Fri. Sep 29th, 2023

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It’s never a good sign when a tech company has to explain itself on its public blog.

Last week, Unity Software told its video game developer clients about a new regular fee via an internet post. The price could increase to 20 cents every time a user downloads a successful game above a certain threshold.

This news caused a fierce online reaction from video game developers. Unity was forced to apologize “for the confusion and anxiety” caused by the new pricing policy. It promises to listen to the feedback, no matter how vocal, and will return with an update and presumably some price revisions. Unity shares have fallen by more than a tenth in the past week.

Unity’s IPO was a high-profile offering in the heady days of late 2020. But in 2023, shareholders will also be looking for profits in addition to breakneck growth. Tell that to his customer base, addicted to a cheap and hip product. It is a mystery what the entire sector is now dealing with.

Unity is a typical software-as-a-subscription (SaaS) provider. It sells ‘seat’ subscriptions, but also has free or ‘freemium’ products. For base level Unity customers, the new download fees only apply to games that have earned $200,000 and have 200,000 installs.

Among other reasons for the new fees, analysts have noted that AI could greatly reduce the number of software developers. This would reduce the demand for subscription licenses.

Designing a download fee is difficult. Apple and Google, for example, use take rates of up to 30 percent. But game developers worry that some downloads will never generate ad revenue or in-game purchases, making even a modest levy intolerable.

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Unity’s stock price is down 80 percent from its high. The group still has an enterprise value of about $15 billion, valued at seven times sales. It now has positive free cash flow.

Those download fees could have added $100 million in high-margin revenue next year, analysts at Macquarie think. The cost of reconciling with its customers, however, is a bigger unknown.

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By Admin