In an industry where customers are slow to trust and quick to criticize, a new fee from Unity infuriated game developing studios that use its platform.

"John Riccitiello probably should have seen the outrage coming.

A video game industry veteran, Mr. Riccitiello is the chief executive of Unity Technologies, a company that isn't a household name but is a fixture for more than two million game developers who use its software to power their games.

For most of the company's 19-year history, Unity's software business was relatively straightforward: Every developer who used Unity's professional tools to build software paid a fixed, annual licensing fee. The software acts like an engine. It is the underlying technology that developers use to build and run their apps.

In mid-September, Mr. Riccitiello proposed an abrupt change. Instead of an annual fee, he wanted to charge developers a fee every time someone installed a copy of their games, meaning they would pay more as their titles grew in popularity. The about-face would make a significant difference for Unity, which has never turned a profit.

But in an industry where gamers and small game development studios are reluctant to trust big corporations and quick to take umbrage at perceived attempts to nickel-and-dime them, the proposed fee change has snowballed into a crisis.

Developers around the world who use Unity -- including those behind hit games like Among Us and Slay the Spire -- have threatened to leave the platform, saying the new pricing model could effectively kill their businesses if their games grow too popular.

There was talk of a class-action lawsuit. Someone even called in a threat that required Unity to inform federal law enforcement officials and evacuate its San Francisco headquarters and its office in Austin, Texas, a person familiar with the decision said.

Developers said they felt betrayed. Many spent years learning and coding in a particular programming language used by Unity called C# -- pronounced "C-sharp" -- making it hard for them to switch to a competitor. Executives at Unity were using that leverage, the developers complained, to engage in digital rent-seeking behavior.

"They completely abandoned the creative, punk software developer community that was a big part of their ongoing success," said Tomas Sala, an independent developer in Amsterdam whose game, The Falconeer, was built in Unity.

The episode highlights the precarious position that companies can find themselves in when trying to keep a community happy at the same time that executives want to find ways to make more money.

Trip Hawkins, the founder of the video game giant Electronic Arts and an adviser to some game developers who use Unity, said he understood the outrage. He likened it to a hardware store's selling a carpenter a hammer and nails and then suddenly charging a fee for every nail the carpenter has ever pounded into a wall.

"It gets at what feels right versus what feels wrong in people's gut," said Mr. Hawkins, who left EA in 1994.

Now, Mr. Riccitiello and his executive team are scrambling to contain the fallout. Unity has rolled back some of the changes in a series of concessions aimed at placating developers.

Among other changes, it raised the revenue threshold for games that will be charged the per-install fee -- so larger developers, primarily, will be charged -- and allowed developers to pay either the fee or 2.5 percent of their company's monthly revenue, whichever is lower. But the company still plans to go ahead with the new fee model.

In an interview with The New York Times, Mr. Riccitiello said he was "truly humbled" by the response, and had spent the past two weeks talking with partners and indie developers. "It reminded me just how foundational Unity is to the developer community," Mr. Riccitiello said.

Unity's engine is one of a handful of software development tool sets in the video game industry. Developers can use the tools to create 3-D character models that can run, jump and shoot enemies in games. They can also use the software to design rich landscapes and textured environments. Every time a game is booted up, the software engine from Unity or another company is running underneath.

Most of these engines have charged companies using the software a fixed annual amount for every one of their developers. Unity's new fees turned this predictability on its head. Many developers felt that they were being punished if their game turned out to be a hit, and that Unity had the potential to take a much larger cut of revenues.

"The new business model just doesn't work for the rest of us," Mr. Sala, the game developer, said. "A lot of people feel like we just got played."

Unity was founded in 2004 in Copenhagen as a project of three developers who collaborated on an internet forum dedicated to coding. The premise was to "democratize" game coding tools so that anyone -- from high school hobbyists to professionals -- could build games from scratch.

"The key for me was the community and resources around it," said Will Todd, a 28-year-old developer. "You can hop on a forum and quickly get an answer to any questions you might have." 

He and his partner at the London indie studio Coal Supper, James Carbutt, used Unity to build their hit game, The Good Time Garden, in 2019.

Under fire for poor financial results, Mr. Riccitiello left his job as chief executive at Electronic Arts in 2013. He joined Unity the next year, when the company was relatively small. He brought with him a reputation for squeezing cash out of games in ways that sometimes angered developers and players.

Mr. Riccitiello led Unity to a successful initial public offering in 2020, and Unity's shares hit a high of around $200 by the end of 2021. But they have since fallen to about $30. In its most recent quarterly financial results, Unity reported $533 million in revenue -- up 80 percent from a year earlier -- but $193 million in net losses. It also laid off about 8 percent of its employees in May.

Unity has an advertising business that allows developers who use its platform to insert ads into their mobile games. It's the part of the business responsible for about two-thirds of the company's revenue. But it is under pressure from changes on Apple's software for mobile devices that limit the data that Unity's system can collect from the developers who use it to serve ads inside their mobile games.

Mr. Riccitiello told The Times that Unity's software pricing changes had "absolutely nothing to do with" challenges to its ads business, which he described as healthy. He said the new model was "designed to be a fair and appropriate exchange of value" between Unity and its customers. In other words, Unity thinks it can make a lot more money from its engine business than it does now.

Behind the scenes, many employees were furious. Numerous Unity workers told management that it was a bad idea that would betray the small developers who used Unity's tools, three current and former employees said. A handful of employees left or are in the process of leaving the company as a result, two people said.

Mr. Riccitiello acknowledged in the interview that the new pricing model had been communicated poorly and needed some changes. And Marc Whitten, one of the company's top executives, wrote an apologetic blog post.

But the company is not rolling back the pricing change.

It will be some time before Unity knows if there is permanent damage to its business. Mr. Sala, the developer of The Falconeer, said that his upcoming game was also built on Unity, and that he would still need to support it with software updates and expansions of more in-game content for at least two years. But after Unity made some concessions, Mr. Sala said they were welcome changes. He added that if he decided to switch to another engine, learning that software could take him months, if not years, to get to the comfort level he had with Unity.

Mr. Carbutt, the Coal Supper studio developer, said sticking with Unity felt like "an operational risk."

"They broke trust with devs over all of this," he said. "Irreparable damage has already been done."" [1]

1. 'We Just Got Played': [Business/Financial Desk]. Isaac, Mike; Browning, Kellen.  New York Times, Late Edition (East Coast); New York, N.Y.. 04 Oct 2023: B.1.