Why game developers are revolting against Unity
Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This Tuesday, we’re breaking down the backlash against Unity following its announced merger with IronSource; EA’s new free-to-play Skate revival; and another set of damning forecasts for the game industry’s downturn after two years of major growth.
Unity’s perfect storm
What may have at first glance looked like yet another game industry acquisition last week — one of many largely humdrum deals during a record period of M&A — has transformed into arguably the worst public relations crisis software maker Unity has ever faced.
Now, Unity CEO John Riccitiello has turned to his personal Twitter account to try to calm the backlash while scores of high-profile game developers have started denouncing Unity, its development tools and the direction the company has taken over the past few years. And in just a matter of days, the ensuing conversation around how video games are developed and funded has spiraled into a much larger debate around the ethics of art for art’s sake and financially motivated entertainment.
How Unity found itself here is a complicated tale, and it starts with a company called IronSource, which specializes in providing monetization tools like analytics and advertising to mobile game developers.
- Last Wednesday, Unity said it would merge with IronSource, absorbing the smaller firm in a $4.4 billion all-stock deal. The merger makes sense: Unity generates more than half of its revenue with its Operate Solutions division, which provides ad placement and other tools to game developers, and IronSource can help it grow that part of its business.
- Both Unity and IronSource have seen their stocks decline significantly in 2022. Unity shares are down nearly 75%, and IronSource is down more than 50%, due in part to the economic downturn but also, as analyst Eric Seufert pointed out, Apple’s iOS privacy changes.
- “[App Tracking Transparency] clearly isn’t exclusively responsible for these declines, but it certainly played a role,” Seufert wrote last week. “ATT has created friction within the mobile advertising ecosystem that indisputably challenges these companies’ operating models.”
- This is because a large chunk of mobile game advertising is one developer advertising its own game within another developer’s game; this is how most mobile games acquire new users. Many free-to-play games will monetize in a half-dozen different ways, including banner ads and video ads that run in exchange for small portions of in-game currency.
- Both Unity and IronSource have been hit hard by ATT because their businesses rely on mobile developers buying advertising, acquiring new users and running ads of their own. Unity, however, was in the red last quarter, with a net loss of $178 million, while IronSource is in fact profitable, which is partly why the merger makes sense for both firms.
Why does anyone care which companies Unity buys? Major software firms acquire other companies all the time, and especially so in the game industry, where M&A activity has shattered records two years in a row. But Unity’s acquisitions have been all over the map, increasing in frequency since 2020, when it went public.
- Just in the past year alone, Unity paid $320 million to acquire desktop streaming platform Parsec; purchased New Zealand-based VFX studio Weta Digital for $1.63 billion to better compete with Epic and its Unreal Engine; and acquired another VFX company called Ziva Dynamics in January.
- Some developers have felt that Unity’s acquisitions and its focus on short-term growth since going public have clashed with its founding philosophy of helping democratize creator tools for game developers. Many began criticizing language used in the Unity blog post announcing the deal for its flagrant use of corporate buzzwords and largely euphemistic phrasing around how the deal would help all parties involved make more money via ads.
- “Man, fuck Unity,” wrote Maddy Thorson, a celebrated indie game maker who co-created the award-winning Celeste.
- “Unity's roots are in working with indie devs, so the pivot to the automotive industry and film, the focus on exploitative money making, and the shutting down of gigaya and firing everyone involved, doesn't exactly feel great to us,” wrote Freya Holmér, a popular creator, educator and game maker who specializes in Unity.
- "Unity as a corporate entity only cares about chasing infinite growth and attempting to be the next Silicon Valley unicorn tech company and will kill itself trying to achieve that," programmer Lotte May told Game Developer last week. "We have been on this path for a very long time, but it has accelerated so much in the past two years, and it's really hitting a breaking point for the community."
- Making matters worse, Unity’s IronSource acquisition comes just weeks after the company laid off 4% of its workforce, or slightly more than 200 people, in what the company classified as a realignment of resources.
- Adding to some developers' frustrations is also IronSource’s unsavory past; the company got in hot water in 2015 when one of its tools became a popular vehicle for infecting people with malware. Unity has blamed the episode on “'bad actors' who tried to abuse the platform.”
Riccitiello made everything much, much worse. Unity could have quietly moved on, chalking up the negativity around IronSource as the cost of doing business in the mobile free-to-play market. But Riccitiello poured gasoline on the fire in a now-infamous interview with PocketGamer.biz following the announcement last week.
- In the interview, Riccitiello responded to criticism of the IronSource deal by comparing indie game developers focused on artistic merit to Ferrari car designers who still create mockups with clay and carving knives.
- “Some of these people are my favorite people in the world to fight with — they’re the most beautiful and pure, brilliant people,” Riccitiello said. “They’re also some of the biggest fucking idiots.”
- The outrage was loud and immediate from all corners of the game development community. Riccitiello intensified the situation further by calling the interview and its headline “clickbait” and “out of full context” later that evening.
- Two days later, the CEO posted a proper apology to Twitter, calling his word choice “crude,” pledging to do better and providing context around what he meant.
- "Sometimes all a game developer wants is to have a handful of friends enjoy the game," Riccitiello wrote. "Art for art's sake and art for friends. Others want player [dollars] to buy the game or game items so they can make a living. Both of these motivations are noble.”
The backlash against Unity is about the soul of the game industry. Riccitiello isn’t wrong to suggest that game developers could make more money and create stickier, more successful games if they focused early on monetization and incorporated player feedback directly into the development process. But his words have also fueled the near-constant tension at every level of the industry between art and business — between making products that siphon money from consumers and those that succeed at being fun, rewarding and creative works of art.
Riccitiello’s delivery, and the game industry’s messy and dysfunctional relationship with monetization, has created a perfect storm for Unity. Developers likely won’t stop using its platform en masse; Unity is used by 61% of the industry, the company said last year. But the company’s reputation has been dealt a major blow, and it may find that many of its most beloved success stories — games like Hollow Knight, Cuphead and Ori and the Will of the Wisps — are products of a Unity that doesn’t exist anymore.
— Nick Statt
SPONSORED CONTENT FROM PEPSICO
Thinking outside your wall: How the path to net zero requires a new approach to collaboration and knowledge sharing: The emissions that make up a full greenhouse gas footprint can emanate from outside the four walls of your own manufacturing operations, like in the case of PepsiCo, where 93% of emissions come from its value chain.
“Our entire industry is dying. Every media outlet is dying; the entire world of journalism is continuing to change.” — Journalist Rod “Slasher” Breslau spoke to Digiday about the wave of layoffs among media outlets that cover pro gaming and esports.
“If I could go back and make Skate 3 in 2015 or something, I don’t know if it would have been a boxed product. I think it just makes sense for the franchise in terms of what the community wants. I don’t know if having an iterative title makes a ton of sense. It feels like — it sounds trite to say — the natural evolution of the franchise and skating and games and all of those things coming together seems like the right thing for us to pursue.” — Deran Chung, the creative director on Electronic Arts’ reboot of the Skate franchise, talked to The Verge last week about making the title (now simply called Skate and not Skate 4) a free-to-play game.
In other news
Nintendo ups its Hollywood investment. With an animated Mario film on the way, Nintendo is getting serious about translating its gaming IP into other media, and has now acquired a CG production studio called Dynamo Pictures, to be renamed Nintendo Pictures.
Crunchyroll lowers subscription fees in key overseas markets. The Sony-owned anime service is reducing monthly prices in close to 100 countries and territories; in India, people will now have to pay around $1.25 per month, as opposed to the prior $10 a month price, which should help the company better compete with local players.
Microsoft’s Activision Blizzard acquisition may clear the FTC. The game industry’s largest-ever deal could be on its way to closing, as Microsoft has provided the FTC with all of its requested information, according to Dealreporter.
Sony’s Bungie acquisition is a done deal. While Microsoft awaits closure on Activision, Sony's acquisition of Destiny developer Bungie apparently raised no red flags and closed last week, a little over six months after it was announced.
Disney raises ESPN+ prices by 43%. ESPN+ subscribers will have to pay $10 a month starting in August. At least it will make the Disney bundle look more affordable.
PlayStation acquires esports firm Repeat.gg. The pro gaming tracker and tournament platform is the latest esports investment from Sony, which last year invested in fighting game series Evo, according to GamesIndustry.biz.
NetEase establishes a new U.S. studio. The Chinese gaming giant has set up a new Seattle studio called Jar of Sparks, led by former Xbox employee and Halo Infinite head of design Jerry Hook.
Apple will introduce a second, more affordable AR/VR headset in 2025, according to Ming-Chi Kuo. Still waiting for the first one, though.
Understanding the game industry downturn
Market research and analyst firms have been sounding the alarm about the effects of inflation and the economic downturn on gaming for weeks now, and last week The NPD Group, the preeminent tracker of U.S. sales, had pretty grim news: According to lead game analyst Mat Piscatella, consumer spending is down — by a lot.
NPD reported on Friday that consumers spent 10% less in the first six months of 2022 than they did during the same time period last year, with game industry revenue down to $26.3 billion. Only subscription gaming is growing, Piscatella noted. This follows Ampere Analysis’ forecast that the global games business could in fact decline this year and Sensor Tower reporting that U.S. spending on non-gaming mobile apps surpassed mobile gaming for the first time in history.
The factors are complex: a mix of delayed games leading to a weak release calendar across the board, inflation and the macroeconomic environment, as well as more so-called experiential spending on activities now that pandemic restrictions have all but disappeared. NPD’s sales charts also indicate that most players just aren’t buying that many new games and are largely content playing Elden Ring and Nintendo titles, at least until something better comes along.
— Nick Statt
SPONSORED CONTENT FROM PEPSICO
Thinking outside your wall: How the path to net zero requires a new approach to collaboration and knowledge sharing: Asking suppliers and associated companies to overhaul the way they work is no small feat, but PepsiCo is taking a three-pronged approach centered around the principles of educating, enabling and incentivizing. The Sustainability Action Center aims to engage and equip value chain partners with tools to undergo their own sustainability journey.
Thoughts, questions, tips? Send them to firstname.lastname@example.org. Enjoy your day, see you Thursday.