valve

Epic CEO Tim Sweeney has long been an outspoken opponent of what he sees as Valve’s unreasonable platform fees for listing games on Steam, which start at 30 percent of the total sale price. Now, though, new emails from before the launch of the competing Epic Games Store in 2018 show just how angry Sweeney was with the “assholes” at companies like Valve and Apple for squeezing “the little guy” with what he saw as inflated fees.

The emails, which came out this week as part of Wolfire’s price-fixing case against Valve (as noticed by the GameDiscoverCo newsletter), confront Valve managers directly for platform fees Sweeney says are “no longer justifiable.” They also offer a behind-the-scenes look at the fury Sweeney and Epic would unleash against Apple in court proceedings starting years later.

“I bet Valve made more profit… than the developer themselves…”

The first mostly unredacted email chain from the court documents, from August 2017, starts with Valve co-founder Gabe Newell asking Sweeney if there is “anything we [are] doing to annoy you?” That query was likely prompted by Sweeney’s public tweets at the time questioning “why Steam is still taking 30% of gross [when] MasterCard and Visa charge 2-5% per transaction, and CDN bandwidth is around $0.002/GB.” Later in the same thread, he laments that “the internet was supposed to obsolete the rent-seeking software distribution middlemen, but here’s Facebook, Google, Apple, Valve, etc.”

Expanding on these public thoughts in a private response to Newell, Sweeney allows that there was “a good case” for Steam’s 30 percent platform fee “in the early days.” But he also argues that the fee is too high now that Steam’s sheer scale has driven down operating costs and made it harder for individual games to get as much marketing or user acquisition value from simply being available on the storefront.

Sweeney goes on to spitball some numbers showing how Valve’s fees are contributing to the squeeze all but the biggest PC game developers were feeling on their revenues:

If you subtract out the top 25 games on Steam, I bet Valve made more profit from most of the next 1,000 than the developer themselves made. These guys are our engine customers and we talk to them all the time. Valve takes 30% for distribution; they have to spend 30% on Facebook/Google/Twitter [user acquisition] or traditional marketing, 10% on server, 5% on engine. So, the system takes 75% and that leaves 25% for actually creating the game, worse than the retail distribution economics of the 1990’s.”

Based on experience with Fortnite and Paragon, Sweeney estimates that the true cost of distribution for PC games that sell for $25 or more in Western markets “is under 7% of gross.” That’s only slightly lower than the 12 percent take Epic would establish for its own Epic Games Store the next year.

“Why not give ALL developers a better deal?”

The second email chain revealed in the lawsuit started in November 2018, with Sweeney offering Valve a heads-up on the impending launch of the Epic Games Store that would come just weeks later. While that move was focused on PC and Mac games, Sweeney quickly pivots to a discussion of Apple’s total control over iOS, the subject at the time of a lawsuit whose technicalities were being considered by the Supreme Court.

Years before Epic would bring its own case against Apple, Sweeney was somewhat prescient, noting that “Apple also has the resources to litigate and delay any change [to its total App Store control] for years… What we need right now is enough developer, press, and platform momentum to steer Apple towards fully opening up iOS sooner rather than later.”

To that end, Sweeney attempted to convince Valve that lowering its own platform fees would hurt Apple’s position and thereby contribute to the greater good:

A timely move by Valve to improve Steam economics for all developers would make a great difference in all of this, clearly demonstrating that store competition leads to better rates for all developers. Epic would gladly speak in support of such a move anytime!

In a follow-up email on December 3, just days before the Epic Games Store launch, Sweeney took Valve to task more directly for its policy of offering lower platform fees for the largest developers on Steam. He offered some harsh words for Valve while once again begging the company to serve as a positive example in the developing case against Apple.

Right now, you assholes are telling the world that the strong and powerful get special terms, while 30% is for the little people. We’re all in for a prolonged battle if Apple tries to keep their monopoly and 30% by cutting backroom deals with big publishers to keep them quiet. Why not give ALL developers a better deal? What better way is there to convince Apple quickly that their model is now totally untenable?

After being forwarded the message by Valve’s Erik Johnson, Valve COO Scott Lynch simply offered up a sardonic “You mad bro?”

GameDiscoverCo provides a good summary of other legal tidbits offered in the (often heavily redacted) documents published in the case file this week. Wolfire is now seeking a class-action designation in the suit with arguments that largely rehash those that we covered when the case was originally filed in 2021 (and revived in 2022). While Epic Games isn’t directly involved in those legal arguments, it seems Sweeney’s long-standing position against Valve’s monopoly might continue to factor into the case anyway.