John Riccitiello, the CEO of Unity Technologies, has always liked Tim Sweeney, the CEO of Epic Games, and the healthy competition between the game engines that both companies make. Unity rose from the low end, capturing mobile game developers and then pushing its way upward.
Epic Games started at the high end with games that had outstanding graphics, and it worked its way down so that Unreal games can run on PC, console, and mobile devices. But Epic makes its own games, and Unity doesn’t. Since its Fortnite battle royale mode took off, Epic has been collecting a lot of revenue from its players, who now number about 250 million. And that has enabled Epic to create a $100 million fund for game developers.
That bothers Riccitiello, as it feels like Epic is buying customers. Sweeney said this week that the Epic MegaGrants have no strings attached, but it still bothers Riccitiello. I talked with Riccitiello (and Sweeney) this week about this topic and other things like Google Stadia, and where the next billion gamers will come from. We spoke at the Game Developers Conference.
Here’s an edited transcript of our interview.
GamesBeat: How is GDC for you, as far as all the things you’re seeing announced?
John Riccitiello: GDC seems like a new E3, but with a technical bent. Lots of announcements now. Generally, it’s what we all expected. I don’t know that there’s anything at the industry level I didn’t know about a year ago that’s coming now. No giant surprises.
GamesBeat: Google still surprised me with how aggressive or ambitious they seem to be.
Riccitiello: They’ve been talking a long time, though, since before Phil got there. It wasn’t a surprise if I knew about it a year ago.
GamesBeat: Do you think it’s so ambitious that it changes a lot of things, changes strategies around the industry?
Riccitiello: Other than Nintendo, tell me a major company that’s not building a streaming solution.
GamesBeat: Sony doesn’t seem to be doing much with theirs.
Riccitiello: But I’m pointing out, they have one. Calling streaming surprising when you can only come up with one company that’s not doing it–look at the Amazon website. You have Microsoft, Google, Amazon, Sony, and whoever jumps in next. It could be Netflix. I don’t know. I just think a lot of people are at that. Look at Ken Moss’s blog from EA about that. Andrew’s giving talks about it. It’s such a present notion.
GamesBeat: What feels different — I remember OnLive talking about how they got their first data center up, and then their second, and then they could cover the whole U.S. That was the thinking 10 years ago.
Riccitiello: I remember talking to Steve Perlman back then. It was 2005. I told him his plan wouldn’t work then. Anyway, for what it’s worth, there’s something here. We’re in the middle of it, because we provide the technology for most of the stuff that goes up there.
GamesBeat: We always knew these data centers were going to come in handy for a lot of things. Each one of them built it for their reasons. Amazon built it for e-commerce and then web services. Now they have this extra use, with all the GPUs in there now.
Riccitiello: At no point, I think, did anybody ever think that the right answer for your computer is it’s an isolated box in your living room and it doesn’t talk to anybody else. Go back to Star Trek, when all you could go out and buy was a pocket calculator. The image of a computer was this thing you spoke to and had knowledge of the universe, which had to be on a server someplace.
GamesBeat: Do you think making games for these data platforms will be different? I caught Ubisoft boss Yves Guillemot afterward and asked him if there was a different path to getting a game down now. He said, “A little different.”
Riccitiello: Not as different as PlayStation 2 was from Xbox. There’s more difference between those. Basically, everyone’s centered on a PC architecture, ever since Sony and Microsoft brought in the last generation of consoles. Now, there are different things that I can’t tell you about, because I’m under NDA to fucking everybody, as far as how they differentiate and what they emphasize. But it’s within a relatively narrow band in terms of impacting content creation.
With Unity you write once and you get it without doing anything. That’s the whole point. We flatten that, and we live in that arena. That’s exactly where we live, how to cover that waterfront super efficiently.
GamesBeat: Like the AR foundation tools.
Riccitiello: Just the editor, the way it’s always worked. We create the code. You write scripting languages and use the editor and then we create the code for iOS or Android or HoloLens or PC or Mac or Xbox. That’s what we do. Then, when you get to things like burst compiler and the ECS systems that are much more advanced architecture for parts are built and deployed, we’re producing assembly language. You don’t have to know how to do assembly in order to take advantage of that Unity platform.
GamesBeat: For you, do things change much in this world? Is it business as usual?
Riccitiello: Well, describe business as usual. We were doing low-end mobile four years ago. We had maybe eight or nine percent market share. It’s 50 now. Is that business as usual? We didn’t support high-end anything. We have lots of triple-A being built on Unity. We didn’t support AR/VR. Now most AR and VR is built on Unity. We didn’t have a monetization platform or cloud services. You watched our event. The velocity on R&D is breathtaking.
I’ve looked at the demos from Crytek and Epic and various events and releases. The worst you could say is we’re at parity, and I think you could get a better-looking demo than they showed, for humans and for raytracing. I think ours look better. They look fine, I think ours look better. I don’t know if that’s actually fundamental to the tech, or just the artists that use the tech. But the point is, once upon a time you would have said that on ease of use and more platforms, we win, but you’d have to say now that we’ve caught up. That’s a big change. I’m not sure there’s anything normal or status quo about that.
GamesBeat: One thing that’s different is that they have more riches from Fortnite to spread around and help their cause.
Riccitiello: I’ve been told by six people today that they were “bribed” to change to the Unreal platform.
GamesBeat: The store, or the engine?
Riccitiello: In some way, shape, or form, they were given money to switch engines. I just had major developer from a very large studio say, “We’re going to stick.” They’re on their own tech and they’re going to move to Unity. He was sitting right there an hour ago and said, “How do you feel about how they’ve offered me a shitload of money to use their tech?” And my response is, “Would you choose to use their tech for money?” The answer was no. He was testing whether I’d offer money.
We’re in kind of a weird spot, when companies are–I don’t know. Imagine if there was somebody in the aisle at the grocery store. You happen to be a Coke drinker and a guy from Pepsi says, “Here’s 10 bucks, buy Pepsi.” What does that say about Pepsi? It’s just a little creepy. But having said that, I think Tim’s a good guy. Their platform is solid. Fortnite is an amazing success. They’re a customer. They use my tools.
GamesBeat: It doesn’t sound like the no-strings-attached part is really that true.
Riccitiello: I’m looking for the Unity developer that doesn’t use Unreal and doesn’t use their store. Seriously. You could be the guy who takes 10 bucks in the grocery store and walks out with a Coke. But I don’t think there’s going to be any of those. Look, I think they’ll grow past that. I have six million developers. Even Tim can’t give half a million dollars each to six million people.
As much as we think it makes sense, which is a lot, we’re turning the Unity engine into something that is as easy to use as Photoshop, but more powerful than Unreal or Frostbite. I want to give people power, and I also want to give them flexibility. I touched on that point yesterday. What I believe developers should be doing when they have strong technology teams is building modules for where they need a point of differentiation. But why would you cover the waterfront building a tool as broad and capable as Unity? That gives them the perfect outcome. It gives them all the power. If they see something they can incrementally differentiate, because our product is built in packages, and go do that.
The benefit is–I’m under two- and three-year NDAs for more platforms than I can count. We’re working on engineering outcomes for things my customers don’t know about. We’re an open platform. They can use any services they want. But I think that what we’re going to do is give as much advantage to the developer as we can, without bribing them. The notion there–it just hits me in an unsavory way.
I know Tim, just for absolute clarity. He’s one of the most honorable people I know. He’s driven by doing the right thing. At the moment–I guess it’s sort of flattery. Four years ago they ignored us, what we did and what they did. Now, to a degree, they look like they’re pacing their communications around us. But then on the other hand, we probably have three to five times their position on console and PC in terms of amount of content, and 50 times on mobile. I think he doesn’t want to lose his position as a technology provider in addition to a content builder.
I understand that. It’s competition and they should compete. At the same time, I really like him. I talked to him a couple of times last month. I think he’s a good guy. But it’s getting a little weird out there, when–I don’t know. We shall see where it all goes. I don’t think he’s going to try to buy everybody’s customer.
GamesBeat: Like anybody, they’re figuring out where they can do things to benefit the industry and where they can benefit themselves as well.
Riccitiello: Yeah. I think the way the world works — this is what I want to focus on. We’re investing in foundation layers for AR/VR content creation and AR/VR on a data-oriented technology approach that’s different from anyone else. It’ll be more performant in how to optimize individual cores in a way that most developers will never get to. To try to invest in scriptable rendering solutions for both the high end and low end that enable people to have the custom outcomes they want. To invest in AI solutions for content creation, so that developers will not have to do laborious things over and over again when they’re creating algorithms and art for fire and forests and terrain and people.
To invest in other show things like digital humans running on $20,000 worth of hardware–we do it, it runs on a Macbook Air. The point of that is, we’ve always been good at supporting devices that are in the math of the marketplace, with the highest-end performance. Maybe not quite as high as the other guys, but we’re getting to the point the other guys are getting to. You don’t want to go for digital humans, photorealism, and give up 90 percent of your market, because it won’t run on traditional consumer hardware, or at least broadly-distributed consumer hardware. That’s where we choose to invest our money, and then let the developer take advantage of that.
I used to be a content creator too, for many years. It never worked to take a bribe from a platform company not to support the other platform, although that’s what they tried to do lots of times.
GamesBeat: Like this rumor that Sony wants to buy Take-Two. It might make sense, but it doesn’t make sense. [Most likely it does not make sense because you give up two-thirds of the revenue if you make it exclusive to Sony].
Riccitiello: Platform companies would give us an incentive not to support the other platform. What I learned in my time as a game publisher is that if I could support both platforms, it was better for my audience and better for my balance sheet and income statement to sell on both and get paid that way, as opposed to a bribe to do something that doesn’t make sense.
But in this industry, not everyone is liquid. Not everyone has cash. Some people will take a lesser long-term view in order to take the money in the near term. I understand that.
GamesBeat: Do you think you guys are the target, or is Valve?
Riccitiello: I don’t want to focus on Valve or the retail side. I’m just pointing out that–
GamesBeat: The exclusivity part. Maybe they’re just trying to get that for the ability to do some damage to Valve.
Riccitiello: Yeah, and good luck with that. But again, I want to come back–it sounds like you should interview Tim and Gabe for that conversation. You’ve known me a long time. Go back and remember Unity from two, three, four years ago. It wasn’t a legitimate conversation. Four years ago we were easier to use and had more customers, but there was no belief anywhere that we’d actually catch up or pass on performance. I think that’s breathtaking. I’m awfully proud of the engineers here that did that. That’s what we’re really about, the product people and the engineering people that are delivering something.
In the middle of all that there’s a lot of noise that seems like it’s going to eventually go away. What will be left is fundamentally whether the tech stands on its own. Ours does. Does the solution that Google is bringing to market work? They believe it does. I think there’s a lot of cool stuff there. We’re going to play that out. Microsoft has its own streaming solution, and they have hardware on the other end that’s different from Google’s. Which is the better idea? All those things have to play out.
GamesBeat: One piece of Unity’s value has always been, “Use us and we’ll get you to all those platforms.” But now Google says that. Google can take an Epic game, say, put it on their data platform, and get it everywhere. There are different ways to get it everywhere now.
Riccitiello: But the people that produce for iOS only, the majority of them use Unity. People that produce for PC only, the majority of them use Unity. We’re going to support Stadia. I don’t think that affects us much at all.
I also think that–I would agree with Phil on a lot of things. Their vision of their world is different than I think what’s actually going to turn out. I think there will still be people who build games for PlayStation. There will still be competitive ecosystems. I don’t think PlayStation will say, “Hey, you paid Phil X amount of money, so you’re welcome to play your game on the PlayStation.” I think they’ll end up with some business complexity in that, which makes it hard for the consumer. I also think they’re going to have a hard time when a game is living on an AWS server and they want to play on a PlayStation. Where does Stadia fit in that?
GamesBeat: If I were Sony, I’d still make a PlayStation 5.
Riccitiello: I know what’s happening there, and I won’t tell you. But there’s more stuff coming. It’s not over.
GamesBeat: Comments like that make me feel like I’m in a chess game where I don’t know where the pieces are.
Riccitiello: It’s going to be a healthy competition out there. As it plays itself out there–one of the other issues is that to legitimize a platform you need content. We’ve never seen a successful platform that didn’t have a boatload of proprietary content. Right now, so far–and by the way, I’m a big believer in the platform from Google. But the only proprietary content you’ve heard about so far is Jade Raymond. It’s going to take a couple of years to turn her capability into a product. This going to play itself out in the same way it always does.
GamesBeat: Google must be, what, [5.2] times the value of Disney, even with Fox included? The market is valuing the big tech companies and the big companies with data centers more than it values the content kings.
Riccitiello: Let’s be clear. The big platform companies have different multiples. I think approximately Google is at 10-times. Apple is at three, because they’re not growing as fast. Microsoft is in the middle. EA and Activision are at five and six times revenue in terms of their market cap. But content companies are always at a discount to all platform companies, because platforms in theory are eternal, as time has proven. PlayStation is still a big business. Xbox is still a big business. Google is a big business. They hold their value. Content companies have a hit requirement. They have to keep producing. The street tends to ascribe less value because there’s more volatility.
But the fact that the street’s been putting a higher value on platform companies has been true forever. That’s not new. In fact, if you go back to before the current generation of hardware, all the game companies were down to 2-times and 2.5-times, because the story at the time — even though I was telling them they were wrong — was that mobile was going to overtake and console was never going to come back again. PC was never going to come back again. You should discount EA, Activision, Take-Two, and Ubisoft. They were all at really low valuations. Then in the fall of 2014 we saw hardware again and bingo, it all happens. The values recovered.
The vagaries of the street are hard to interpret and hard to believe in. Is it right or is it wrong? You can’t really say. It just is.
GamesBeat: There is one area where I think you are doing something more interesting, which is going beyond gaming. It made me think of that Black Mirror: Bandersnatch thing, the choose-your-own-ending interactive film. That seems to be a way to spread interactivity to more people. The way the Angry Birds people think, a certain number of people are going to play their game, but if they take the same brand, the same content, out into the movies, they can reach even more people.
Riccitiello: I did the math myself, so I can’t claim this is 100 percent true, but I think the top 25 intellectual properties in the world were all games. One through 25. To say that you get to more by making a movie–I mean, the top few games now are approaching $10 billion. That’s the size of Warner Bros., and they had how many movies and how many TV shows?
Games have so overshot all other forms of media. Unity, just Unity games, on a quarterly basis, reach more people than watch television on the planet. We reach more people than watch TV on the whole planet Earth. That’s one company’s ecosystem in the game industry. We do pretty good on reach. We reach a couple billion people a month. I don’t know that there’s more reach in any medium other than gaming.
GamesBeat: I feel like interactive storytelling is new, and it can do more.
Riccitiello: You have a $150 billion industry that’s non-interactive storytelling. But there’s a lot of storytelling that goes on. Tell me there’s not a story to GTA or Red Dead or Battlefield.
GamesBeat: I think about–my mom would never pick up GTA, because it has a game in it.
Riccitiello: Lots of companies have created interactive stories in their games. I go back to Walking Dead with Telltale and so on. They’d reach hundreds of thousands, if not millions of people. I’m not saying you’re wrong. I’m just saying that’s an interesting point of view. It’s not borne out by the facts. The facts are that games reach an insane number of people.
GamesBeat: I started thinking about it when Rovio said they reach 4 billion people. How do you reach the rest of the world? Those probably aren’t gamers.
Riccitiello: Well, remember that no movie reaches even 4 billion. Okay? The point is, it’s already reaching more. Apex Legends, in its first week, reached more people than have watched anything in the history of Netflix. Nothing has reached as many people on Netflix as played Apex Legends. It’s not like we’re running out of–it’s not like you look to the other medium and say, “There’s more people there.” But you could also be Star Wars. Star Wars, you make a game, make TV shows, make movies. They reach a lot of people because they get the benefit of all of it. There are definitely some people that aren’t gamers, but it’s not like–I’m tracking 3 billion gamers.
GamesBeat: The only thing I thought didn’t sound right coming from Google was–if only we made these hardcore games available to so many more people who don’t have these machines, then we’ll get some doubling or tripling of the audience.
Riccitiello: I’ve told Phil this. I’m going to come across a Call of Duty video on YouTube, and it’s going to cause me to want to play the game. These guys spend hundreds of millions of dollars marketing Call of Duty. It’s the number one game. It’s everywhere. It’s on every platform. There was a beautiful mobile game on our stage that you saw. Call of Duty is reaching–it doesn’t occur to me that there’s another 50 million people that want to play that game. If they do exist, why would they be watching the video on YouTube? By the way, Call of Duty has been buying ads on YouTube for years.
My sense is that Call of Duty — give Bobby Kotick a lot of credit — has been managed and marketed to perfection. I don’t know if it’s found its market peak. I can believe it gets bigger. Maybe it gets 10 percent bigger, 15 percent bigger. It’s been growing at those kinds of rates. Maybe on top of whatever they might achieve with what they do with Call of Duty, and this mobile game is going to reach a lot of people–take all of that into account, all that growth, maybe a streaming platform can add something to that. Maybe it’s 10 percent, maybe it’s two percent, maybe it’s nothing. I don’t know.
But I don’t know that your mother is going to be cruising around on YouTube to begin with. If she is, she’s unlikely to pick up GTA and Call of Duty as a consequence of seeing a video there. How about my daughter? My daughter knows all about Call of Duty, and she doesn’t want to play Call of Duty. She likes the Sims. I do think that there is some number of people who find a $300 or $500 hardware platform foreboding. It’s hard to get over that hump. But that’s what eBay is for. You can buy a console for next to nothing.
GamesBeat: It’s hard to figure out where the next billion players come from.
Riccitiello: Remember, the number of players has been growing, mostly as a consequence of mobile, by hundreds of millions every year. Order of magnitude, there are 3 billion people gaming. If streaming didn’t exist, in five to seven years there’s going to be 4 billion people gaming. I’ll tell you exactly why. In the next decade or thereabouts, a whole bunch of people over 80 are going to die. Something on the order of 25 percent of the world’s population is over 65. If you took that 25 percent of the world population — call it 1.5 billion people — the gaming penetration for that group today is probably three percent. I’m the oldest gamer I know. [Laughs]
When that group dies, the group that’s being born in that same 20 years will have an 80 percent game penetration. As 1.5 billion people die and get replaced, we’ll add a billion gamers. That’s going to happen. What facilitates that and makes it easier? Streaming will make it easier for some people to come onto a platform, because there’s no purchase price. Mobile has done more for the number of gamers in the world than anything, because it puts a compute device in everyone’s hand. AR and VR will start to attract some portion. Who knows exactly how many? And who knows what comes after?
By the way, I don’t think streaming is really going to be what we have, exactly. There will be all sorts of solutions that are streaming-like in terms of getting products to people.