% or higher royalty of wholesale minus cost of goods. GameStop's profit margin on a new game is 20% and cost of goods is a few bucks. That's around $15 per copy into Epic's pockets. Multiply by 12 million and you get $180MM. When Gears of War 3 lands in half a year, it will sell more than 7 million copies and make Epic another $100MM. That's a fuckton of money. Valve's revenue from sales of their own games and cuts from Steam is stratospheric compared to Epic's. If Gabe snapped his fleshy fingers and instantly absorbed all of UE3's marketshare with Source, it would still constitute a small portion of Valve's revenues. That's probably why Valve hasn't been more aggressive about engine licensing. They already have a massive and diversified revenue stream.
- rexf 16y ago
  Valve is also in the business of selling virtual hats. http://www.joystiq.com/2010/10/21/user-created-tf2-items-bring-in-up-to-47-000-for-some-steam-mem/ http://www.joystiq.com/2010/10/21/user-created-tf2-items-bri... Judging by how much they pay out, TF2 virtual goods are a profitable side business for Valve.
- andreaja 16y ago
  At what margin? There's more revenue in gaming than engine licensing, but once you have the engine, I can't imagine it costing much to license it.
  - psykotic 16y ago
    > At what margin? There's more revenue in gaming than engine licensing, but once you have the engine, I can't imagine it costing much to license it. When you license UE3, you receive technical support from the programmers who implemented the engine. That's part of the sales pitch. Epic's marginal expense cannot be covered by just hiring more random hackers; it's mainly an opportunity cost. The engine is also in continual development, so you can't think of marginal revenue after the initial R&D investment as pure profit. An alternative licensing model was followed by id Software back when they were still in that business. You sign the contract, pay the license fee, get a full day of face-time with Carmack, and then you're all on your own. There were other reasons that id's licensing business collapsed but the non-support was a contributing factor. But there are also strategic technical issues that discourage Valve from chasing Epic's engine marketshare. Building an engine that's fit for many genres and platforms takes longer and is fraught with compromises compared to catering solely to your own needs. It's a good business but there are reasons Valve focuses their attention elsewhere.
yesimahuman 16y ago
Thanks for all of that. It's definitely a smaller part of what they do than I thought.

psykotic 16y ago

Well, $350k is UE2's price but that's an outdated engine. A license for the current generation engine, UE3, will cost you around $1MM for a flat deal, less with back-end royalties. Epic makes significantly more from their games than from their licensing. Here's the math. The Gears of War games had sold 12 million copies as of April last year. Most were sold close to release at $60 but some sold later at a discounted price. Let's say the average sales price across the 12 million copies was $50. A top-tier developer like Epic can command a 40% or higher royalty of wholesale minus cost of goods. GameStop's profit margin on a new game is 20% and cost of goods is a few bucks. That's around $15 per copy into Epic's pockets. Multiply by 12 million and you get $180MM. When Gears of War 3 lands in half a year, it will sell more than 7 million copies and make Epic another $100MM. That's a fuckton of money. Valve's revenue from sales of their own games and cuts from Steam is stratospheric compared to Epic's. If Gabe snapped his fleshy fingers and instantly absorbed all of UE3's marketshare with Source, it would still constitute a small portion of Valve's revenues. That's probably why Valve hasn't been more aggressive about engine licensing. They already have a massive and diversified revenue stream.

rexf 16y ago
Valve is also in the business of selling virtual hats. http://www.joystiq.com/2010/10/21/user-created-tf2-items-bring-in-up-to-47-000-for-some-steam-mem/ http://www.joystiq.com/2010/10/21/user-created-tf2-items-bri... Judging by how much they pay out, TF2 virtual goods are a profitable side business for Valve.
andreaja 16y ago
At what margin? There's more revenue in gaming than engine licensing, but once you have the engine, I can't imagine it costing much to license it.
- psykotic 16y ago
  > At what margin? There's more revenue in gaming than engine licensing, but once you have the engine, I can't imagine it costing much to license it. When you license UE3, you receive technical support from the programmers who implemented the engine. That's part of the sales pitch. Epic's marginal expense cannot be covered by just hiring more random hackers; it's mainly an opportunity cost. The engine is also in continual development, so you can't think of marginal revenue after the initial R&D investment as pure profit. An alternative licensing model was followed by id Software back when they were still in that business. You sign the contract, pay the license fee, get a full day of face-time with Carmack, and then you're all on your own. There were other reasons that id's licensing business collapsed but the non-support was a contributing factor. But there are also strategic technical issues that discourage Valve from chasing Epic's engine marketshare. Building an engine that's fit for many genres and platforms takes longer and is fraught with compromises compared to catering solely to your own needs. It's a good business but there are reasons Valve focuses their attention elsewhere.

yesimahuman 16y ago

Thanks for all of that. It's definitely a smaller part of what they do than I thought.