Unreal Engine Licensing and Royalties Explained for Game Studios (2026)

One of the most common questions game studios ask before committing to Unreal Engine 5 is not about features or performance. It’s about money, specifically, what Epic Games takes when the game ships and starts generating revenue.

The short answer is that Unreal Engine is free to use and Epic charges a 5% royalty on gross revenue above $1 million USD per product. The longer answer has several important qualifications, exceptions, and edge cases that materially affect how that royalty works in practice, and whether it even applies to your project at all.

This guide covers everything a game studio needs to understand about UE5 licensing, royalties, and commercial terms as of 2026.

Is Unreal Engine Free?

Yes, with conditions.

Unreal Engine is available at no upfront cost under Epic’s standard End User License Agreement (EULA). You can download it, use it for development, publish games with it, and generate revenue from it without paying anything to Epic until your product crosses the $1 million revenue threshold.

Below $1 million in gross revenue per product, you owe Epic nothing beyond compliance with the EULA terms.

This makes UE5 genuinely accessible for indie developers and small studios building their first commercial title. The financial relationship with Epic only begins at the point where the game is already commercially successful.

If you’re evaluating UE5 for your next project, 300Mind builds production-ready tools and systems for Unreal Engine 5, available on Fab. Everything from AI frameworks to UI systems to environment assets, built to production standard and ready to drop into your project.

How Does the Unreal Engine Royalty Work?

Epic charges a 5% royalty on gross revenue above $1 million USD per product.

To be precise about what this means:

Per product, not per studio. The $1 million threshold applies independently to each product. If a studio ships three games in the same year, each game has its own $1 million threshold. A studio with two successful games both earning $2 million pays 5% on $1 million from each, not 5% on $3 million total.

On gross revenue, not net profit. The royalty is calculated on gross revenue, the total money the product earns before expenses. Platform fees, marketing costs, game development costs, and operating expenses are not deducted before calculating what Epic is owed. If a game earns $1.5 million gross on Steam after Steam’s 30% cut, the royalty calculation uses $1.5 million, not the $1.05 million that reached the studio’s account.

Above $1 million, not on everything above zero. The first $1 million per product is royalty-free. The 5% only applies to revenue earned above that threshold. A game that earns $1.2 million in gross revenue owes Epic 5% of $200,000, which is $10,000.

Quarterly reporting. Studios earning above the threshold are required to report royalties quarterly and pay within 45 days of the end of each calendar quarter.

What Counts as Gross Revenue?

The definition of gross revenue under Epic’s EULA is broad, it includes essentially all money generated by the product, not just initial sale proceeds.

This includes:

• Game sales across all platforms and storefronts

• DLC and expansion pack sales

• In-game purchases and microtransactions

• Season passes and battle passes

• Subscription revenue attributable to the product

• Physical game sales

• Revenue from merchandise directly related to the game (in some interpretations)

What’s excluded from the royalty calculation:

• Revenue from licensed products that are separately contracted with Epic (such as certain enterprise agreements)

• Revenue from products that use a separate custom license rather than the standard EULA

The practical implication: a free-to-play game with significant in-app purchase revenue counts that revenue toward the threshold and the royalty calculation. A live service game with ongoing cosmetic sales is not exempt because the core game is free.

The Epic Games Store Exception

One of the most commercially significant exceptions in Epic’s royalty structure is the Epic Games Store carve-out.

If a game is distributed through the Epic Games Store, Epic waives the 5% royalty entirely, regardless of how much revenue the product generates.

Epic’s reasoning is straightforward: they take a 12% platform fee on Epic Games Store sales, which they consider sufficient commercial participation. Charging an additional 5% royalty on top of that fee would be double-dipping.

The practical implication for studios: if a game is published exclusively on the Epic Games Store, there is no royalty obligation to Epic at any revenue level. If a game is published on multiple platforms, Steam, PlayStation, Xbox, Epic Games Store, only the revenue from the Epic Games Store portion is exempt. Revenue from all other platforms above the $1 million threshold still triggers the 5% royalty.

This exception is worth factoring into distribution strategy for studios whose games are a realistic fit for Epic Games Store exclusivity or multi-platform releases.

What About Games on Steam?

Steam charges a 30% platform fee. That fee goes to Valve, not Epic. The revenue that reaches the developer after Steam’s cut is what the developer earns, but the royalty to Epic is calculated on gross revenue, which under Epic’s EULA means the revenue before Steam’s cut is typically how Epic interprets the basis.

There has been ongoing industry discussion about how “gross revenue” is interpreted in the context of platform fees. The safest interpretation, and the one most studios use when reporting, is to calculate on the full amount paid by the consumer, or the amount received from the platform before their own expenses. Studios with significant revenue should seek specific legal guidance on this point as Epic’s EULA wording has been subject to interpretation in edge cases.

The key point: Steam revenue does not benefit from the Epic Games Store exemption. Revenue from Steam sales above $1 million per product is subject to the standard 5% royalty.

Custom and Enterprise Licenses

The standard EULA is the right agreement for the vast majority of studios. There are scenarios where a custom agreement with Epic is appropriate or necessary.

Non-game products – simulation software, architectural visualisation, film and television production, training applications, and other non-game uses of Unreal Engine may require a separate agreement. The standard EULA is specifically written for games. Non-game commercial deployments should consult Epic’s licensing team directly.

Products with revenue significantly above the threshold – very large studios or products generating tens or hundreds of millions in revenue may find it commercially worthwhile to negotiate a custom licensing structure. Epic has entered into custom agreements with specific studios in circumstances where the standard EULA terms were not commercially appropriate for both parties.

Education and academic use – Unreal Engine is available at no cost for educational institutions under separate terms. The royalty structure does not apply to genuinely educational, non-commercial uses.

OEM and bundled products – hardware manufacturers or software companies that want to ship UE5-based products bundled with devices or software typically require custom agreements rather than the standard EULA.

For most independent and mid-size commercial game studios shipping games through standard consumer channels, the standard EULA is the correct and appropriate agreement.

How Does Unreal Engine Licensing Compare to Unity?

The comparison to Unity is relevant for studios evaluating engines, particularly after Unity’s controversial runtime fee announcement in 2023 and subsequent reversal.

Current Unity licensing (2026)

Unity currently offers a seat-based subscription model. Unity Personal remains free for studios and individuals earning under $200,000 in annual revenue. Unity Pro requires a subscription per seat (currently around $2,040/year per seat). Unity Enterprise is priced through direct negotiation.

Unity does not currently charge a royalty on gross revenue in the way Epic does. However, Unity has a history of changing its commercial terms, the 2023 runtime fee proposal, which would have charged per-install fees retroactively, severely damaged developer trust even after it was reversed. Studios evaluating Unity should factor the commercial relationship risk alongside the current terms.

Unreal Engine

No upfront cost. No seat fees. A single, clearly defined royalty structure (5% above $1M per product) that has remained consistent for years. The Epic Games Store exemption provides a meaningful incentive for studios willing to consider EGS distribution.

For studios expecting to generate revenue above $1 million per product, the royalty is a real cost that needs to be modelled into project financials. For studios below that threshold, Unreal Engine is entirely free.

How to Model the UE5 Royalty Into Your Project Budget

When planning a project’s financial model, the royalty should be treated as a cost of revenue line, proportional to earnings, not a fixed expense.

A simple model:

Revenue scenario	Royalty owed to Epic
$500,000 gross	$0 (below threshold)
$1,000,000 gross	$0 (at threshold)
$1,500,000 gross	$25,000 (5% of $500K above threshold)
$3,000,000 gross	$100,000 (5% of $2M above threshold)
$10,000,000 gross	$450,000 (5% of $9M above threshold)
$10,000,000 via Epic Games Store	$0 (EGS exemption applies)

At scale, the 5% royalty is a meaningful sum. A studio with a $10M gross revenue game owes $450,000 to Epic. That’s real money, though it’s worth contextualising it against what a 30% platform fee on the same revenue represents ($3M to Steam, $3M to PlayStation, etc.). In the context of total platform fees, Epic’s royalty is a relatively small additional cost.

For studios in the $1M–$5M revenue range, which covers many successful indie and mid-size studio releases, the royalty is a modest line item that rarely drives engine choice decisions.

When Does the Royalty Actually Get Triggered?

A few clarifications on timing and application that matter practically:

The threshold is tracked per calendar year, not lifetime. Revenue earned across multiple years is tracked within the reporting period structure. The $1 million threshold is not a lifetime figure, it applies per product. A game that earns $800K in year one and $600K in year two would owe royalties on the $400K above $1M total at the point when cumulative revenue crosses that threshold.

Pre-release revenue counts. Early access sales, crowdfunding revenue where rewards include game access, and pre-order revenue all count toward gross revenue under the EULA.

Self-reporting is required. Epic does not audit studio sales data through platform integrations. Studios are responsible for accurate self-reporting of revenue that crosses the threshold and quarterly royalty payments. Misreporting is a breach of the EULA.

What happens if you don’t report: Epic’s EULA provides them with the right to audit studio records and seek remedies for unpaid royalties. For commercially successful titles, accurate reporting is not optional, it’s a legal obligation under the license agreement that enables the studio to ship the game at all.

Building with Unreal Engine 5?

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