Oh yeah, we’re going hard and deep on this one. Remember when I went after PGI and Uber Entertainment and it caused such a shitstorm that the developers personally reached out to me? That’s how hard we’re going. And this time, I’m going to the top: the Epic Games v. Apple lawsuit.
Yes, I’ve dug through this 365 page court document and it’s a dry read, to be sure. But it confirms everything I’ve been thinking about Epic for the last two years: Their profit model is unsustainable.
Epic Game Store certainly is.
So let’s start there.
To preface, most of this information about Epic is from the document I’ve linked above, and it’s written by Epic’s own lawyers. I will also be using language from Apple’s findings, as well. It doesn’t get any more straight from the horse’s mouth.
According to this lengthy finding, Epic Game Store (will be EGS for the rest of the article) lost over $450 million in two years. 2019 reported a loss of $181 million, and 2020 reported a loss of $273 million. While the document goes on to claim their “generously low” 12% take (and oh boy, is there a lot of self-congratulating on how low it is) from the games in the store is enough to “cover operating costs”, it really just serves to baffle at how much money they are actually spending just to have a few exclusive titles.
Extraordinarily false exclusivity, at that. I’ve already gone into this pretty hard in another article, but I will drive the point home again: Epic doesn’t buy exclusivity for their own platform, they buy exclusivity away from Steam, specifically. There are many “Epic Exclusives” that can be found on Game Pass, or UPlay… but just not on Steam. So the interest here isn’t in creating a competitive PC gaming market, it’s to vindictively pull games away from Valve alone.
As is indicated by their ludicrous spending patterns, they are losing this battle. According to Apple’s findings, Epic themselves admit they will lose at least another $139 million in 2021.
Yet, in their own findings, Epic claims that EGS will be profitable by 2023. How is that realistic when they blew through half a billion in two years, with the latter year being almost $90 million MORE than the previous? Not only that, but we’re talking about 2020–the year the tech industry as a whole exploded due to people spending a lot more time in the digital world for reasons we all know. So how is it possible that Epic lost more money on EGS in the year where most tech companies saw dividends triple?
Because they’ve turned Fortnite into a cash cow. They aren’t spending based on the profitability of EGS, they’re spending based on the profitability of Fortnite, which has become far and away, their primary source of income. This is a bad thing. They’re dumping vast profits into a store to create false competition in a market where the most popular platform also happens to be the best platform. Steam has unmatched functionality including full spectrum console controller support. EGS doesn’t even have a wishlist. Sure, they take a bigger cut from games, but they also have wider outreach, bigger selection, a social media network, a points reward system, a secondary market for in-game items, a VR ecosystem, etc, etc. At the same time, they’re trying to bring down Apple’s stranglehold on… *check notes* their own platform?… while banking on speculation that EGS will actually be profitable in the future with no evidence to support the claim.
Now, I’m not a lawyer in any capacity, so my understanding of whether or not they actually have a case here is limited, but I’m going to try to break this down in the best way I can:
Epic’s case against Apple is based on antitrust. Antitrust laws are written to prevent a hostile monopoly. I say hostile, because monopolies aren’t inherently illegal. In order to invoke antitrust, you have to prove market manipulation or at the very least, an unethical stranglehold over a market. While the argument certainly exists that Apple has a monopoly on iOS, they don’t have a monopoly on the mobile market. Android is a much larger platform, and has a wide variety of manufacturers and even versions of Android to choose from. While Apple is definitely a major chunk of the mobile market, and most certainly influenced the smartphone ecosystem as we know it, they aren’t the only player in this game.
If Epic wanted to go after Apple where it hurts, they should have taken a page from their own book, and set out to make platform exclusive mobile games outside of the iOS environment altogether. Maybe make a deal with Samsung, or other big players to generation new interest for competition against Apple. Instead, they seem to be intent on playing the same game they play with Valve–but on Apple’s own operating system.
First off, they’re losing their battle with Valve, as I’ve already said. It’s well known that the only reason anyone appears to use EGS is for their free games; as is evident by their $half billion deficit in 2 years. Second, Apple’s ecosystem is entirely closed. It’s hardware and software combined. To me, that’s the same as Epic wanting to open up the EGS on Nintendo’s Switch, or Sony’s Playstation. It’s proprietary hardware and software. If those other companies don’t owe Epic space on their platform, then neither does Apple.
But ok, let’s switch sides for a second. I am clearly biased against Epic, and will fully admit that. I even wish I wrote an article two years ago just to prove that I’ve been saying for the last two years that there’s no way EGS makes any money.
Alright, so let’s just say I agree with Epic. And I actually do for the most part. Apple’s ecosystem is extremely restrictive, especially in iOS. Their approval system is clunky and doesn’t really do much as far as quality control goes, nor does it greatly affect the security of iOS or iPhones in the long run, which is more or less the crux of Epic’s argument. Especially when you consider that MacOS is far less restrictive, and gives developers the freedom to monetize their products however they like. There is room for an argument to be made that there is a stark contrast in restrictions between the two operating systems which Apple develops, and especially considering that iOS is built from the bones of MacOS.
While I do like some of what Apple has contributed to computing as a whole, and I still primarily use MacOS for music production, they are also an easy target for some of their less savory practices of forced obsolescence, and their restrictive, closed ecosystem.
Is this really Epic’s fight? Again, my not being a lawyer precludes me from actually saying if they have a case here, but my biggest issue isn’t even whether or not they have a case, but in how Epic is going about this. They aren’t coming at this from the perspective of an independent developer, they are coming at this from the perspective of a platform developer trying to get their own slice of the pie. There are no good guys here, and that’s the problem. There’s no underdog. It’s not David vs Goliath, it’s Goliath vs bigger Goliath.
Plus, there are some legitimate concerns about the potential lowered security of apps within apps. Security concerns which are passed on to the consumer, and so then they become the security concerns of the end user. Even if it is a somewhat false sense of security, it is still a sense of security, and people will pay for that. One thing that is absolutely absent from this document are the needs of the user. Again, there are no little guys in this battle.
If Epic had gathered 100 indie developers and launched a class-action suit on their behalf because they have the lawyers and resources to fight the battle, then I’d probably be on board. I am by no means pro-Apple. Fuck Apple. But, fuck Epic, too. They aren’t heroes for only taking 12% instead of 30%. They exploit indie developers by dangling huge wads of cash in their face in exchange for exclusivity, and then put their games up for free and wonder why they aren’t actually making any money. If they were truly as pro developer as they claim to be, why wouldn’t they encourage developers to release across all available platforms for the most potential profit?
Before I conclude about why I think Epic is about to flush itself down the toilet, let’s just punctuate the case against Apple: If they want to win, they have to prove the case for all developers, and not just their own profits. Apple doesn’t have a monopoly on the mobile market, despite their undeniable contributions to its very existence. Since iOS is a closed ecosystem of both hardware and software, then they need to be able to prove that this *entire concept* is bad–which means not just iPhones, but Playstations, XBoxes, and Switches must also be wrong, too, because it’s arguably the same thing. Video game consoles are a unique platform that aren’t replaced by anything else, just as mobile phones are described in Epic’s own words. They need to set a precedent, and that’s not going to be easy.
Especially since it’s already been passed on by other countries. To hedge their bets, they launched suits in as many countries as they could, to increase their chances of a win. Seems like a desperate move to begin with, but with all other countries deferring to the judgement of US courts, it seems like it’s all going to come down to the trial to be held in California, starting May 3rd. Should be interesting to watch, either way.
So how is this all killing Epic?
Well aside from the undeniably ridiculous amount of money they are burning on the EGS for unexplainable reasons, they clearly have all of their eggs in one basket: Fortnite.
Because that’s what this all about. Fortnite is paying for the whole party: EGS, Unreal Engine, everything. That 12% cut might be covering “operating costs” but there’s no way it’s cutting into those hundreds of millions they’re dumping on free games and platform exclusivity–especially if that number is growing.
That’s a lot of faith in one product. One product they aren’t even really claiming is a game anymore, either. That’s the thing that is particularly apparent in this document; they constantly refer to Fortnite as some sort of venue, or vehicle for other forms of entertainment than the game itself. It goes on to mention the various films and events they have hosted, and the creative and social spaces which exist within the game, and while true, I don’t see Fortnite having the lasting platform hosting ability of say, Second Life, where the user has ultimate control over the space they’re in. Fortnite is not itself an open platform; it’s a closed game environment.
Epic is speculating that Fortnite will at the very least, maintain current profits or better, when there is absolutely no way to prove that. We know how fickle the game industry is, and all it could take is another, similar game to come along for everyone to jump ship. And the thing is, Fortnite could probably be profitable with only 10% of its current userbase–but not if Epic is using it as a piggybank.
This is where the shades of Blockbuster come in. I dunno if any of y’all checked out the recent Blockbuster documentary that popped up on Netflix (The Last Blockbuster), but it was extremely enlightening as to why Blockbuster fell, and it wasn’t because of Netflix. Blockbuster was set to compete very well with Netflix, but had incurred a ton of debt while Viacom was the owner and were using them as a cash cow. Since they were literally the only name in movie rentals for so long, Blockbuster was both unstoppable and immovable for a time. Those of us over a certain age remember when it was unfathomable to think that there would never be movie rental shops again. Blockbuster was more than just a store; it was a landmark where you’d go to pick up your weekend entertainment, whether movies or video games. It was a social gathering to prepare for sleepovers, date nights, and so many others.
Blockbuster was still beating Netflix when Netflix was rising up via its mail order system, and Blockbuster was competing with their own mail service quite well. So what happened? Blockbuster deleted 2/3rds of their revenue when they decided to nix late fees. Not because late fees were that big a fraction, but because people simply weren’t returning rentals, so they were constantly having to rebuy and restock. At the same time, digital streaming was just starting to take off. For a company of Blockbuster’s size and reputation, it shouldn’t have been any more than a reorganized business plan, and a shuffling of management. But because they had piled on so much debt over the years by cash-cowing for Viacom, they had no runway to restructure, and imploded seemingly overnight.
Consider Fortnite to be Blockbuster in this scenario, and Epic is Viacom. Right now, Fortnite is a massive cash-cow, and they are using it to pay the bills of their other projects. Which is fine, but they haven’t actually diversified profits. Their income is still entirely based on Fortnite. If Fortnite has one single misstep, Epic folds. That one misstep could be a bad update, or a competing game. Or being countersued by Apple for $billions after losing their current suit to them. There are a number of scenarios where suddenly Fortnite ain’t paying the bills anymore, and now they need EGS to become profitable. They claim it will be by 2023. It better be, because if anything happens between now and then that changes the profitability of Fortnite, Epic folds faster than a house of cards in the wind–and Unreal Engine gets sold off to Tencent or Microsoft just to pay the debt.
Anyone remember playing Unreal Tournament 2003/2004 and how genre defining it was? Or Gears of War a few years later? Epic needs to go back to making video games instead of trying to take down tech companies with decades more experience in the kinds of games they’re playing. I think we’d all have a lot more fun.