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F2P Microtransaction sales confusion: When/why/how does Epic get a cut?

I’m a student who saw Epic’s UE4 November Game Jam announcement Twitch stream, and they showed off a microtransaction example in a mobile game. I tried reading through their documentation on the licensing, but it’s been confusing to process. I started thinking about how funds would go to Epic in the case of the developers selling content that wasn’t strictly related to the Unreal Engine. What would happen (in regards to the payment and licensing of UE4) if someone released a game that was free-to-play, and had microtransactions, but didn’t sell anything as a microtransaction for the game that was built off of a uniquely UE4 system? I mean, if someone sold a new texture for a character skin on a separate website that could be used for their game, but wasn’t necessarily tied directly to their game’s asset, then would Epic take a cut of that, since it’s not sold in-game (on a platform built using UE4) or part of an explicit UE4 asset (file type would probably just be a jpeg of some kind)? Or what if it the marketplace was open and the character skin was sold by a community member rather than an original game studio team member? Then, in that case, would it make a difference whether the asset was created using an in-game editing tool vs. an external one?

This dips into “paid mods” territory at the end I suppose which, as I understand it, is not a very supported proposition in the community. In isolating the studio team member case then, what exactly is the line that gets drawn saying, “Because you did X, the asset / resource / THING that was sold is something Epic acquires a portion of profits from.”
Does that mean there are ways developers could create content to be sold that could be used for their game, but not necessarily directly tied to it, at a paid rate, without Epic taking a cut? If so, is this something Epic may plan on “patching” in amendments to their licensing structure?

It just doesn’t seem terribly clear to me since the initial sale of the game product is free-to-play, i.e. no 5% to be sent to Epic from strictly game sales.

My interpretation is that if a purchase generates revenue for the developer/studio/etc and can be used in-game, it’s eligible for royalties (assuming you’re over the threshold), regardless of the medium used to create or sell it. Of course, I’m no lawyer!

Normally, the assets have to be prepared with UE4 before they can be used. Though you could design a system in the game to be able to load regular image files instead of having to import it into the editor like normal.
If it’s just an image file, and the microtransaction system is not within the UE4 game then you would not have to pay royalties. If you prepare the image file with UE4 and then sell it, then you would have to pay royalties.
I would think this would only work with image files, since other stuff like say meshes/characters would absolutely need the engine to process them beforehand and save them in a format the game can use.

You’re either misunderstood EULA or just trying to twist it in popular “PAID MOD” debates

Is pretty simple and straightforward: If you, as a developer of a product, getting profit from you games - via sales or via ads/microtransactions in f2p, then 5% of your gross revenue is going to Epic. If you setup a marketplace where users can sell items and they don’t have to pay a cut to you and they have transactions only between themselves - you(and them) don’t have a pay to Epic because there is no revenue this game is generating.

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Not 5% of your profit, but your gross revenue - like all platform holders.

**Example: You sell 1.000 items for $ 1 each **

= $ 1.000

  • VAT (e.g. 19% -> (1.000 / 119) * 100 ~ $ 160)
    = $ 840 Gross Revenue
  • Platform Holder Cut (e.g. 30% -> $ 840 * 0.3= $ 252)
    = $ 588
  • Epic Cut (5% -> $ 840 * 0.05 = $ 42) it’s based on gross revenue ($ 840), not after platform holder cut
    = $ 546
  • Your development costs (e.g. $ 250)
    = $ 296 (this is the base for further company or income tax calculations - to simplify just take 30% -> $ 296 * 0.3 = $ 88.8)
    = $ 207.2 Your profit

Which leads to

Money in your bank account: $ 457.2
Platform Holder Cut: $ 252
Epic’s Cut: $ 42

Hope this helps.

UDK royalty fee is a bit high (I think it was 25%), but at 5% for UE4, I have little to complain, especially when they remove the licencing fee.

I am more critical of platform owners 30% royalty fee, for essentially providing only a store front. I know they need to do QC & stuff, but come on 30%. I think they have a unofficial agreement of sort, & everyone charge pretty much 30%.

As a developer & creative/engineering content creator, it always bother me a little how the creators get such a small cut of the profit (unless you are a pop star). Imagine people who review cars can earn more than people who made cars, & people who play games can earn much more than people who made games, & under less pressure/stress (not having to worry about game sales & schedules).

But I guess most people who made games do it because they have great passion, & not because of huge profit & be rich. There are some big success story like Minecraft, but its not a representation of Indie developers as a whole.

Yeah, thanks for corrections!

EPIC doesn’t automatically get a cut from Apple or Google. Instead, the license terms for the Unreal Engine say that you are responsible for sending them money.

Your question has two interpretations: “What are you contractually obligated to do?” and “what can EPIC easily audit of what you do?”

It may be true that transactions outside of a controlled platform are harder for EPIC to audit. The contract still says that you have to send a check to EPIC every so often, assuming you sell more than the limit in gross. Basically, they get their money, because you’re not an idiot who breaches a contract, and you actually send them the money that they are owed. If your game has some kind of success, EPIC will likely start looking at your rankings, and estimate whether you’re giving them a fair cut. (This is where the minimum sales threshold is convenient – don’t worry about it when sales are so small that it doesn’t matter.)

On the mobile platforms, especially the App stores, you’ll actually have a hard time doing what you suggest. Apple does not allow anyone to monetize outside the App Store – this is why you can’t actually buy Kindle books in the Amazon Kindle app on iOS. You will be kicked from the app store if you try to circumvent that rule.

In case you were wondering what happens when you don’t pay royalties :smiley:

Thank you! Yes, that was a great help in understanding how the pricing worked (that was another question I had).

Also, you guys have helped me to better understand the nature of my original question: namely that regardless of what “context” the revenue is tied to, as long as the money made is tied in some way to the use of an in-game concept, then it is applicable to the royalties due to Epic. I was just wondering whether elements of a game that weren’t contained “inside” the product were outside the bounds of that. And on SOME level they are (ancillary products like clothing/toys/etc. aren’t applicable), but things like in-game skins or other benefits would be included in the royalty.

Follow-up question:
What about things like Toys-To-Life such as Amiibo? Technically they are tied to in-game content, but they aren’t exactly just data either…

Amiibo would not, because it doesn’t require the use of UE4 to create them and they could be used with other things as well(the tech isn’t specific to UE4).

You’re welcome.

I think so too, but what if the player would buy these toys via your ingame store? Technically it’s part of your game’s revenue. Interesting.

If the store is actually in the game, then you would have to pay royalty.