Frequently Asked Questions - Unreal Engine

Let’s say you released a game earlier this year and it made $500K in Q1 2020. $500K is less than $1M, so no royalties are due and you do not need to report the revenues.

In Q2 2020, your game earns an additional $700K, bringing the total gross revenue to $1.2M.

At this point you would report on revenues, deduct the $1M royalty exemption from total revenue, and calculate the 5% royalty using the remainder.
$1,200,000 - $1,000,000 = $200,000
$200,000 x 0.05 = $10,000
This would mean that up until now you have used Unreal Engine during your entire development cycle for free, earned $1.2M in revenue, and you owe a royalty of $10,000.

Let’s say your game makes $300K in Q3 2020. Since the $1M threshold has been exceeded, and the amount earned in the quarter is greater than $10K, royalties are due on the full quarterly amount at the rate of 5%.
$300,000 > $10,000
$300,000 x 0.05 = $15,000
You would report your game’s revenues and owe $15,000 in royalties.

As sales slow, your game only makes $5K in Q4 2020. Although you’ve passed the $1M threshold, the earnings this quarter are less than $10K, and so no royalties are due and you do not need to report the revenues.

As business picks back up in Q1 2021, your game makes $100K. Since you’ve passed the $1M threshold, and the amount made in the quarter is greater than $10K, revenue reporting and royalties are due at the 5% rate.
$100,000 > $10,000
$100,000 x 0.05 = $5,000
You would report your game’s revenues and owe $5,000 in royalties.

In summary, if the lifetime revenue of your game from Q1 2020 to Q1 2021 is $1,605,000, the total amount of royalties payable is $30K.