MARCH 2, 2015 • As the Game Developers Conference convened in San Francisco, Epic Games, Inc. changed its business model for the Unreal 4 engine. The $19 monthly subscription fee was dropped entirely for the engine and all future updates. The previous 5% cut that Epic required on all gross revenue has now been adjusted to apply to commercial gross revenue after the first $3,000 per title per quarter. Epic will rebate the most recent monthly fee of current subscribers, and anyone who ever paid for an Unreal 4 subscription during the last year will receive a $30 credit. No change has been made to what assets Epic is making available, which include the complete Unreal 4 C++ source code and tools.

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Impact: Epic is already fairly dominant as game engine providers go. The decision to launch the Unreal 4 engine last March with the requirement of a paltry subscription fee for access was a big step in seeding the technology to the booming number of small developers who have taken to crowd-funding PC titles, plus independent mobile developers. Removing the fee seems more of a promotional maneuver since we doubt that many more developers are going to be pulled into the fold now compared to before. Yet cancelling the fee, plus the rebates, are excellent overtures to those crews already using Unreal 4 engine tech, and any cost savings is welcome at small studios. The new under-$3,000 royalty structure is also a significant benefit to the bottom line of small developers. The larger picture is that Epic has a strong competitor in Unity 3D, especially in cross-platform development. The engine business is not just about PCs and consoles anymore. Beyond mobile games, whole new segments are opening with VR headsets and connected TVs. Diversity in platforms, and ongoing opportunities for small studios, are both driving the removal of barriers to obtaining engine technology. Whether the industry can support more than two dominant engine providers spreading their wares around for free is doubtful. Where Epic has an advantage is that its package includes all features and code, where Unity forces developers into a Pro version to get the complete package. Both engines are monetized, just differently. We think the decision between either comes down to how ambitious a project is being entertained. For more modest games, Unity remains very appealing.