The video-game industry is heading for massive upheaval, and nobody is safe

Getty Images/Mike CoppolaWhen Epic Games brought ‘Fortnite’ to Android, it kicked off a discussion about app-store economics.
  • “Fortnite” creator Epic Games spent 2018 challenging the way that Google, Apple, and Steam – the market-leading digital game store – do business.
  • It’s a sign of things to come, as the Epic Games Store and fellow upstart Discord both challenge Steam’s dominance in a battle that could have ramifications for the entire app-store economy.
  • Meanwhile, Microsoft, Google, and Electronic Arts are working on game streaming, something that could undermine the very notion of a dedicated video-game console.
  • And Microsoft is pushing Xbox Game Pass, a $US10 a month service that has the potential to change the economics of the video-game business – threading a needle between free-to-play and traditional game purchases.
  • Ultimately, all of this adds up to one key takeaway: In the video-game industry, no incumbent is safe, and everything seems increasingly up for grabs.

Far and away, the biggest video game of the year was “Fortnite,” which has become a major piece of mainstream pop culture – and a revenue-generating juggernaut – in its own right.

An underrated aspect of the “Fortnite” phenomenon, however, is all the ways in which its developer, Epic Games, has been using its success as leverage to subtly but firmly shift the power dynamics of the video-game industry.

When Epic decided to skip Google Play and offer “Fortnite” directly to Android users, it was sending a clear message about what it thinks of the fact that Google takes 30% of every transaction – a model that’s been the standard for every platform, more or less, since Apple first launched the App Store in 2009.

And Epic is apparently living by its principles, too: Recently, it launched the Epic Games Store, a PC storefront that offers developers a full 90% of their revenues. Discord, a popular gaming voice-chat service, also joined this push with a similar model, ultimately putting pressure Steam, the leading PC-game store, to change its revenue split, too.

All of this is happening against the backdrop of a major research-and-development (R&D) push at the big tech companies to totally shake up the dynamics of the video-game industry from the bottom up. This year, Google’s Project Stream, in beta testing, aims to bring console-quality games to any phone or computer via the web browser; Microsoft has its Project xCloud, with similar aims. Mega-publisher Electronic Arts has its own streaming ambitions, too.


Read more:
Google’s new video-game streaming service could mark the beginning of the end for gaming consoles

Assassin's Creed OdysseyUbisoftGoogle used the graphics-rich ‘Assassin’s Creed Odyssey’ to beta test its Project Stream service.

Speaking of Microsoft, this year it doubled down on Xbox Game Pass, an all-you-can-eat buffet of Xbox games for $US10 a month. The idea, Microsoft’s Phil Spencer told Business Insider this year, is to build toward a new business model for video games, threading the needle between free-to-play titles like “Fortnite” and the traditional $US50 to $US60 price tag for a new game.

Individually, these are interesting developments. Taken altogether, it paints an astonishing picture: Literally every facet of the video-game business is facing upheaval. And every single incumbent platform, from the digital-game storefronts all the way down to the humble video-game console itself, suddenly seems way more vulnerable than it did even a year ago.

Store wars

Steam, launched in 2003, is the most popular PC-game store on the planet and likely the biggest single digital-game store, period. The success of Steam has made proprietor Valve Corp. – best known as the developer of the “Half-Life” series and esports smash hit “Dota 2” – arguably the single most important company in the business.

Recently, though, Steam has come under scrutiny. Last year,Steam was criticised for perhaps having too much power in the industry, achieving what was declared by critics as something close to a monopoly – essentially locking developers into whatever revenue split it wanted to offer.

Earlier this year, Steam courted controversy, as well, after a game casting players as a school shooter was approved for sale on its digital storefront. In the wake of the uproar, Valve actually took an unexpectedly drastic measure: It decided that it would open the floodgates and allow literally any game to be sold on Steam, unless it contained illegal content or, in its words, was “straight up trolling.” Critics perceived the move as an abdication of responsibility for the platform.

Read more: The world’s largest gaming service, Steam, is giving up on regulation and turning over 200 million users into guinea pigs

All of this just added fuel to the fire of a debate that has been ongoing in Silicon Valley and beyond for a while: Why, some have asked, should developers accept that the major stores – including Apple’s and Google’s – take a 30% cut, when it doesn’t always seem like those same stores have developers’ best interests at heart?


Read more:


The uproar over how ‘Fortnite’ is being released for Android shows how much we have acquiesced to Apple’s way of doing business

So, it’s no surprise that Epic Games, flush with investment capital and fresh off the success of “Fortnite,” decided that the time was right to strike at Steam, even as it dissed Google on Android. For its part, Discord, recently valued at more than $US2 billion, had seen massive success in developing a voice-and-text chat service that lots of gamers liked better than Steam’s built-in tools, giving the startup its own leverage on the game market.

To be sure, both companies have their work cut out for them: Attracting developers away from the mighty Steam is going to be no small task, tantamount to asking them to cut out their most proven audiences. Still, those more favourable terms of business are already proving attractive, especially for Epic, which has locked in several exclusive titles, such as the anticipated “Hades” from Supergiant Games.

If these upstart gaming stores find success with giving developers a bigger piece of the pie, you can be certain that you’ll be hearing a much more public airing of grievances about Apple, Google, and anybody else who takes a big cut of store revenues. And more directly, Steam, which once seemed like it had a perpetual stranglehold on the PC gaming industry, suddenly looks very vulnerable, indeed.

The video-game console is vulnerable, too

The dedicated video-game console has been a mainstay of the industry for decades. While the business is definitely cyclical, it’s weathered would-be crises – like the advent of the smartphone boom – and kept on trucking.

Now, Sony and Microsoft are working on the next generations of PlayStation and Xbox, respectively. But the stars are aligning to, perhaps, make this the last generation of traditional video-game consoles.

The surest signs yet come from Google and Microsoft, which are both gearing up to offer their own cloud-based gaming services. Essentially, these services would do the hard work of actually rendering the game in their own massively powerful data centres. Then, the video gets streamed to your device. When you move the controller, the signal goes back up to the cloud, starting the cycle over.

Phil SpencerKevork Djansezian/Getty ImagesMicrosoft’s Phil Spencer has been spearheading the Xbox Game Pass push.

This has several implications. First off, it means that any device, regardless of computing horsepower, can theoretically run any game – after all, it’s Google’s or Microsoft’s cloud that needs to have the cutting-edge graphics hardware, not your phone, tablet, or computer. Google has been testing the technology with the graphics-rich “Assassin’s Creed Odyssey,” and by all accounts, it works a treat. Just open a Google Chrome browser window and get playing.

All of which implies that future blockbuster-quality video games could be playable from your phone, on the go, anywhere. It’s been tried before, sure – notably the failed OnLive service and Sony’s own PlayStation Now – but the incoming rise of ultra-speed 5G wireless internet could make it more feasible, even as “Fortnite” proves that more people, especially the younger crowd, will embrace the smartphone as a gaming platform… for the right game.

And while the video-game console might stick around, it may mutate: A console would no longer need to pack a ton of computing horsepower into a package that costs hundreds of dollars; it could theoretically be a smaller, cheaper package that mostly exists to provide a link to the cloud. Again, this has been tried before to little effect, notably with the Sony PlayStation TV. But times have changed, and the market has evolved.

Finally, this brings us back to Microsoft and the Xbox Game Pass.

It’s not hard to imagine a world where the Project xCloud gaming cloud service and the Xbox Game Pass dovetail: Imagine a world in which you pay $US50 to $US100 for a console and $US10 a month for games and get all of the (or, at least, most) big-ticket new releases. It’s a world that might not be so far away, given that Microsoft is already experimenting with providing the Xbox Game Pass for a monthly fee. It could be that new model for which Microsoft has been looking.

So, to recap …

To lay it all out:

The PC gaming industry is in a time of upheaval, in a battle for a better revenue-sharing model that could have ramifications for Apple and Google, too. As a result, Steam, once thought unimpeachable, is under unforeseen pressure, as “Fortnite” developer Epic Games pushes its leverage hard.

Video-game streaming is looking increasingly ready for prime time, in a move that could bring big-budget gaming to the smartphone in your pocket. This could mean that the next generation of Xbox and PlayStation will be the last to resemble what we think of as a video-game console.

And the very business model of games could be subject to a shakeup, as Microsoft’s Xbox Game Pass paves the way toward a new way to pay for video games.

It all means that nothing is certain, and just about every aspect of the business is in flux as we enter 2019.

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