For many years now, Epic Games has been fighting a war on two fronts, current battles with mobile giants, Apple and Google Play, but also the battle between Epic Games Store and Steam which has raged on for more than a few years now that may be finally taking it’s toll, If recent reports are to be believed then this battle could be costing the gaming giant more than you think, hundreds of millions more.
On December 6. 2018, Epic committed to creating its platform for gamers. Epic Games Store (EGS) claiming that developers would receive better cuts from sales made than those made on Valve’s Steam, proceeding to sign exclusive deals and free games every week, although the platform lacked features and to this day still do, players were left with little choice but to buy many of the games they wanted so badly to play via EGS. Of course, all of these moves to secure exclusives and provide free games to poach traffic from established platforms like Steam is not without cost, and the cost is astronomical and would seem to be unsustainable.
Court documents published this week in Epic’s high-profile legal action against Apple have unearthed surprising numbers, revealing that in 2020 alone, Epic committed $444 million for minimum guarantees.
Minimum guarantees are advanced payments made to a publisher or developer whether or not the games make enough money to recoup the advance, an example being the €9.6 million paid for the exclusivity rights to 505 Games’ parent, Digital Bros, for Remedy’s Control.
This is far from pocket change for the multi-billion dollar company, but in their fight against Steam and their 30 percent revenue cut, Epic isn’t pulling any punches.
In 2019, Epic’s CEO, Tim Sweeny, shared his views on the future of the Epic Games Store and their plan for the future.
“We believe exclusives are the only strategy that will change the 70/30 status quo at a large enough scale to permanently affect the whole game industry.”
Apple is bringing a summary of the arguments to courts next month for the next stage of the battle, the agreements cite depositions made by Epic executives to prove that Epic Games Store is unprofitable, Apple wishes to convince the court that it “will not be profitable for at least multiple years, if ever.”
Apple documents unearth evidence the Epic lost close to $181 million in 2019 on EGS and it is projected to lose a further $273 million in 2020. Although “significant” growth revenue for the past year was estimated at $401 million. Epic has since confirmed that $700 million was spent by PC players on EGS in 2020, but $236 million, however, was spent on third-party PC titles on EGS. Meaning that the minimum guarantees of $444 million, 202m are one the largest portion of losses suffered.
Epic does not deny these claims, they have confirmed them, also admitting that the trend will continue for the immediate future of the platform. Epic estimates that a further loss of around $139 million is projected for 2021 in regards to EGS. These are all “unrecouped cost” caused by Epic’s attempt to grow their online gaming platform in pursuit of Steam that includes $330 million in unrecouped cost for minimum guarantees alone, meaning Epic have paid for a lot of games that have not made the sale target they were projected to reach.
Something that may come as a shock is that Epic doesn’t expect to turn a profit with EGS until 2027, this means that Epic has funds and must continue to fund EGS by capital from other parts of the business, like Fortnite which is a huge moneymaker for the company and sustain that funding for many years.
Epic, of course, have the right to a response, Epic have claimed they expect the store to turn profitable by 2023 putting it four years ahead of Apple’s projection of the company
“EGS is not yet profitable at its current scale and stage of development because it has front-loaded its marketing and user-acquisition costs to gain market share.”
EGS’s 12 percent transaction fee is sufficient to cover the variable costs of running EGS, including payment processing, customer service, and bandwidth.”
In any case, the claims against EGS’s profitability are a small part of a much larger picture about this court case, Epic is pursuing Apple over claims that the mobile giant monopolizes the iOS app distribution market and the iOS in-app payment system within its own ecosystems.
Apple is, of course, devoting all resources to protecting the operation of its own platform and the way that it operates and of course it’s cut of the revenue, however, framing Epic’s legal action against them as a way to breathe more life into Fortnite.
Apple’s citing that between 2018-2019 Fornite saw a large decline in its player base and as a result, revenue also plummeted, a lot of the information has, in fact, been redacted so the exact numbers are hard to pinpoint. However, Apple claims that Epic launched “A pre-planned media strategy” named ” Project Liberty, retaining a public relations firm in 2019 to carry out this plan.
“These trends were consistent with Epic’s observations that gamers were growing dissatisfied with Fortnite,” Apple’s report states.
“The company understood that Fortnite was late in the video-game life cycle. And it took note internally when “#RIPFornite” was trending on Twitter. Epic knew these trends were not a blip; the company expected the declining interest and revenue to continue. As a later board presentation revealed, Epic coalesced around a goal: to revive and reinvigorate Fortnite by turning it out to developers to create new content. This would make Fortnite a platform and Epic the middleman. But in order for this new business model to succeed, Epic needed to find a way to cut the commissions charged by platform providers so Epic could ‘share a majority of profit with creators’.
Epic obviously denies this accusation which is detailed in their response, Epic Vs. Apple goes on trial in May and at this point should probably be pay-per-view.
Follow Game Lead on Twitter for more updates on the industry!