In order to be more friendly to third-party video game developers and more competitive with other digital gaming storefronts, Microsoft has decided to be more generous with its revenue sharing policy. Increased competition is better for us all.
Physical video game disks are not obsolete, but the advent of the digital video game storefront has made their usage less widespread. After all, the convenience of purchasing video games online and installing them to one's computer and/or console instantly is much more convenient over having to go out and purchase a disk.
One way that these storefronts attract video game developers to post on their platform over others is through revenue sharing - when a gamer purchases a game off of the platform, revenue is portioned out between the platform and developer. In order to entice developers to their platform over others, Microsoft announced it will increase the revenue portion dedicated to third-party developers from 70% to 88% on August 1st, which coincidentally is the same as one of their competitors.
One single storefront, Steam, had dominated the competition for almost a decade. Having a virtual monopoly over the PC gaming marketplace, Steam took a 30% revenue cut from each sale, leading to more than $6 billion in annual revenue. With the likes of other storefronts entering the fray such as Microsoft and Epic, heightened competition will be better for consumers and developers alike, especially with a recent survey that showed only 3% of developers believe a 30% cut in favour of Steam is justified.
Making a video game is expensive, so much so that most developers make less than a 30% profit margin. Therefore, having their pay cut increased from 12% to 30% is rather significant for their financial longevity. A more generous revenue sharing model means developers will have the ability to bring more of their games to the rest of us.
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