Steam Owns Over Half the PC Download Market

That Steam is a success will come as a surprise to no one, but a new Forbes report highlights just how big of a success Valve’s service is.

Steam controls half to 70% of the $4 billion market for downloaded PC games, selling titles from bigger firms such as EA and Activision, as well as Valve’s own games. Its sci-fi shoot-’em-up thriller Half-Life 2 has sold 12 million copies since 2004 and is the highest-rated PC game on the Web site Metacritic.

The 250-person company releases no financials but, according to Newell, is “tremendously profitable.” Ed Barton, a games analyst at IHS Screen Digest, estimates that Valve’s revenue in 2010 was in the “high hundreds of millions of dollars.” (A 2005 FORBES story on Valve had the company grossing $70 million with a fat $55 million in operating profit.)

Valve announced last October that it was on track for its biggest year ever, with 200% year-over-year growth. Newell says that, per employee, Valve is more profitable than Google and Apple. A potential buyer was rumored to have made an acquisition offer a few years back for the Steam piece only, but Newell supposedly refused to split the online storefront from Valve’s game-publishing arm. (Valve denies being made an actual offer, only confirming that it received interest in both Steam and Valve in the past.)

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Steam’s appeal to publishers is in giving them the opportunity to sell directly, cutting out the profits extracted by distributors. Publishers earn a gross margin of around 70% on Steam, compared with 30% via retail stores. They have a lot more flexibility selling through Steam than they do through stores or even a site like Amazon. Steam gives publishers live stats on how customers are reacting to marketing messages or price changes. Discounts on titles, like weekend deals, are common on Steam and have led some titles to see a lasting bump in sales.

Valve’s strength in PC gaming may, however, be its limiting factor. The PC game category is a mere 8% of the $50 billion industry. Newell admits to missing out on trends like mobile, Wii-style motion games and Facebook games. “If we tried to blaze new trails of our own and ride all the latest trends, we’d likely be bankrupt by now,” he says.

Thanks, Eurogamer.