Epic’s New Licensing Bombshell (that kinda isn’t)

No doubt you’ve seen the news, Epic has made Unreal Engine extremely attractive for starting studios by increasing the cap developers can earn before having to pay Epic’s 5% royalty. You can read the announcement near the end of the Unreal Engine 5 announcement.

The except from the Unreal Engine Blog regarding the licensing fee change.

An incredible deal for an incredible engine.

But don’t count Unity out. Yes, many studios would opt for a “free” engine while starting up, however there are a number of different business models that studios are using to go to market and Unreal engine may not fit all of them. One example is web-based games, or the use of web-based games to drive mobile or steam sales. This model involves using large web portals like Kongregate and Miniclip to publish a high quality web game that promotes the mobile or PC version. Unity still provides an HTML5 build path, and it works quite well. Epic has long ago relegated their HTML5 build path to “community supported” status.

Arguably Unity has platform support advantages, with great mobile support and a 1-click solution to switching between the supported platforms. Unity also provides monetization via ads and other good value-added capabilities ‘out of the box’. The engine is extremely easy to just pick up and use, especially for people new to game development, and there are advantages to using C#, a programming language that has a JIT option in terms of iteration speed. There are some clear advantages for our projects using Unity in terms of easy platform flexibility. One example is the creation of shared libraries. If you’ve ever worked with DLL hell in C++, especially as you had to work through compiler and linker differences on various platforms, you’re probably already cringing at the thought of it.

From a performance and features standpoint, Unreal often seems to have an edge, and Epic is also a game studio. They eat their own dog food, and the fact that Unity doesn’t follow suit is not lost on almost all the studios I’ve interacted with. Unreal Engine, as a result, is much more polished and complete in many meaningful areas such as landscape tools, geometry brushes, VR, and high performance visual scripting.

Lastly, large studio opt for enterprise licenses. These are different than your typical off-the-shelf licences in that they are negotiated, include guaranteed support, and can contain other perks such as assistance for promotion. It would make sense that the largest studios would simply pay Epic a big bundle of cash rather than 5% of gross revenues. The amount paid would likely have to compete with the large studio’s ability to create and maintain a game engine internally.

It is worth mentioning that the royalty for Unreal engine doesn’t apply to Unreal-based games released on Epic’s Game Store. That’s quite a good deal, though the Epic Game Store still needs to pick up broader acceptance among gamers.

To conclude, this may not be as much of a shakeup as people think. Both Unity and Unreal can be used for free to get started. Once you have some funds, there is an up-front cost associated with Unity, and a back-end cost if you’re quite successful and using Unreal. The companies themselves will continue to have robust enterprise businesses, and they both have strong offerings for their customers. They also have strengths in different market segments: AAA for PC and console trend Unreal, Mobile and web trend Unity. I don’t doubt those gaps will narrow and disappear as time goes on. Finally, though $1M USD sounds like a lot, but in reality it isn’t. A game can easily exceed $1M in revenue, though that isn’t much when you consider that many games take a significant investment of time and effort to bring to market. If you factor in that five cents on the dollar goes to Epic (unless you’re on the Epic Game Store), the engine becomes much more expensive than Unity much more quickly.