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Video game engines are increasingly becoming the key gatekeepers for European cultural and creative industries. Unity is currently the market leader in game engines, with Unreal as its main competitor. Both engines are market leaders not only in the gaming industry, but also in other industries such as film, architecture, industrial design, and simulations. Unity reported in 2022 that 230,000 developers worldwide created and operated more than 750,000 games with the Unity Engine.
Unity’s new fee structure will have a dramatic impact on the gaming industry.
Unity has become a standard in many game markets. The well-designed tools, services and applications have helped to lower the barriers of entry in the gaming industry. It has also played a key role in removing the technological barriers for cross-platform games development. Unity has now informed the community of game developers that they will be moving from subscription-based to subscription-and-install-based fees. This will increase game development costs significantly for the majority of game developers who rely on Unity’s services. EGDF is disappointed that Unity’s reputation as a predictable and reliable business partner has been severely damaged by these sudden and drastic price changes.
The larger game development studios enjoy the luxury of developing their own game engines. The new Unity fee structure is likely to increase service provider risk and create market uncertainty, which will affect SME developers in particular. They will find it much more difficult to create reliable business plans, take informed decisions about game engines and run a successful business. These studios were already struggling to get risk funding prior to Unity’s announcement. This has only made their situation worse.
Unity’s decision has a wider impact on the entire game industry ecosystem. Unity is the game engine that many professional game education institutes use to build their curriculum. Unity’s new price model could lead to a mass exodus of Unity’s engine. This will cause rapid changes in the professional game education.
EGDF reminds us that while Unity’s decisions will pose significant challenges to the industry, it would be more productive to take measures that increase the competition in the game engine market.
Unity’s anticompetitive behaviour on the market must be closely monitored and, if necessary, European competition authorities should step in.
Unity has become a dominant player on the market for games. According Unity’s estimate, 63% of game developers in general use their game engine. In some submarkets, the share could be higher. Unity estimates that 70% top mobile games use its engine. Unity’s engine has become a standard for mobile games, to the point that entire formal degree programs have been developed around its use. Unity’s dominance on the market is not solely based on its quality game engine. This is also the result of aggressive competition and a systematic and methodical work to make game developers dependent upon Unity services.
Unity’s bundling of different services could distort the competition in middleware markets. Unity has gradually bundled together its game engine with other tools for game development under the Unity Gaming Services umbrella. Unity is more than just a gaming engine. It is also a sign-in service for players, a version control service for games, a service to engage with players, a service that provides game analytics, a service which facilitates game chat, crash reporting, an ad network and mediation service in game ads, as well as a tool used to build user acquisition services and a tool designed to create in-game stores. It creates a serious vendor lock-in risk for Unity service users. This makes it hard for middleware game developers to compete with Unity. Overall, this has significantly strengthened Unity’s position in the market compared to its competitors.
Unity has now created a financial incentive for customers to adopt Unity services outside of the Editor. For example, Unity Gaming Services and Unity LevelPlay mediation are available for mobile games with advertising. This program allows for a deeper partnership with Unity in order to be successful across the entire lifecycle of a game .”. This will impact Unity’s competitors.
Unity’s installation fees are a good example of Unity’s potential anti-competitive behaviour. If Unity’s pricing model was similar to what it is now, it likely would not have reached the dominance that it has today.
Unity’s new installation fees only apply to video games. Does this mean that licensing fees were previously below cost level? Does the fact that Unity has introduced an install fee in addition to the licensing fee mean the licensing fees were previously below cost level before? Does the addition of an install fee on top of licensing fees for their game engine enable them to offer other services, which generate lock-in, below cost?
Unity has been dominating the game market for many years, and it’s made developers increasingly dependent on its services. Unity’s dominance in the market has been abused by weaker traders who depend heavily on Unity services. Since game production can take many years and developers are unable to change their game engines at the last moment, they must accept any changes in contract conditions, regardless of how exploitative. Unity must have known that, if it had given more advance notice, more developers would have been able to abandon Unity by the time new pricing was implemented.
The new installation fees will restrict the freedom of game developers to do business, as they are forced to use Unity’s ad based business models in games which would otherwise not feature ad based monetisation. This will also create a disadvantage for game distribution platforms who do not use any ad-based revenue (e.g. Unity forces subscription services and pay per download games to raise their fees, as it is forcing them to use Unity’s tools for ad-based monetization.
Install fees are likely to lead to fewer choices for consumers. Install fees allow Unity to extract more value from games which generate many installs, for example. Virality is not always a money maker. Install fees may lead to a market where game developers limit downloads to prevent installs by the wrong players. This could potentially destroy a part of the market. Indie game developers who are a failure on the install count but struggle to generate revenue or hyper-casual studios that combine a large install base with minimal revenue per game.
The EU must update its regulatory framework in order to meet the challenges posed by the dominant game engines.
Unity’s non-negotiable contract terms with game developers demonstrate the need for a new EU regulatory framework. Unity’s contract terms are non-negotiable. The new non-negotiable installation fee forces European game developers to withdraw their products from the market, raise consumer prices, or renegotiate contracts with third parties. If, for example, an institution that manages games makes them available on their website for download, then a studio of game developers must either charge a fee or stop making digital cultural heritage accessible to European citizens. Unity’s three-month deadline is insufficient.
The Commissions must introduce a regulation that outlines non-negotiable terms in B2B contracts. The regulation should allow sufficient time to react (e.g. In a minimum of six months, the regulation should allow markets time to respond to any significant changes to non-negotiable conditions and terms that have been communicated by a service provider to their business customers in an easy, clear, and understandable way (e.g. Unity does not explain how it counts installs. The Commission should also bring about much-needed certainty to the market by prohibiting retroactive price changes and contract modifications.
The Commission should incorporate game engines into DMA. The Commission should, when reviewing the Digital Markets Act recently adopted (DMA), consider lowering B2B thresholds and bringing gatekeeper game engine under its scope. The Commission should consider lowering the B2B user thresholds and adding gatekeeper game engines to its scope when reviewing the recently adopted Digital Markets Act (DMA).
The Commission should boost its R&D assistance for the European gaming industry. It is an indication of a failure on the market that Unity Engine is not a major competitor that doesn’t require synchronization with centralized servers. Unity Game Engine is not scalable, because Unity built its engine so that it must call home each time it’s installed in order to report installs for Unity. The Commission should therefore intensify its efforts in order to encourage the development of new European technology providers and game business services. The Commission should, in particular, increase its support of privacy-friendly, open-source alternatives to game engines like Godot, Defold, or similar that don’t require a constant connection to the back-end servers and therefore do not need scalable revenue fees or installation fees.
