Epic Games found blockbuster success with the video game Fortnite: Battle Royale, a fantasy test of endurance and survival that has captivated millions of players. The game has brought in an estimated $4 billion since it was released in September 2017.
Now, Epic is using its windfall to back its next venture: controlling the way people buy video games.
Like books, movies and music, the video game industry has been shaken up by the internet. Sales at traditional brick-and-mortar stores have plummeted as more consumers download their games, and retailers like GameStop have struggled to adapt as customers switch their buying habits.
Revenue from PC games is expected to rise 4% this year to $35.7 billion, from 2018, according to Newzoo, a market research firm. This growth offers a lucrative opportunity for digital stores.
Epic’s entry into the market, called the Epic Games Store, opened in December. To bolster its service, Epic has been courting game developers by committing a larger share of revenue. It offers exclusive access to hot sequels and lower prices to lure players. And it has big backers, including Chinese tech giant Tencent.
But the biggest challenge facing Epic is the decade-long dominance of Steam, the primary destination for people buying computer games online.
A majority of game developers who used Steam said it accounted for at least 75% of their revenue from sales of computer games, according to a survey released this year. Those sales generate crucial revenue for Steam’s owner, game maker Valve Corp. Steam was created in 2003 to sell Valve games, but its offerings were broadened to include third-party games. When a game is sold on Steam, Valve typically keeps 30% of all revenue the game generates.
“Stores extract an enormous portion of game industry profits and are ripe for disruption,” said Tim Sweeney, chief executive of Epic.
Valve did not respond to requests for comment.
Becoming a platform provider is a dream for many large gaming companies because it offers financial security, said Serkan Toto, chief executive of Kantan Games, a consultant for investors and developers.
“The goal is to build a long-term and presumably stable business with recurring revenue,” he said in an email, “instead of living under the pressure of constantly delivering hits and misses in the content business.”
Steam has faced other rivals, including stores from game developers like Blizzard Entertainment, Electronic Arts and Ubisoft, which can collect 100% of revenue when selling their own games on their own storefronts.
Despite rising competition and complaints from small-game developers over revenue-sharing deals, Steam has managed to stay on top because of its powerful influence.
But Epic has some advantages. Its piles of cash, emphasis on community building and access to the Chinese market give it a chance to successfully challenge Steam, said Joost van Dreunen, managing director of SuperData Research, a Nielsen company. It estimates that Fortnite: Battle Royale has generated at least $3.9 billion in revenue.
“They’re going to be this social platform where there are going to be cool games but you are also going to be hanging out with your friends,” Van Dreunen said. “It panders to a very different audience segment. Most likely Epic will be the more mainstream version of Steam.”
Toppling Steam will not be easy. Changing the habits of entrenched users can be difficult, and even companies with large audiences have struggled in the digital distribution space. Twitch, the streaming service owned by Amazon, and Discord, the chat program used by many gamers, recently shuttered their public storefronts.
But there has been growing frustration within the industry about what some call a glut of games on Steam — it offers more than 30,000, while the Epic Games Store has curated fewer than 100 — and an antiquated revenue-sharing model that benefits Valve.
Epic is already off to a strong start. It has greater access to China’s lucrative market, with more than 300 million computer gamers, through its investor Tencent. That company paid $330 million for 40% of Epic in June 2012, years before Fortnite became a global phenomenon, in a deal that valued the company at about $800 million.
To court developers, it has promised to keep only 12% of game revenue, less than half of what Steam keeps. And it waives the 5% royalty fees for games built using its Unreal Engine, a suite of design tools used by developers.
To draw players, Epic is offering lower prices and exclusive release windows. With the money flowing from Fortnite, Epic has been able to pay several developers for exclusive distribution rights on the Epic Games Store. Titles like Metro: Exodus and Borderlands 3 will not be found on Steam for at least six months after their release.
Epic said in March that its store had 85 million accounts, although it was unclear whether they were used to purchase games. Anyone who plays Fortnite on a computer must log in through the Epic Games Store. By comparison, Valve has said that 90 million people visited Steam monthly in 2018.