Hi Everyone. Welcome to another issue of Naavik Digest! If you missed our last one, be sure to check out our analysis on how generative AI is being adopted across the game industry. This issue, we’re examining the state of Fortnite’s UGC economy following the announcement of UEFN and Fortnite Creative 2.0. Let’s dive in. 

The State of Esports, UGC, and Venture Capital

Fortnite Podcast

Today’s episode is an interview with Sebastian Park, an ex-esports executive who is now co-founder of Infinite Canvas (creating and acquiring UGC games) and a venture partner at BITKRAFT. We dive into the trifecta of Sebastian’s background: esports, UGC games, and venture capital. 

Why are so many esports teams crumbling, and where’s the industry going next? What are Sebastian’s early impressions of the Unreal Editor for Fortnite? And how is the explosion in venture capital both good and bad? Tune in to find out.

You can find us on YouTube, Spotify, Apple Podcasts, Google Podcasts, YouTube, our website, or anywhere else you listen to podcasts. Also, remember to shoot us any questions here.

#1: The New Fortnite Creative Millionaires 

Written by: David Taylor

Fortnite Unreal Editor
Source: Epic Games

Epic Games caught the attention of the entire game industry last month at GDC when it committed 40% of Fortnite’s net revenue to an engagement pool for Fortnite creators. In tandem, Epic announced a suite of new tools called UEFN (Unreal Editor for Fortnite), which included a new scripting language, Verse, and the ability to import 3D assets into any Fortnite Creative map to help creators produce games with much more diverse visuals than your standard Fortnite battle royale match. 

Since the announcement, there’s been a fair amount of speculation as to how Fortnite’s revenue share will function. Some, like Dubit CEO Matthew Warneford, claim that Epic’s change means the Fortnite creator economy is now almost double that of Roblox, the previous leader in creator payouts. Others, like game exec Chris Heatherly, assert that creators can now produce AAA-level content for only a few hundred thousand dollars. 

To separate the signal from the noise, I reached out to the Fortnite creator community to get an inside look at what’s now possible with Epic’s new tools and what the revenue expectations might be in the era of Fortnite Creative 2.0.

The Tools

While the UEFN update did set Fortnite Creative on a course for entirely new experiences with AAA-like graphics and gameplay, the general opinion is that the tools are both a breakthrough and not quite there yet.

Creators I spoke with highlighted that importing assets through Epic’s new all-in-one asset marketplace, Fab, now allows developers to create environments that no longer resemble Fortnite. Creators can now upload any asset to Fab and import it to their Fortnite Creative map. Those who build branded experiences mentioned not having to recreate a brand logo by placing hundreds or thousands of varying colored blocks down, and instead simply importing an asset and scaling it appropriately. This ability to easily import assets combined with Fortnite’s new Verse programming language unlocks entirely new development possibilities — that is, if Fortnite creators are able to wrap their heads around the new language.

Verse was intended to be a tool accessible to first-time coders. According to developers on the Unreal Engine subreddit, however, even experienced programmers are finding the language  frustrating. Meanwhile, the Fortnite map creators I spoke with for this article are also having a difficult time learning it. 

Fortnite Comment
Source: r/UnrealEngine

There is an obvious dilemma between making accessible tools and making powerful tools, and it appears that Epic went in favor of the latter. While it’s not surprising to hear developers lament needing to learn an entirely new language, a clear takeaway is that the existing community of non-technical creators are going to need help in order to take full advantage of the Verse toolset. Hopefully in the near future there will be online classes and tutorials, but currently there is very little onboarding support for first-time developers.

While the community catches up, the hope is that Fortnite’s revamped UGC economy will add a step change in how creators make money and might pave the way for smaller teams to hire more experienced programmers willing to learn or already fluent in Verse. It’s also possible the new payout structure results in substantial enough earnings to attract legitimate indie game developers who may have previously been targeting platforms like PC. Everyone is wondering what the revenue opportunity with Fortnite Creative 2.0 is, so let’s jump into it.

Economy 2.0 and the fine print

Epic lays out the new incentives with the following key terms, which we will explore in greater detail:

  • “40% of the net revenue from Fortnite’s Item Shop and related real-money purchases into the engagement pool… including independent creators' islands, and Epic's own islands like Battle Royale.”
  • “Payouts are based on engagement metrics that… fall into two groups:
    • Player Popularity: Islands that attract new players and re-engage lapsed players signal an experience that Fortnite players love, so the number of players newly joining Fortnite, and lapsed players returning to Fortnite contribute to this calculation.
    • Player Retention: Islands where players return day-to-day and week-to-week indicate compelling gameplay, so consistent play and returning players contribute to this calculation.”

Unfortunately, Epic has not yet sent its first payouts to creators since the launch of the new program, so we can only speculate on whether income will in fact increase across the Fortnite Creative community. With that said, let’s try and estimate the total market for independent creators on Fortnite Creative with Economy 2.0 in place. 

In order to make this estimate, I primarily drew on the publicized documents from the Epic v. Apple antitrust trial and the financials, actuals, and forecasts that were made public as part of discovery. The following revenue projection should be taken as a rough estimate, as the last public indication of Epic’s Fortnite revenue is from a reported statement Epic CEO Tim Sweeney made in court that Epic generated $5.1 billion in gross revenue in 2020. (We also know from court documents that Fortnite made a combined $9 billion in revenue from 2018 to 2019.) 

My calculations assume zero growth from that point on as the return to normalcy and a declining economic environment has impacted growth across the industry. Further, Sweeney disclosed that Fortnite has around 70 million MAU at GDC last month. So if we assume similar levels of player conversion and average revenue per user (ARPU) to 2018/2019, Fortnite should still be making roughly $4 billion in annual revenue today.

Fortnite Revenue
FN Creative Dev Revenue is calculated with the assumption that 40% of net revenue would go to the engagement pool, and from Epic’s Statement at GDC that 40% of total engagement is from independent Fortnite creators. If you’re curious about any other assumptions, feel free to reach out.

The year one estimate is then roughly $400 million, amounting to an ~8x increase in annual market size for the Fortnite Creative economy.

While $400 million falls short of Roblox’s developer payouts — Roblox just posted a 25% increase in bookings, which would put its developer payouts at almost $750 million for 2023 — Epic’s investment is quite substantial and well beyond Minecraft’s developer income, which are  estimated at $150-$200 million. On Epic’s end, this marks a $350 million increase in annual payouts to developers, or a 15% increase in costs relative to Fortnite’s 2020 numbers

To better understand what would justify such a commitment, let’s take a look at three primary pillars of Epic: Fortnite, the Epic Game Store, and Unreal Engine.

Epic’s Strategy

Epic has several opportunities to pursue with UEFN. 

Attracting all player types to Fortnite: There are significant demographic differences between Fortnite and Roblox. On Fortnite, 74% of players are male versus 51% on Roblox. Meanwhile, 64% of players on Fortnite are between the ages of 18-24 versus Roblox having a fairly even split from its Under-9 to 25-plus age groups.

This is a tale of two platforms. One caters to college-age men, and the other caters to all young people. The core reason for the difference is that by putting game creation in the hands of its players, Roblox has games for every audience, while Fortnite gained popularity specifically by catering to fans of shooters and riding the early battle royale wave.

The success of Roblox and its continued growth in the face of softening numbers across the rest of the industry demonstrates the resilience of the company’s approach. A quick comparison of concurrent players at the time of this writing on Roblox (5.1 million) versus Fortnite (1.2 million) reinforces the power of having games for everyone. Even accounting for Fortnite’s long lost mobile user base, it still has just a fraction of the overall Roblox player base.

If this wasn’t convincing enough, just take a look at the way Epic is defining Player Popularity for their engagement payouts: “Players newly joining Fortnite, and lapsed players returning to Fortnite,” with active players decidedly left out. It’s clear much of Fortnite Creative 2.0 is designed to broaden the audience for Fortnite and capitalize on the lucrative growth Roblox has enjoyed thanks to UGC content. 

If Fortnite is able to attract a broader audience while maintaining superior gameplay and graphics, it’s not inconceivable that we would see the user base grow significantly while maintaining strong ARPU numbers.

The Epic Game Store Opportunity: The job of an online game store / launcher is to get player’s into their desired game as quickly and friction-free as possible. Part of what makes UGC platforms so sticky is the frictionless way in which players are able to transition from game to game.

Typically when a player wants to play a new game, they have to purchase it, download it, create an account, and create their avatar before they can finally play the game. Platforms such as Roblox and Fortnite Creative give you access to a wide range of experiences you can access instantly. The typical four-hurdle process is removed for games with large swaths of UGC content. 

It’s not inconceivable that in near future, we will start seeing games from Fortnite Creative as separate listings on the Epic Game Store, which could help draw even more players into the Fortnite Creative platform. In the long run, the Epic Game Store and its recently announced self-publishing tools could very well become redundant as indie publishers might find it far easier and more effective to leverage UEFN tools and publishing to build and reach their audience within Fortnite. 

The Unreal Engine 5 Opportunity: Unreal Engine, the Epic-owned game development platform that has powered countless AAA hits, turns 25 next month. So it might come as a surprise to some that UEFN is not about onboarding the next generation of developers onto Unreal Engine. Sweeney’s commitment to offering more favorable terms to UE5 developers — 5% on royalties only after you’ve made your first $1 million — significantly reduced the total addressable market for game engine licensing. 

Instead, UEFN is about turning Fortnite into a game engine and publishing platform. The growth story for Epic is doubling down on the growth engine that is Fortnite by adding Unreal Engine capabilities and creating a new incentive structure that is far more favorable to both Epic: 60/40.

With more than 7.5 million developers using Unreal Engine, you can bet the finance team over at Epic are modeling a fair share of the indie developers that use UE5 for free to transition to UEFN where they can build and reach an audience much faster while delivering a higher return on investment for Epic. 

Economy 2.0 comes at a time when the creator tools are still in the early stages. So while the economy has matured overnight, the toolset and audience still have some growing pains to shake off. This presents some interesting challenges and dynamics for the months ahead.

Looking Ahead

The biggest limitation in the UEFN toolset today is the inability to store player data. When a player leaves a game, their data is lost forever and progression beyond a single play session is limited to hacky workarounds. Another limitation is not being able to make original items (you’re stuck with slurp juice if you want to recharge shields).

Seeing the “Competitive Ladder” ticket in the UEFN roadmap below suggests that Epic is working on this as we speak, however this doesn’t guarantee that Epic’s vision of a more diverse player base will come to be. 

Fortnite Roadmap
Source: State of Unreal

One of the biggest challenges that the Fortnite Creative creator community and economy will need to overcome is the fact that the primary draw of the platform so far has been practice maps for Battle Royale. Creators I spoke with talked about being constrained to building small maps that allow for quick repetitive skirmishes. Building anything else risks not showing up on Fortnite’s discovery tab. 

To overcome this chicken-or-the-egg problem, Epic has added UEFN to their MegaGrants fund to encourage developers to take the risk of building something new. This is similar to the approach of Roblox’s Game Fund to get developers to build for an older audience when this might not be in the developers’ best interest given the current demographics of the platform. 

In the meantime, the existing Fortnite map creators will reign supreme as they rake in a 8x greater monthly pay day for their Battle Royale practice and XP-harvesting maps.

The Fortnite Creative Millionaires List

What does it take to mint a millionaire in Economy 2.0? Epic began dispalying concurrent users (CCUs) for all games in Fortnite, which gives us an invaluable look under the hood at the distribution of the economy as it stands today. 

I decided to focus on monthly income because creators informed me that most games fall in and out of popularity fairly frequently. After recording CCUs for every game visible in discovery, I summed concurrent users by the creator name to get an estimate of the percent of engagement each creator commands. I then used this to calculate their estimated monthly payout in Economy 2.0 versus 1.0.

Fortnite Data
At the time this data was pulled, Epic’s games modes represented about 67% of total engagement on the platform. For the Economy 2.0 model above, I took Epic’s word of 40% of engagement being driven by third-party developers, but we’ll track this closely to confirm. Source: Fortnite Discovery Page

All the creators listed above are at a $2 million dollar annualized run-rate, with the number of potential millionaires increasing from just 11 to 40. The step-change will undoubtedly add enough margin where these creators can start to invest in growing their teams and capabilities. What’s fascinating is that none of these creators have a particularly large web presence aside from Geerzy. This speaks to just how green the Fortnite Creative community still is, and what a massive opportunity this is for developers interested in the space. 

One notable name on the list is voldexfn, which can be none other than Voldex, the Minecraft modder turned Roblox studio who is now turning their talents to Fortnite Creative as well. I suspect we will start to see more of the venture-backed Roblox studios moving into the Fortnite Creative space as they look to take advantage of Epic’s new economics. 

For studios looking to experiment, there are some reasons to be hesitant. For one, Epic itself is competing against the independent creators for that 40% developer share, which is in stark contrast to Roblox, which made the conscious decision not to compete against its own developers. While I like to give Sweeney and the Fortnite team the benefit of the doubt given their historical benevolence toward game makers, this aspect of the Fortnite Creative rev share will be worth tracking over time as Epic ultimately controls discovery, payout structure, access to data, and the tools themselves. 

A cynic might wonder if Epic will favor its own games in discovery, as the image below suggests, while using tools the rest of the community don’t have access to in order to make superior games influenced by what’s trending on the platform.

Fortnite Games
Source: Epic Games

With that said, the more likely angle is that games bearing the Epic name communicate a high-quality game for players and competing against Fortnite’s professional-made modes will be an uphill battle for new Creative developers. 

Games by Epic also will likely be used to demonstrate what’s possible with new tools, like Fortnite was for Unreal Engine. Epic’s games could also be used to attract new audiences that don’t yet exist on the platform and that would not be economical for the Fortnite creator base to pursue. In the end, there are many ways in which the competition for the 40% pool will be friendly, but some tension is likely unavoidable given the current payout structure. 

UGC Games and the Future of Gaming

Epic Games's $400 million commitment to the Fortnite Creative economy is a massive statement from a company that has long been committed to lowering the barrier for developers and players to create, publish, and play games.

Over the coming year, we’ll see how much progress Epic can make on its product roadmap. One should be wary of Epic’s stated timelines for important updates given the multi-year delay of UEFN. That by no means distracts from the achievement and commitment that UEFN represents. Fortnite Creative isn’t just the future of Fortnite, or even the future of UGC Games. If Epic is successful, Fortnite Creative will also be the future of game development, game publishing, and the gaming community as a whole — an incredible bet I am bullish on myself. 

#2: Where Are The Hybridcasual Hits? — Arcade, Hypercasual, Sport & Racing Genre Report

Fortnite Games

This piece is a preview of a monthly mobile genre report written by Jordan Phang for Naavik Pro. To read the full piece, along with our other Naavik Pro content, request a trial now.

Welcome back to another genre report! This time, we’ll be tackling four of them in one: Arcade, Hypercasual, Sports, and Racing. Individually, these genres don’t make up a significant portion of mobile game revenue — they make up a combined 8% of mobile game revenue for 2022. But on the other hand, these genres made up almost half of game downloads (47%) in 2022, making them impossible to ignore. To ensure we keep our subscribers up to date with market movements across the industry, we’ve opted to look at these genres together.

As we’ll be looking at four separate genres, the format of this report will be slightly different to the previous three. We’ll be looking at the downloads, revenue trends, and top regions of each genre individually. And because no single subgenre is so significant as to justify individual attention, we’ll be looking at overall trends and only delving into subgenre data relevant. 

To first set the overall context, we’ll look at downloads of these four genres over 2022. 

Fortnite Graph
Source: data.ai

We can see that downloads-wise, 2022 has been solid, with Arcade and Sports in particular showing double-digit growth.

Fortnite Graph
Source: data.ai

The revenue story is a little mixed, as Sports and Racing saw significant double-digit declines while Arcade had a very strong year. Hypercasual revenue was effectively flat, and the continuing Hybridcasual evolution the genre is undergoing has yet to pay dividends — we’ll explore this more in the genre breakdown. With all that context in mind, let’s get started. 

Content Worth Consuming

Unity’s Marc Whitten on managing perceptions and cloudless generative AI (Gamesindustry.biz): “I was frankly encouraged to see some of the data in that report… the fact that number of game players was actually up year-over-year for the whole year – and we continue to see that trend into this year – I think was encouraging. The fact that there were more games shipped on a bunch of different form factors on more devices was really strong. Against that are the challenges that a lot of game folks are having to manage, whether it was advertising monetization in general having some real softness or paying players dropping a little bit inside of that. But it's also just meant that people have had to continue to be even more focused on understanding their user, where to find their user, how they keep players engaged and, if they're a monetizing game, what their monetization loop is and how they focus on it. It's a tough environment, but to me it shows how massively robust and resilient gaming is.” Link

Magic: The Gathering creator Richard Garfield on starting game studio Popularium (VentureBeat): “Ever since Magic was published I’ve been trying to recapture something that I thought was lost after release… When Magic was first designed everyone had their own treasured collection, but those treasures became commodities, and we lost some of that magic. Since then I’ve been trying to figure out how to get back to that. Now digitally we can bring back that unique collection idea with Chaos Agents. When everyone has the same thing, these experts say that when you want to play well you have to hew to the standard, which is very prescriptive and doesn’t leave much room for discovery and play. In Chaos Agents, expert advice has to be much more general, leaving a lot more room for players to discover something interesting about what they uniquely own.” Link

The 8 Things Supercell is Doing to Level Up (Deconstructor of Fun): “All in all, Ilkka’s yearly blog is an inspirational and quite sincere vision of the top brass of a major mobile games company. But readers of this analysis should also understand that it is more than that: the annual blog post serves as a CEO’s shareholder letter that Supercell publishes together with their financials. Even though Supercell is a private company owned by Chinese Tencent, they have famously kept their legal entity in Finland and thus are mandated by Finnish law to publicize their financials every February.” Link

How Should Brands Leverage Roblox UGC Limited Items? (Metaverse Marcom): “As we at Metaverse Marcom have seen over the past several months covering the space, there are several industries that have seen great success on Roblox, especially entertainment, music, sports, apparel and toys. For brands within these industries, experimenting with UGC and UGC Limiteds can be an interesting and affordable way to reach young audiences and gain powerful learnings ahead of their competitors.” Link

You can view our entire job board — all of the open roles, as well as the ability to post new roles — below. We've made the job board free for a limited period, so as to help the industry during this period of layoffs. Every job post garners ~50K impressions over the 45-day time period.

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