When Exclusives Are Consumer Friendly

There’s an old business punchline where the owner of a firm says “I’ll sell at a loss but make it up on volume.” I’ve heard the punchline in three slightly different variations but have never heard the joke that was once attached to it. A business owner maximizing their losses is the kind of galaxy brain source material that makes for a good punchline but also happens to be a cutting edge business practice. Uber and its recent IPO is the most recent and high profile example, but if you ever used a Groupon or signed up for MoviePass you’ve experienced this business model. There was even a parody company called SliceLine in HBO’s Silicon Valley that played on this idea. While most of these schemes are the appropriate target of mockery, they are also a great source of consumer surplus. As long as investors are willing to put money into these companies, we’ll enjoy their products below cost. This brings me to the Epic Store.

Epic’s timed exclusivity deals are consumer friendly. I realize a lot of gamers get this wrong, but I can’t hold this against them because they have a lot of practice being wrong on the internet. Part of the problem is that concept of consumer friendliness has been more of a high horse for The Gamers™ to mount than a well defined concept. For the purposes of this article I will consider a policy to be consumer friendly if it gives consumers, in aggregate, more for equal or lesser cost (or, equivalently, gives the same or better for less). Establishing that the Epic Store gives more than it takes shows that it is consumer friendly by this measure.

The Costs

The Epic Launcher is an inconvenience to download and open. Even Epic thinks this since they need to give away free games (Stories Untold as of this writing) and spend money on exclusives in order to entice users to use it. The same was true of Steam when it first launched and is also true of Origin, Uplay, Battle.net, Bethesda.net, Discord, and GOG Galaxy. If you’re a maniac for The Sims, Battlefield, or Anthem then Steam is the inconvenience since you need to open it for the games you don’t have on Origin, but it’s safe to say that the more common experience is that of a Steam user needing to use an alternative launcher. The magnitude of this cost may be small, but if a user needs to move the mouse one extra pixel or faces some angst about using a launcher they wouldn’t have otherwise chosen, it still needs to be offset by some benefit to become consumer friendly.

If all players are categorically unwilling to use another launcher, then Epic is wasting their money and consumers are more likely to lose in aggregate due to the delay in playing something they would have otherwise enjoyed. This is the least likely case since exclusives are an old and common tactic in gaming. Investors constantly hound Nintendo to release their properties on other platforms, Halo was announced for Mac before it was an exclusive for the launch of the Xbox, and Sony’s commanding position is partially attributable to its critically acclaimed exclusives. This precedent does not show that consumers are better off, but it does show what they’re willing to do in order to access a product they like. The fact that a meaningful proportion of players are willing to purchase a console in order to play a game like Bloodborne or The Last of Us establishes an upper bound of inconvenience which a free software launcher will clear for all but the most partisan opponents of the Epic Store.

I will not put much weight on the partisan objection to the Epic Store for two reasons. First, the costs are easy to quantify (whatever benefit they have to forego during the exclusivity period less any discount they get on the eventual later release) and borne by a small proportion of gamers. Second, similar partisanship also exists for users of GOG who feel equally strongly about DRM. These feelings are no less important or sincerely felt than outrage at Epic, but the discourse has up to this point has been okay with overlooking this minority. Since my focus here is on what is beneficial to the consumer, I will leave social justice considerations for experts like gamers who hate the Epic Store.

As for the inconvenience of another PC digital distribution platform, PC exclusives are common with even lower stakes. Half-Life 2 was Steam’s first exclusive (and Kotaku reported how well that went), Origin now distributes EA’s titles, and Blizzard has only ever digitally distributed through Battle.net (with the recent exception of Diablo and Warcraft I & II being released on GOG.com). Even Bethesda and CD Projekt Red had exclusives with Fallout 76 and Thronebreaker: The Witcher Tales, though they have now since become available on Steam. The inconvenience or frustration of not being able to use a platform of choice remains, but PC consumers specifically have shown that they are willing to put up with it in order to access something they value, and do so fairly regularly.

The Benefits

The first and most direct benefit to consumers from the Epic store is money. It turns out Fortnite makes a bit of money, and this has allowed Epic to subsidize every game purchase that is greater than $14.99 in their summer sale with $10. Want to pre-order John Wick Hex? $19.99 normally, $17.99 on sale (10% off), and $7.99 (60% off) when Epic is done with it. 60% off for a game that was announced a little over a week ago (with half the purchase price coming directly out of Epic’s pocket). Epic, following previous storefronts, has also provided a free game every two weeks, accelerated to a free game every week during its sale. Epic taking a loss on every sale and hoping to make it up on volume is a direct transfer from Epic to consumers.

The benefits of the Epic Store are not just limited to these transfers, but are also felt indirectly through its revenue share and paid exclusives. Since games are a highly competitive industry the 18% of sales developers don’t pay to Epic are likely to be passed on to the consumer either through price cuts (as was the case with Metro Exodus) or quality improvements into the product. Failing to do so puts producers at risk of being outsold by better and less costly rivals that are willing to take less of the surplus. Furthermore, other digital storefronts are feeling the pressure to cut their own shares with Discord and Kartridge following suit, and Valve giving up a fraction to high earning titles (though it is unclear if this was based on any knowledge about a rival storefront emerging). Even users who do not use the Epic store live in a new status quo where the cost of delivering the game is no longer taken for granted as being 30% of sales.

Reinvestment in the product is why Epic’s timed exclusives have the potential to be consumer friendly as well. Revenues from an exclusivity deal will go back into production on either the game or a future project. These kinds of deals are presumably even more attractive when even high profile titles are reporting weaker sales than expected. The benefits are realized by all consumers over time since Epic’s exclusives have been limited to one year. They are also hard to quantify since we do not get to compare against the release in some alternate universe and so we must rely on the knowledge that the developer has been given more options in an environment where they have every reason not to simply pocket the money.

Competition is the final major benefit to consumers and it is also an easy one to overlook. Many users rightly criticized the Epic Store for not having a refund policy at launch, but it is worth remembering that Steam only introduced their own refund system after Origin introduced one. It is also why Steam has started to loosen its grip on its 30% fee and why Epic is adding free cross-platform multiplayer tools. Steam has improved with less competition, but it has more often been on Valve’s terms, and the speed with which they are able to implement responses to competition invites speculation as to how much better Steam could be had Valve more competitive pressure to invest in the platform.

The Balance

Many of these costs and benefits are intangible and so determining any net benefit to consumers is more than just an accounting exercise. The simplest heuristic is to simply express these as tradeoffs. “Would you prefer to use just one launcher if it meant the most expensive game you bought that year had one fewer level?” “Would you prefer to use a single launcher if the prices were 10% more?” “Would you prefer to use a single launcher conditional on it being impossible to refund a game except in the most extreme circumstances?” We know the collective response to any of these individual questions is no since we have been living with multiple platforms and exclusives for those platforms since we first had digital distribution.

The fact that gamers are willing to put up with multiple platforms does not indicate that the Epic Store is a net benefit on its own. It’s possible that present day benefits may be recouped later through anticompetitive practices. For example, there is a concern that Amazon’s practices may be presently beneficial to consumers but will be harmful to them in the long run. In this light it is worth considering what Epic’s end game might look like. Unlike Amazon, the Epic Store is providing a substantial amount of consumer surplus in order to bring increase competition in its space. The Epic Store achieving parity in market share with Steam for PC distribution would be a phenomenal success, but it would also be one in which both storefronts would need to fight to keep their share. It means that Epic is paying serious money to bring about market conditions that require distribution platforms to invest more and charge less. As with the benefits that come from developers reinvesting in their product, these are benefits that are enjoyed by all consumers, even if they never touch the Epic Store.

It is a curious feature of gaming that developers — who have an actual monopoly on their intellectual property — face a harsher competitive environment than distributors whose main role is to make sure the bits get from A to B. As fun as Tom Clancy’s Ghost Recon: Breakpoint looks, we have enough substitutes for that unique experience to keep Ubisoft to charge anything more than about $60 for it (the present $50 price tag being due to Epic’s subsidy). This is not true for digital distribution platforms which have much stronger network effects, economies of scale, and access to data. Valve has not abused its position as, say, a company like Microsoft, but it is clear they are under-investing and overcharging due to the lack of competition. If the Epic Store is successful in establishing itself as a serious competitor to Steam then the result is as much a better Steam as much as it is anything else.

Epic’s tactics are designed specifically to overcome the barriers Steam currently benefits from and are consistent with the actions of previous successful entrants. It does not seem possible to create a credible competitor to Steam without a sizeable investment. What is great for consumers is that a lot of that investment is going directly to us. Epic is effectively paying consumers to bring about a new status quo where more of a game’s budget goes into the final product and storefronts need to fight for our business. There is no assurance they will succeed, but I am more than happy to take my share of the Fortnite money for as long as they’re offering it.

Note on affiliate links: I am a member of Epic’s Support-a-Creator Program for which I am given a portion of sales for traffic I drive to the site or which contain the creator tag SYSTEMCHALK. The inclusion of a given title is for illustrative purposes first, but when it is available on Epic I will provide such a link. As always, I encourage you to do your own price comparison or buy on your preferred platform.

Of course, seeing as there’s a big Epic Sale going on right now, let me just say that I think Hades, Metro ExodusThe Walking Dead: Final Season, John Wick Hex, and Subnautica: Below Zero look like particularly good deals.

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