Unity's Pricing Decision: A Symptom of a Larger Issue in the Gaming Industry

Recently, Unity unveiled plans to charge developers based on the number of downloads and installs of their games, starting in 2024. Predictably, this news sparked outrage among developers, with many invoking the concept of fairness. It is noteworthy that for-profit companies, such as many game developers, are accusing another for-profit company, Unity, of being unfair for seeking to increase its revenue. While the shock and pain experienced by some developers are understandable, it is essential to consider the context. From Unity's perspective, and likely that of its shareholders, the company has been subsidizing developers' work by operating at a substantial loss since its inception, despite posting a profitable Q4 2022. The current macroeconomic climate, characterized by expensive money and investors seeking returns over non-profitable growth, has made Unity's previous growth narrative less convincing. The company has since clarified the nuances of its pricing statement, emphasizing that this move is not intended to exploit game demos and charities, which are exempt from the pricing. Although this change may cause some developers to reevaluate their cash flow planning, it is unlikely to significantly impact the overall gaming landscape, except perhaps for independent developers. The primary reason for this is not Unity's pricing decision but rather the current dynamics within the gaming industry and the broader entertainment sector. The convergence of a saturated attention economy, shifting KPIs from unit sales to time spent, high inflation, and interest rates is creating a challenging environment. The number of games and developers has grown faster than industry revenues, and with the rise of free-to-play and live operations, revenues are increasingly tied to time spent. This limits the growth prospects of average developers, as there is no additional time to be gained, and others must be surpassed to maintain growth. The gaming industry is not immune to this trend, and the shift towards time-spent-centric business models means that games now compete with other entertainment options for the limited time available in a day. The gaming industry, valued at approximately $200 billion, is not disappearing, but its growth heyday is over, and consolidation among developers and publishers is inevitable. The rise of free-to-play, cloud gaming, and live operations will concentrate power and revenue among a smaller number of gaming companies, making game production and publishing a lower-margin business. While the number of installs, downloads, and plays will not decrease, the number of developers and publishers likely will. Unity's per-download pricing decision is a strategic move to recognize the tougher times ahead and mitigate risks associated with the impending consolidation of the gaming industry. Developers upset with Unity should understand that this pricing tactic is a symptom of the more significant challenges facing the gaming industry, rather than the cause.