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[Unreal Fest 2023] Epic Games CEO Tim Sweeney addresses layoffs and future plans

This wasn't the right size. I think we were the right size, and I love their original plans, but this is the survival mode that was necessary, and what we did accomplish, the one thing, is we've stabilized our finances so that and how it affects all of our ecosystem efforts.

But one of the principles we decided on early on, it was about 10 weeks ago when we realized we were running into a financial problem that we had to solve quickly, is that we wouldn't spread the pain around deeply. Rather, we went through and identified all the parts of our business and exactly what we absolutely needed in order to accomplish our mission. And so it affected different parts of the company in rather different ways. The Unreal Engine engineering team was only impacted with 3% of the deal. Many of the business, sales, and marketing teams suffered more than 30% of the loss. And so, this is going to have implications for everything we do, and it's going to result in a degradation of quality of some of the work. I'm sorry for that. But right now, everybody in the company is working to figure out how we're going to rebalance our priorities and to, you know, re-task the teams and do ways more to serve all of your needs, and we'll get through that.

But you know, this effort, and going through these pains, really caused us to look at every part of our business and ask very hard questions of ourselves, but, one of the things we, that's really been reinforced, was that we truly believe in our strategy here. And Epic, as we've been doing for a very long time now, has fundamentally done two things. We're voting technology for all of the creators in the world. And we're voting our own entertainment experiences on top of that. And the business is built around the synergy between the two.

And, you know, one of the things we came out with realizing is core to our business is that we serve all of the world's real-time 3D creation needs. The wonderful thing about the Unreal Editor and the Unreal Engine toolset is that it provides 90% of what everybody needs for real-time 3D in every industry. And then different industries need different things. Game developers need one set of things. Filmmakers doing virtual production need another. And architects need some, and automotive makers need fancy material systems, and so on and so on. And so, we've built up a structure in which we have a lot of different small teams serving the needs of every industry. And the engineering teams doing this work are largely, widely affected by the layoffs. So the engineering work continues, and the sales work, support work, and so on, continues, but at a smaller scale. And we're committed to serving all the different parts of the Unreal Engine ecosystem, and truly, we've gone through this realizing that the magic of what we do is in serving everybody.

And the real core strategy of our business, which is to not just be a General Electric-style company with a bunch of divisions serving a bunch of different industries, but to connect everybody together into real-time 3D and something resembling the open letterworks is our goal. And the massive Fortnite crossovers we've done, going into film and television content, we have a partnership with Disney and Marvel, whatever, so the Fortnite and the musician content, doing a concert for the Fortnite, and all these different pieces truly rely on us providing the tool set that connects all these different industries together. And that's what we're going to do, and we'll continue through good times and bad times in doing it.

And, you know, we realized that one of the things, one of the principles we we came to realizing is we have to, it's hard for us, but it's also hard for you. A lot of companies in the industry are selling for it similarly, or in some cases worse than we are. And we can't get our problems, our problems, and we won't. And, you know, so, engine royalties have been discussed recently in the industry. You know, we, and let me tell you, since we introduced the 5% government sharing model in 2014, the only conversations we've ever had about the royalties are, can we lower it? And we've had those discussions a number of times, including recently. And the recent discussion concluded, like, no, we really need money. We need the money. We're coming in. But, you know, that's not really the case forever. You know, the funniest stat that one of our investors pointed out years ago was that the engine business makes about 0.04% of engines we recommend. Because, you know, Unity is really popular, and there are other engines, and internal engines, and most of them are ITs without revenue sharing, including people call our sales force and then negotiate a royalty fee on revenue origin still. If we can create on a scale and succeed at a larger scale. I do hope that we can lower that in the future. And that we see ourselves as serving our customers and not becoming ecosystem overlords. We are. I want to complain about that from time to time.

And so, yeah, our main goal for business model, we think, is really scale. It's a business model designed so that we succeed and you succeed. And most teams, you know, are paying any or all to locate a model, but ultimately I think everybody comes to locate it. It's like we're all professional developers here.

And the Unreal Engine team, if you're using Unreal Engine, it's kind of an extension of your team. And if you weren't paying us money for the engine, you'd have to hire really awesome people to build your own, and you'd be paying them too, and yeah, basically that would cost three years of your business. And so, yeah, we think our structure for game developers is really sound.

There has been a quirk of our engine business for a while, that we're going to patch next year, and that's that we have an engine that's completely free for anybody to use, but if you're never shipping a product that's wrong with your barrier, then you never pay any money at all. And this doesn't affect the involvement, but one of the things we're going to change next year is for industries other than the involvement, you know, such as the automotive industry and so on, we're going to move to a seat-based enterprise software licensing model from RealEngine. And we don't have terms to announce yet, but this is just, I wanted to get this out in front of everybody for transparency. We're going to move to a model like that. It's not going to be unusually expensive, or unusually inexpensive. But if you're going to be building a product outside the game industry and not paying royalty on it, then yeah, it'll be a licensable piece of software like Maya or Photoshop or whatever, that would just be a change that tries to bring our engine revenue back and associated with the teams that are doing the work in the industries.

A funny thing about being funded so heavily by Fortnite over the past 6 years is we've had different parts of our business get disconnected from their revenue streams. We have big teams serving different industry verticals, building NIST nets and features for custom clients. Without revenue to support it, nets have been fine because we've seen adoption grow that. But one of the rigors that we need to do as we become a lower margin company, we kind of have to cope with this, is reassociate revenue streams with the things we're doing. And this will absolutely not affect any developers. I think free and paying financing taxes is the best deal we can offer.

And if you don't like it, then call up the sales force and negotiate a zero-amount fee deal in case you want to get front networks too. We're also dedicated to continuing all these other services that we provide. We have the Epic Games Store. We think the Epic Games Store is the cure to a disease that's impacting a lot of the industry right now, where mobile platforms have become overlords and are extracting vastly higher payment processing fees than any chain payment processor on the market. You know, we're fighting that. And we see one day over the coming years, perhaps at different times in different territories, that we'll be and to continue offering a 12% fee store. And serving customers at a much much larger scale than we served before. And Epic Online Services, it's a set of online services we built for Fortnite, and now available to all developers. If you wanna escape from Steam, or escape from the various single platform ecosystems, and connect all of our players together as we did. It's a great solution for that, and we'll continue it, and we'll continue using that to our advantage.

And so, yeah, this is really Epic's process of reconciling our business model with the reality that eventually comes to exist for all companies. We escaped it for a while with Fortnite, and now we're getting back to having reached the scale of now a 4,000-some person company through a really painful evangelizing. And we're desperately now going to be operating in a different way to make sure that we don't get back into that kind of condition. And there are good and bad times, and we'll support you. And and will continue everything you're doing, and are grateful for your business. But anyway, Unreal Fest isn't about this, it's about celebrating the accomplishments of everybody who's building amazing stuff with Unreal Engine, so let's get on with the show. Thank you very much for coming.

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This is from the video in this tweet, downloaded with this website, transcribed with OpenAI's Whisper, and cut into paragraphs by Google's Bard.

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