So the big dogs are releasing there beast into the world of men. I'm very excited to sooooooo what the indie world does with the U3 Engine. Anyone looking to make there dreams come true?

I hope this doesn't mean we'll see a lot of shitty games running on an otherwise amazing engine.

It's a nice move, but the 25% cut that needs to be paid to Epic for any commercial product (following the first $5000 in revenue) may deter some form using it in a commercial aspect.

Its not really free, its just that it has a lower initial setup cost. Good idea though, it gets the engine out there to fuel creativity, epic get a better attach rate for their engine and promote use of their next engine for future developments (possibly undercutting iD in the process)since the users will be familiar with epic's systems, rookie devs get to use a top of the line middleware system without breaking the bank and by the sound of things they don't have to pay a cent until they're in profit.
Damn good plan all round it seems.

It's free, there are just separate fees if you want to sell your work. An SDK that eliminates those investment costs I would like to see...

Well, if your game is really that good, you could probably make some sort of a deal with Epic, like they to be the publishers and get some money out of it, and you not to be required to pay for releasing a commercial game. (I haven't read the licensing section yet.)
This is good news... Great news, actually. :) A nice boost for every indie developer out there. :)

A 25% royalty fee for the engine? Is that the standard in the gaming industry? If so, no wonder why game development has become so expensive, people like Epic are taking away a quarter of the revenue right off the top. They have to jack the prices up just to ensure that Epic will be covered while still getting themselves a piece of the pie. Its great to hear Epic offering the tools for free, but it kind of sounds like the crack dealer offering you a "taste" to get you hooked.

True but when you consider that the engine is the backbone of the entire development and gameplay process and developing one from scratch is a bitch much less developing a polished, scaleable and versatile one, 25% is probably a reasonably fair deal

I take it that's 25% of net profits?
Anyway, for the rest of us this can only mean good things. Although how much of a good thing remains to be seen.

Basically, for a commercial release, you need to pay $99 upfront then 25% of any profits made after an initial grace of $5000 USD. They do explain it fairly nicely on the licensing page and it's certainly cheaper then licensing Source I guess (which is rumored to cost $100,000 USD - perhaps less if you tie yourself to Steam, of course actual pricing is done under an NDA so this can only be speculation).

Yeah, but does Source have royalties paid on top of the initial licensing fee? No way to really know, I guess, but for the sake of argument, lets assume there isn't. In theory, Epic could be paid significantly more than $100K under that royalty agreement, over the life of the game's sales. You'd only have to sell a little over 25000 copies of a game at $20 each to make $100K for Epic. Under most circumstances, a game that only sold around 25000 copies would be considered a failure and most games using the Unreal engine are not failures, nor are they sold at only $20 a copy. If Epic has been that kind of royalty agreement all along, they've already made millions off the Unreal engine, way more than it must cost them to update and maintain the engine. I don't begrudge them or anyone else the right to make money off of their hard work, but in any other business, people would probably be crying "price gouging".

It's highly likely, yes. And a certainty if you then sell the game on Steam (as they take 40% or so cut of all sales). And yes, Epic also used to have a similar licensing terms as Source (again, they were under NDA but were probably of a similar amount).
The question is though, were their previous royalty amounts a smaller percentage due to the higher licensing fee, or did they "expire" after a certain amount was paid (say, only having to pay royalties for the first 2 million in sales or something).
Who knows? The people who do are bound by NDAs, so certainly not us.
Still, for small start ups now who want to use a well established solution as opposed to the other lesser known solutions aimed at indie developers, this is a great opportunity to do so without the previous initial overhead.

To be sure, the ROI on Unreal under this agreement could very well be... unreal, especially for cash-poor indie developers, but seeing this agreement does shed some harsh light on the cost realities of commercial game development.

$100,000? That's madness!

Its better to have a piece of the pie then none at all. Most indie developers probably don't have $100,000 spare to spend on just the engine. If you manage to be moderately successful say 50,000 units of your new game sell for $20 a pop and you sell exclusivly on steam so your losing another 40% on top, your still taking a 35% cut of the cash. That would be a nice $350,000. If your game doesn't do well and flops horribly you have only lost $99. Just need to sell 5 games to get that back.