September 27, 2023

Shares of Unity Software Inc. (NYSE:U) fell 2.6% on Thursday after falling more than 5% a day earlier, as backlash over its new monetization model continues.

On Wednesday, the maker of the widely used video game engine announced what it is calling a Unity Runtime Fee (URF), which it will charge developers every time a game is downloaded when it reaches certain revenue and download thresholds. will reach. The URF is expected to come into effect in 2024.

Developers creating games using Unity’s engine were outraged at the decision, arguing that it limited flexibility, increased costs and forced developers to upgrade to Unity’s premium services to reach higher download limits. Does.

“Unity raised prices and introduced a new monetization model that better captures the value its game engine provides to game developers,” Jeffries analysts wrote. “It should also help it strengthen its advertising business as there is ‘synergy’ pricing available. Finally, we see little incremental cost associated with the new model, thus making it easier to achieve the 2024 EBITDA target.

Jefferies issued a price target of $29, which is about 20% below its $25.91 price as of Thursday afternoon.

Because it charges per download, developers will be charged double if a user downloads a game once on their PC and then again on their Steam deck. In fact, Unity has already taken steps to address fears of “install-bombing” in which a user reinstalls a game repeatedly as a way to theoretically punish a developer.

Analysts said the move indicates that Unity is struggling to increase its market share.

“We see this as further confirmation of Unity’s struggle to gain share outside of mobile,” the analysts wrote. “Also, with slower growing segments elsewhere in the game, Unity is being more aggressive in its pricing on mobile gaming.

In terms of revenue, Jefferies estimates the revenue impact could be $50M to $200M in 2024, with a base case of around $100M.

The analysts concluded, “This is a PR headache, and Unity needs to improve its customer relations.” “The economic impact looks favorable, but one has to ask why the rush was made, and why the bulk of its growth is coming from video games when the narrative should be providing value elsewhere.”

“Despite short-term gains, the negative reaction, haste in implementation, lack of clarity, and what appear to be defensive measures further validate our negative fundamental outlook.”

Contact Andrew Kesel at [email protected]

Follow him on Twitter @andrew_kesel


Leave a Reply

Your email address will not be published. Required fields are marked *