Thanks for the accounting stuff! Well, lets consider these factors:
- Rocket League is 4 years old at this point across probably every platform in existence. Money is not going to be coming from a new userbase. Epic has to know this
- Rocket League is well established on Steam, along with DLC. The assumption is that they have to support their Steam userbase no matter what, because you basically make this investment worthless if you basically cut them off and force them to re-start on Epic. So unless there's an in-game store, DLC will continue to be offered through Steam, in which a direct competitor will get a cut of money. Ironically, Steam will be making money off of Epic from this. This also allows Steam to fuck with Epic if they so desire. This is an inherent risk. Which Epic has to know.
- They expect most of the value from micro-transactions and existing whales. So my bet is the focus is going to be on Rocket League for existing users as a game-as-service, with the development of an in-game store, more micro transactions and doing as many things as possible to circumvent putting any further DLC on Steam. Which requires further investment as they have to continue to produce content to keep the whales happy.
So, tl;dr: This is a massive risk and Epic in the short term is actually enriching Steam as people rush to buy as much as they can off of Steam before it goes to Epic. It also means spending money to create more content to keep whales happy and make this worth it. All I really see is Epic spending massive amounts of capital and they're risking a lot on a four year old IP.
My feeling is simple. Tim Sweeny should have put all this money into buying exclusives into developing an Unreal Tournament style game. These sort of shooters don't exist anymore and there's a huge demand for it. Pair with it some cosmetics, some MMO aspects, and you've got a license to print money. Not only that, you already own the IP and the engine, so it'd be cheaper than what you are doing now. I feel like doing third party exclusives and buying a 4 year IP on top is just digging a bigger and deeper hole. It would have been better to develop a flag-ship game, like making Unreal Tournament Epic's DotA 2. That way you have 2 income streams, you can develop your store along with a unique IP. You'll attract Steam users because they pine for Unreal Tournament. Like look at DotA 2, copy what it does with weapons and cosmetics and maps, no heroes, just models and races, have a ladder, some sort of progression and boom, you print money. You no longer need to rely solely on Fortnite as your revenue stream.
Instead, Sweeny decided to do a brute force method without actually building anything and the desperation is showing. Buying Rocket League and its developer is not from a position of strength. It shows they need a constant income stream fast and is something they cannot afford to develop themselves. And at the same time, he's still buying even more negative press for the store in the process. It seems like the sunk cost fallacy to me. Sweeny believes himself committed, so he's staying on a course that clearly isn't working.
I do not think this will work out in the end. In addition, I don't think Epic can afford to do Steam sales, which gives Steam massive amounts of cash, along with developers, far more than Sweeny's cut could give them. So he's still going to suffer. Then you've got Steam's new VR, which might turn out to be amazing. Lots of hype for it. Buying Rocket League and its developer does not seem like enough.
It's nothing, this is why I wanted to get into accounting I wanted to try and understand video games as an industry so I can hopefully communicate it to other people, and I was reasonably good at it and it seemed like a stable profession. Though I don't work anywhere, I've just been studying for awhile and have nearly graduated with a 4 year degree. So to touch on everything you said.
1: Likely, though in the grand scheme of things more revenue likely comes from microtransactions than the game's sales themselves for obvious reasons. So the lack of game sales is not significant enough to matter, but we agree on that overall. This is clearly a play to gather all the money themselves from microtransactions as you've pointed out. Do note that as a consolidated entity even if the money doesn't go directly to Epic, it doesn't mean they lack access to it or at least lack the ability to take credit for "earning it". Their effectively a subsidiary of a subsidiary, in the end Tencent profits as long as Rocket League doesn't die. When Epic reports to Tencent, they've consolidated all the earnings to themselves with disclosure of the proportion that comes from Rocket League/Psyonix.
In short, when you consolidate financial statements the parent is the face of the report effectively, because it mostly focuses on the parent and how the subsideries operations merge into the parent's operations. So if Rocket League is profitable, that profit is considered Epic's profit because they made the brilliant idea to buy the studio so it looks pretty good. So all PC microtransactions are almost 100% owned by Epic for reporting purposes (ignoring steam's cut), minus whatever comes from console post cuts assuming they stay on the console platforms which I assume they will. We can speculate if this is a factor to why this purchase happened. Though obviously anyone savvy about any of these reports knows why Epic would suddenly have a massive increase in revenue in the middle of Q2 and beyond (assuming Epic's year end is Dec 31 meaning we're in the start of Q2), but it is still what I'd imagine is posturing to look better in the face of the store's shaky beginnings.
2: I agree on most of this except the part of about fucking with the cuts. This depends on if Steam is allowed to just rewrite the agreement like this, I don't want to try to figure the legality of this if there is any, I'm studying accounting not law. You're basically saying "I don't like your private business decisions, fuck your business" with this proposed idea, that doesn't sound right or something anyone wants to deal with. As funny as that might be for Epic and Steam to get into a legal battle over car soccer DLC, I don't think anyone wants to deal with it.
3: This is where my speculation comes in. I know basically nothing about Rocket League so I can't try to guess how this expansion of Psyonix's accessible resources will pan out and what could happen. I'd imagine they'll try to increase update speed to stay relevant and increase purchases over the course of the year, but I don't know what those kind of updates would be. Also esports is a relevant thing right? That is also revenue/profit Epic technically has rights to report owning.
The rest of this is speculative based on my obviously limited observations of the video game industry mixed in with what I know from my business studies. I'm just trying to set this up how a typical businessman would most likely see this proposal.
First, this entire venture is too short lived as of right now to properly figure out what is going wrong, if it is going wrong at all if they estimated losses in year 1, and you can't just act like a schizophrenic with millions of dollars in investment. So unfortunately until I'd say the end of year 1 we can't just kill this thing off, it just can't happen and I wouldn't expect anything until the end year 2 unless something cataclysmic happens.
Also developing an entirely new game (and IP) when Fortnite still exists sounds like a bad idea, you'd need to hire staff, pre-plan a this proposed game (I'd speculate 6 months to a year), how it'll function/generate revenue assuming we don't just save that for the end and try to make a reasonable monetization scheme, and spend at least 2-3 years developing it. You will not see any revenue for 3-4 years in any capacity, Epic's store might generate losses right now, but it still generates revenue. From a typical business prospective depending on how this was budgeted and proposed, this store is likely an easier sell.
Second, you have to propose this hypothetical new IP while Fortnite is a major phenomenon, reallocate/buy new teams of staff to create this, and possibly slow down the Fortnite train? I a typical businessman see no reason to do this in the short run and most business plans from what I've heard are fairly short term plans, long term in business is around 5 years for example. Now expanding into a new operation where you can sell other people's games like Steam and your big selling point is to appeal to consumers that hate steam by posturing as trying to support the indie scene for positive PR? Also, this operation doesn't require jackshit amount of time to develop and you can basically print money once you're established by almost doing nothing, compared to making actual video games. Spin some numbers, make positive projections, and implement a plan of action you're confident will work to a bunch of suits? Sounds like a great idea on paper to me, video games take too long and are hard. Tencent owns a lot of shit, so I doubt they have much or any specialized awareness or understanding of how this stuff works.
Though Tencent bought Riot Games during the peak of their popularity, one of the most time wasting studios I've ever heard of, where I've heard stories of champions taking more than a year to make because the designer kept changing his mind on fairly minor details and Riot's heads are just like "yeah whatever man we believe you'll make something cool lol". So who knows I guess.
Yes I do realize this sounds very short sighted and I by no means support Epic, but if this was proposed to me and I'm not savvy enough to understand the nuances of what is going on, I'll take the Epic Store over the Unreal Fortnite Tournament proposed here. That is just my speculation, based on what I'd imagine a typical suit would think about these two proposals.
