Some rather shocking and disturbing news is moving shares of Unity Software (NYSE:U) lower today. As of 2 p.m. Eastern, U stock is down approximately 2% on news that the company’s offices have been closed following a death threat. Additionally, Unity announced it has canceled a town hall meeting due to the credible nature of this death threat.
It appears the impetus for this unfortunate news stems from key changes Unity made to its pricing model earlier this week. The company announced that video game developers will be charged a flat rate moving forward for all installs moving forward. This so-called pay-per-download pricing scheme would allow Unity to generate revenue on the number of downloads tied to Unity’s software, regardless of whether that install is tied to revenue for the game developer.
The company noted, “[w]e chose this because each time a game is downloaded, the Unity Runtime is also installed. Also we believe that an initial install-based fee allows creators to keep the ongoing financial gains from player engagement, unlike a revenue share.” Obviously, game developers are taking exception to this view.
Let’s dive into what investors may want to make of this news.
U Stock Sinks on Pricing Changes and Death Threat News
It should be noted that death threats can never be condoned, and the business disruption caused by this situation is very unfortunate. Unity’s management team undoubtedly knew going into these pricing changes that certain customers may not be jumping up and down with joy after seeing the changes. However, such an unfortunate reaction is worrisome, and in many regards, today’s move lower suggests the news turns off some investors.
The key issue at play for many game developers is the fact that Unity’s fee-generating model previously tied the fees received to just subscription tiers. Now, new fees are required to be paid based on the number of monthly downloads, which kick in after certain revenue and install thresholds are met. Unity is calling this new payment scheme a “Runtime Fee.” These new fees are on top of increased subscription tier prices, meaning game developers may simply not have the revenue to cover all of these fees.
In some respects, that may not be good business for Unity moving forward, and there’s the risk that independent or smaller game developers may look elsewhere for their game engines.
We’ll have to see how this all plays out, but it’s clear that developers aren’t happy.
Unity is a stock I’ve now put on my watch list and will provide updates as we learn more about how these pricing changes may shift the company’s profitability and developer base moving forward.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.