The Tencent problem and Next-Gen.

[Nicktendo]

So as we all know, Epic Games is currently suing Apple for "Maintaining a monopoly" on its App Store and Apple products. They believe that the 30% cut platform providers is unfair and argue that they as developers should be able to distribute their own games on smartphones without paying the platform holder a cut of the money for this privilege. A privilege which essentially boils down to access to more than a billion customers.

However, that's not what I'm getting at here, though I encourage anyone who isn't aware of this situation to read up on it as it could affect all digital marketplaces in the future. 

I want us to imagine a situation where Epic Games wins this lawsuit - and going forward, platform providers cannot maintain a monopoly over distribution on their products. 

Given the recent news that Xbox Series S is launching at £249, it's clear to me that MS is taking a MASSIVE loss on this console in the hope that they can recoup the costs via GamePass subscriptions and, more importantly, digital game sales. The industry standard, outside the EGS, is a 30% cut to the platform provider. This includes, but is not limited to, the following five companies:

Apple (US)
Google (US)
Sony (Japan)
Nintendo (Japan)
Microsoft Xbox division (US)

As we know, the final three companies make the majority of their profit from digital sales and subscription passes on their platforms (consoles). The reason these consoles are sold either at a loss, or a very, very thin margin of profit in Nintendo's case, is because they know they will make the rest of that money back in the future. Essentially, they are betting on getting enough people into the ecosystem to make this economic model sustainable. Remember the $599 PS3? That was still sold at a huge loss and people completely baulked. Times have changed, and barring a catastrophe from Sony, it's unlikely they'll go that high again. They can afford to go lower because the future returns are basically guaranteed. 

[Enter stage left] Epic Games / Tencent. If they win the lawsuit against Apple, Sony, Nintendo and MS wouldn't have a leg to stand on having their various stores as the only point of access to the end-user of a console.

Think about this - Who has the most to gain from this 30% cut legally being ruled unfair? Who has basically unlimited backing and can afford to run at a loss because they are propped up by a communist state? Which nation is trying to gain a dominant position in the global tech market despite leaking foreign tech companies left, right and centre thanks to COVID, sanctions and tariffs? 

Maybe, I'm crazy, but I think Tencent are playing somewhat of a long game here and basically trying to destroy Western tech from the inside out. Their Fortnite propaganda video was a rallying cry to their teenage followers to boycott the "unfair" Apple. Who's to say this will stop there? I think the big 3 console manufacturers are next in their sights, and with it, the dominance of the US and Japan in the global gaming market. 

[Dcubed]

I'm sure that's what Epic/Tencent wants.  They want to basically take over the three console platforms and set them up as Epic Games Stores (basically exactly what EA tried to pull with Origin on Wii U); but it won't happen.  They have no legal leg to stand on with this case..  They will get completely crushed by Apple, and rightly so.

They are effectively trying to set up a shop inside someone else's shop.  The courts are already laughing at them and will continue to do so.

I have no doubt that Epic won't get anywhere with this stunt they're trying to pull.  It would be basically the end of the console business model if it did happen.

Edited September 8, 2020 by Dcubed

[Nicktendo]

10 minutes ago, Dcubed said:

Epic/Tencent don't really have a leg to stand on here.  They will get completely crushed by Apple, and rightly so.

They are effectively trying to set up a shop inside someone else's shop.  The courts are already laughing at them and will continue to do so.

I have no doubt that Epic won't get anywhere with this stunt they're trying to pull.  It would be basically the end of the console business model if it did happen.

I'm sure that's what Epic wants.  They want to basically take over the three console platforms and set them up as Epic Games Stores (basically exactly what EA tried to pull with Origin on Wii U); but it won't happen.  They have no legal leg to stand on with this case.

I agree. I think they'll fail massively, but I'm also worried at what the fallout of a heavy defeat could be. They've definitely got more up their sleeve.

Do we think 30% is fair? Would 25% be better? 15%?

I believe 30% allows the big 3 to price their consoles more competitively and gives them an incentive to do better in terms of how they distribute content. I think it also plays a role in how often we get access to deep sales as 30% of a tenner multiplied many times over is better than 30% of nothing. Overall, I think 30% is consumer friendly, while also being hugely beneficial in allowing the console maker to thrive and reinvest into giving us bigger and better games. I would also argue that 70% is fair to developers as they gain access to a wealth of customers - currently 200 million if they launch on Sony, MS and Nintendo. We've already seen that the EGS store doesn't pass the saving on to the consumer, so while the devs do get more money - more people are still buying the games on Steam (outside of exclusivity) as the service is MUCH better for the average consumer. Who would benefit the most from a 15% cut as opposed to a 30% one? My guess is it would neither be the consumer nor the platform holder. Make a good game and it will make millions, regardless of the cut you get. 

Edited September 8, 2020 by Nicktendo

[Will]

I totally agree with the long term targets of Tencent as outlined by @Nicktendo but I really don’t think this will hit the console makers in the same way.

The issue with Apple is that the iPhone is, for many people, their one computing device, and they are tied into one app store and one store only. It’s not (yet) the case with consoles, as there are multiple physical shops you can buy from - though I don’t think it really makes much difference here.

Even if Apple loses and this suddenly opens up to anyone to make a store you still need to actually get it in front of people. On an iPhone you can make things available via the web but you still have the issue of making them discoverable. I imagine 90% of users are not going to bother with this, they are completely OK with the App Store. On a console how the hell are you going to distribute your new store in the first place? Even if you manage that nobody is going to put their content on it because why would you annoy the first parties? It’s just not going to happen.

50 minutes ago, Nicktendo said:

Maybe, I'm crazy, but I think Tencent are playing somewhat of a long game here and basically trying to destroy Western tech from the inside out. Their Fortnite propaganda video was a rallying cry to their teenage followers to boycott the "unfair" Apple. Who's to say this will stop there? I think the big 3 console manufacturers are next in their sights, and with it, the dominance of the US and Japan in the global gaming market.

I agree, but I don’t think they stand a chance of things getting this far. Sentiment against Chinese tech is only getting worse and they will be kicked out of Western markets if they push this too far.

47 minutes ago, Dcubed said:

They are effectively trying to set up a shop inside someone else's shop.  The courts are already laughing at them and will continue to do so.

I get why people think this but it’s really not an accurate depiction of what they’re taking issue with it.

39 minutes ago, Nicktendo said:

Do we think 30% is fair? Would 25% be better? 15%?

When the App Store started 30% was very fair, and it was a game changer. Now I’m not so sure. Back then people were selling premium games at $10 dollars and it was a one time distribution charge. On mobile the market has moved on and now the platform gets 30% of all your revenue for not really doing very much after the initial download. On console for a full game download I think it’s still fair. Of course the lower amounts would be better though.

46 minutes ago, Nicktendo said:

more people are still buying the games on Steam (outside of exclusivity) as the service is MUCH better for the average consumer.

I think this is key. IF any of this stuff were to go through you still have to compete with the incumbent stores. There is no way these third parties would get anywhere near the quality or market share of the existing stores.

[Dcubed]

That 30% covers the costs of all of the development tools & resources that the platform holder supplies you as a developer; as well as the developer kit costs, the store running costs and everything involved with building and maintaining a hardware platform & software ecosystem.

[Nicktendo]

2 hours ago, will' said:

The issue with Apple is that the iPhone is, for many people, their one computing device, and they are tied into one app store and one store only. It’s not (yet) the case with consoles, as there are multiple physical shops you can buy from - though I don’t think it really makes much difference here.

Even if Apple loses and this suddenly opens up to anyone to make a store you still need to actually get it in front of people. On an iPhone you can make things available via the web but you still have the issue of making them discoverable. I imagine 90% of users are not going to bother with this, they are completely OK with the App Store. On a console how the hell are you going to distribute your new store in the first place? Even if you manage that nobody is going to put their content on it because why would you annoy the first parties? It’s just not going to happen.

As I said in the Fortnite thread, I don't buy this argument. It's their store, their rules. It's exactly the same as walking into Wall-Mart and setting up shop without paying commission. Apple have less the 25% of the Smartphone market. i.e not a monopoly. For people who care about these things, there's Android. The past 15 years saw people flock to Apple and Android because they built the best OS. They shouldn't be punished for that. Apple did this without some of the biggest apps who eventually buckled because their market share become bigger and signed the deal with Apple. This is the market working as intended. No one wants to leave money on the table. 

You can still buy subs to Amazon Prime and Netflix and countless other apps through company websites and use the apps without giving Apple a penny. Using the app store has security benefits to the end user. Same with buying an e-shop voucher or game through Nintendo rather than a third party site. 

A smarter move would have been Epic removing ALL in-app payments on mobile and asking users to pay for v-bucks through the web, Epic Game Store or whatever. They could have even set up a website - v-bucks.com and got everyone to buy v-bucks there as opposed to through ANY store on mobile or console. The have the financial capital and incentive to do this, but this isn't about them making more money, it's all leveraging Fortnite to end Western tech hegemony. 

If you are on iOS, you are available to a billion eyes. Now you can argue that discoverability could be better, but I believe that's a separate argument entirely. Apple's business model does not deserve to be destroyed because they did something well which people clearly like. 

In regard to the console stores, you can bet your bottom dollar EA, Activision and Ubisoft would set up shop in an instant and make their console stores the only way to buy their games. This is much harder on the PC as their storefronts were garbage compared to Steam. They came crawling back in the end, but they definitely made a go of it. Setting up a simple webpage on a console is not going to be hard, and let's remember a lot of console gamers are kids. To them it won't make an iota of difference. The PC Master Race types are much less likely to be hooked in to setting up yet another storefront, as we've seen with some of the backlash directed at Origin and EGS on PC. Indie games would probably continue on the platform store though as they likely wouldn't have the financial clout to set up a store. 

2 hours ago, will' said:

I get why people think this but it’s really not an accurate depiction of what they’re taking issue with it.

I'm in agreement with D-Cubed here. Interested to hear how you think it's different. 

2 hours ago, will' said:

When the App Store started 30% was very fair, and it was a game changer. Now I’m not so sure. Back then people were selling premium games at $10 dollars and it was a one time distribution charge. On mobile the market has moved on and now the platform gets 30% of all your revenue for not really doing very much after the initial download. On console for a full game download I think it’s still fair. Of course the lower amounts would be better though.

Why has it changed? If it was fair then, why isn't it now. Just because the payment model in mobile games has changed, why should Apple be the ones who suffer? Microtransactions are clearly what the public wants (even if we don't). Full price and Fremium games are also stuffed to the brim with this now though, on all three platforms. Should the big 3 also change the 30% as a result?

As I stated in my second post, I think 30% is fair, but I'm open to hearing any argument for a lower number. I don't think that number necessarily has to change, I just don't see how anyone would really benefit from it changing outside of developers who already do very well out of 70% if they build a game people want to play. 

I suppose the main issue for me with the 30%, and something that I perhaps didn't think about before, was that it makes the platform holders less inclined to curate their content. For them it's better to have an open marketplace with no holds barred and claim a clean 30% on everything. That's why you have ludicrous stuff like 4,000 games being released on Steam in a calendar year and why the e-shop has got slowly worse over time. I would still maintain that the good games will always standout though, but Nintendo, MS and Sony (and Apple for that matter) could do more to highlight the best stuff. 

Edited September 8, 2020 by Nicktendo

[Will]

10 hours ago, Dcubed said:

That 30% covers the costs of all of the development tools & resources that the platform holder supplies you as a developer; as well as the developer kit costs, the store running costs and everything involved with building and maintaining a hardware platform & software ecosystem.

A lot of that stuff is covered by membership of the developer program, not by the 30%. The 30% is a distribution charge for the store.

9 hours ago, Nicktendo said:

You can still buy subs to Amazon Prime and Netflix and countless other apps through company websites and use the apps without giving Apple a penny. Using the app store has security benefits to the end user. Same with buying an e-shop voucher or game through Nintendo rather than a third party site. 

A smarter move would have been Epic removing ALL in-app payments on mobile and asking users to pay for v-bucks through the web, Epic Game Store or whatever. They could have even set up a website - v-bucks.com and got everyone to buy v-bucks there as opposed to through ANY store on mobile or console. The have the financial capital and incentive to do this, but this isn't about them making more money, it's all leveraging Fortnite to end Western tech hegemony. 

Yeah I completely agree with this. It is a bit harder for (most) games as you won’t have that existing user base outside of the AppStore, but for Epic it really wouldn’t have been an issue to do this whatsoever if they actually wanted to benefit the consumer.

9 hours ago, Nicktendo said:

In regard to the console stores, you can bet your bottom dollar EA, Activision and Ubisoft would set up shop in an instant and make their console stores the only way to buy their games. This is much harder on the PC as their storefronts were garbage compared to Steam. They came crawling back in the end, but they definitely made a go of it. Setting up a simple webpage on a console is not going to be hard, and let's remember a lot of console gamers are kids. To them it won't make an iota of difference. The PC Master Race types are much less likely to be hooked in to setting up yet another storefront, as we've seen with some of the backlash directed at Origin and EGS on PC. Indie games would probably continue on the platform store though as they likely wouldn't have the financial clout to set up a store. 

I don’t agree with this at all. Why do you think kids on consoles will be more likely to buy from a crappy web store when PC players rejected it? I’m a console gamer because it’s simple and I don’t need to worry about anything, and I imagine most people are the same. I can’t see many console gamers suddenly deciding to figure out different stores for every game they buy.

It would also be very easy for the console makers to just stop putting web browsers in their consoles. Which would pretty much stop it dead before it got started. I don’t see any scenario where this would result in random stores being viable on consoles.

9 hours ago, Nicktendo said:

I'm in agreement with D-Cubed here. Interested to hear how you think it's different. 

It’s different because that’s not what Epic is arguing, to them:

iPhones = The Town
AppStore = The Shop
Apple = The Town Council

All three of these ‘entities’ are colluding to keep other stores out of the town, and this is unfair to those living in the town. Epic want to open another store in the town and that the town council is squashing free trade by not allowing it to happen.

Now, we can argue over the merits of that or whether we agree with Epic’s representation of it, but this is the basis of their argument, not opening a shop within a shop and not paying for it.

10 hours ago, Nicktendo said:

Why has it changed? If it was fair then, why isn't it now. Just because the payment model in mobile games has changed, why should Apple be the ones who suffer? Microtransactions are clearly what the public wants (even if we don't). Full price and Fremium games are also stuffed to the brim with this now though, on all three platforms. Should the big 3 also change the 30% as a result?

When the App Store opened things were much simpler. Developers made two payments to apple, their developer costs and their distribution costs. The developer costs were $100 and this covered all your tools and support and your distribution costs were 30% of whatever price you decided to put your one time payment for a complete piece of software at.

Now that 30% covers a lot more ongoing transactions for both paid and free applications. The question is over whether Apple have a right to 30% of your revenue long after they have done anything to help you get it. Other apps don’t make any money, or get it through ads so essentially get their distribution for free. Should a highly successful game using iAP have to cover the distribution costs of an app that doesn’t?

Personally I don’t think you can change it, because whatever else you put in place is going to be so complex and have so many edge-cases you’d never get something that was overall ‘fairer’ to people. But I can totally see why for an individual case you might not be totally happy with the system as it stands.

10 hours ago, Nicktendo said:

As I stated in my second post, I think 30% is fair, but I'm open to hearing any argument for a lower number. I don't think that number necessarily has to change, I just don't see how anyone would really benefit from it changing outside of developers who already do very well out of 70% if they build a game people want to play. 

It’s absolutely the developers who benefit from a reduction. Really the App Store is so hit driven a change in this number is not going to make or break a game. It really only makes a difference at scale where if your games are making $1m a day then that % swing, even if just a small amount, brings in a huge amount of extra money.

There is maybe an argument that iAP should be treated more like subscriptions in terms of the % taken by 1st parties. After a certain level (time/money/something else) that cut could drop from 30%.

Apple and Google (and other platform holders) are making serious money out of the 30% cut, so there is an argument to be made that it’s overpriced. If so much of that is going to profit rather than invested into the service being given then it’s inevitable people will start to argue for their larger share.

10 hours ago, Nicktendo said:

I suppose the main issue for me with the 30%, and something that I perhaps didn't think about before, was that it makes the platform holders less inclined to curate their content. For them it's better to have an open marketplace with no holds barred and claim a clean 30% on everything. That's why you have ludicrous stuff like 4,000 games being released on Steam in a calendar year and why the e-shop has got slowly worse over time. I would still maintain that the good games will always standout though, but Nintendo, MS and Sony (and Apple for that matter) could do more to highlight the best stuff. 

For Apple at least this was a conscious direction change. It used to be that without Apple featuring your game was pretty much doomed, and it was only that highly curated section of content that gained any traction. The last change to the App Store was to try and move away from that to highlighting in a smaller way more often and allowing things to shine on merit rather than good lobbying by publishers. Google have always had a data driven approach to what is surfaced to consumers.

It’s an interesting one for sure, personally I’ve given up on using the stores to find out what’s new/good, and rely on recommendations or things I happen to see are coming through other sources.

[Dcubed]

On topic...

Play stupid games, win stupid prizes indeed.

3 hours ago, will' said:

A lot of that stuff is covered by membership of the developer program, not by the 30%. The 30% is a distribution charge for the store.

That's small potatoes really.  The whole reason why they've gone and invested so much into their APIs that they provide to developers is because they know that cost will be absorbed and offset by the 30% charge.

Same business model that keeps the console industry going; the model that Nintendo invented.  Without the platform royalties, there's no point in even making a platform for 3rd party developers at all.

[Rummy]

I think I'm in agreement with Will here re: consoles vs phones. I think whatever comes out of this legally there will be room(and pursuit by) the console makers to disapply a ruling on mobile phones the same way to video game consoles. Thats if Epic even get anywhere to begin with - so its gonna be interesting times!

[Cube]

I think there are plenty of ways around it, such as not providing dev tools without a store agreement, or now allowing access to the consoles online network if the game is sold about it (so games would need their own friends list, no achievements/trophies, perhaps even less controller features).

 

(I have no idea why Tencet are being mentioned, they have zero say over anything Epic Games does).

[Nicktendo]

On 14.09.2020 at 7:12 PM, Cube said:

(I have no idea why Tencet are being mentioned, they have zero say over anything Epic Games does).

Maybe because they own 40% of Epic Games? I think it would be extremely naive to assume they have “zero say” over what they do. In fact, every move Epic has made since Tencent paid $330 million for that 40% has been at trying to break the dominance of US and Japanese companies in gaming. 

[Cube]

Tim Sweeney is majority shareholder, so he doesn't need to appease shareholders like other companies which don't have one. They own a lot less of some other companies, but those have to listen to Tencent more than Epic do.

[Dcubed]

https://www.resetera.com/threads/tencent-is-reportedly-raising-several-billion-to-buy-a-u-s-or-korean-gaming-company.365285/

Oh boy! Place Your Bets NOW!!! (Putting $500 on 21 Black for it to be WBIE)

[Nicktendo]

Yay! Another company going straight on the ignore list 

[Dcubed]

Uh-oh...

[LazyBoy]

I'm not clear, is that to finance further acquisitions or to manage debt?

[Dcubed]

59 minutes ago, LazyBoy said:

I'm not clear, is that to finance further acquisitions or to manage debt?

The former.

[LazyBoy]

3 minutes ago, Dcubed said:

The former.

Not good. I fear for British studios in particular. We've been an economy for sale since the 80s, but since Brexit its been a fire sale. I don't care that video games are not the most political medium, censorship of any kind is poison to creative works. Thank god Chinese hegemony is solidifying in the age of feasible Indie development, else I fear there would not be room for creative developers to breathe. 

[Sméagol]

It's.. Klei entertainment. Not happy with that.though not sure what the Chinese would want it? Their games doesn't seem like the typical things they'd be into or am I mistaken?

[Will]

That’s just one of their regular investments, not something they’re using billions of dollars worth of loan capital for. I think whatever they’ve got planned with that money will be something of far higher impact.

[Hero-of-Time]

3 minutes ago, Sméagol said:

It's.. Klei entertainment. Not happy with that.though not sure what the Chinese would want it? Their games doesn't seem like the typical things they'd be into or am I mistaken?

Apparently that acquisition isn't the BIG one that they are trying to make.

I completely forgot that Tencent made an investment in Platinum Games last year. Seems like these guys have their fingers in a lot of pies.

Does that mean you're skipping Bayonetta 3 and anything else Platinum related, @Nicktendo? 

[Dcubed]

28 minutes ago, Sméagol said:

It's.. Klei entertainment. Not happy with that.though not sure what the Chinese would want it? Their games doesn't seem like the typical things they'd be into or am I mistaken?

That's not the aquisition that's upcoming... That's just Tuesday for them.

The big one is yet to come... (And my money is on it being WBIE)

Edited January 24, 2021 by Dcubed

[Nicktendo]

37 minutes ago, Hero-of-Time said:

Apparently that acquisition isn't the BIG one that they are trying to make.

I completely forgot that Tencent made an investment in Platinum Games last year. Seems like these guys have their fingers in a lot of pies.

Does that mean you're skipping Bayonetta 3 and anything else Platinum related, @Nicktendo? 

The money they invested in Platinum was essentially a loan so that Platinum could set up shop as an self-publishing developer and better retain their own IP. They're still 100% independent. Slightly different from the situation we have with Act/Blizzard, Epic and Riot games, for example, but not ideal. I'd forgotten about it too. I'll have to wait and see on Bayo 3. Might be one for the second-hand market. Just looking now I also had no idea they owned 20% of Marvelous, and therefore, No More Heroes... Damn. Seems like everyone wants a slice of dirty CCP money. 

@Dcubed - I've been hearing rumours that it's not WBIE, but 2K Games they're after. Which means Rockstar and GTA  It's definitely something big though. Potentially industry changing the likes of which have not been seen since... ZENIMAX . 

Can't see the next four years being very kind to Western devs with Tencent swinging their big dick of unlimited money around, especially with Xo Bai-Den at the wheel. Maybe this is what's forcing all the conglomerates to buy up studios? Getting their cards on the table in preparation for war? Conglomerate wars?

Might be time for me to go all in on Nintendo and indie games. My backlog is huge, I hadn't planned on buying anything outside of the big Nintendo releases this year, but I guess we'll have to see which way the wind blows. Either way, China ain't getting a penny off me. 

Edited January 24, 2021 by Nicktendo

[Cube]

1 hour ago, Sméagol said:

It's.. Klei entertainment. Not happy with that.though not sure what the Chinese would want it? Their games doesn't seem like the typical things they'd be into or am I mistaken?

They invest in companies that they think will be successful and sit back and profit from it. 

 

If they buy 2K games it'll probably be an improvement. 

@Nicktendo what makes Nintendo different? They have a close partnership with Tencent, handling Chinese distribution of the Switch and also organised for one of Tencents 's studios to start developing a mobile Pokémon game.

 

 

 

[Nicktendo]

9 minutes ago, Cube said:

 

@Nicktendo what makes Nintendo different? They have a close partnership with Tencent, handling Chinese distribution of the Switch and doing some work on the eShop, and also organised for one of Tencents 's studios to start developing a mobile Pokémon game.

You can't launch anything in China without a Chinese partner, hence Tencent. They're only helping local distribution, WeChat pay and cloud stuff for the e-shop in China. Bonus: They also get access to all your design materials so they can replicate the technology and release their own brand once you're surplus to requirements. Then you get booted out of China.

Couldn't care less about a Pokemon mobile game.

Nintendo shouldn't even be bothering with the Chinese market. Not worth the hassle and they have to give up a lot to get in.

Any government that is fragile enough to ban Animal Crossing of all things should be mocked, ridiculed and boycotted until the end of time. Pathetic doesn't accurately cover it.