Epic is Trying to Take a Bite Out of Apple

By John Coffey

            Over the summer COVID 19 prevented many people from heading out on vacations.  For the video game industry having a literal captive audience saw new heights both in sales and finding new audiences, desperate for some entertainment with theaters, bars, restaurants, and amusement parks still closed.  Nintendo’s quarterly sales tripled over the same period last year[1] and Animal Crossing: New Horizons which released at the same time most states were implementing stay at home orders has sold over 22 million copies in the 6 months since it’s release, becoming the 2nd highest selling game on the three-year-old system.[2]  With a public willing to spend millions on electronic entertainment other tech companies have wanted to secure a larger portion of the pie for themselves.

            Introducing Epic Games, the makers of every grade schoolers favorite game Fortnite.  Available as a free to play game on every major console and smartphone, the game brought in $1.8 billion in 2019 and an estimated $400 million in April 2020 alone.[3]  Fortnite’s revenue comes from the sale of “V-bucks”.  V-bucks are a digital currency paid for with real world dollars that allow players to buy digital customizations for their in-game characters.  With new options made available on a regular basis the game will likely continue to be an earnings star as long as it can maintain it’s 350 million player base.[4] Epic Games only has one major leak in it’s seemingly never ending pool of money and that is Apple.  Apple only allows apps to enter its iPhone ecosystem through certification by it’s own app store.  The app store allows users to easily find and install popular apps, and in 2019 reportedly facilitated half a trillion in sales, but it can come at a price to developers and consumers. 

            Apple takes a 30% cut of all in app sales of digital goods.[5]  Some companies with “must have” apps like Netflix, Amazon, and Facebook pay either a reduced or even 0% cut on digital sales.  Epic however has not received one of these sweetheart deals.  Understandably, interested in keeping more of its earnings, Epic updated the iPhone version of the game on Aug 13 to allow for direct payments on V-bucks, completely bypassing Apple’s payment processors and the 30% cut.  In response Apple removed Fortnite from it’s app store.  As of right now iPhone users cannot play with PC or console players and any updates to the game are not accessible.  Apple states that Epic’s decision was a violation of the app store terms of use agreement.  Epic in turn swiftly launched a preplanned counterattack including: a Fortnite themed parody of Apple’s 1984 commercial, an in-game anti-Apple special event, a social media movement #FreeFortnite, and of course an anti-trust lawsuit. 

            Epic’s lawsuit argues that Apple maintains a “total monopoly” of the app store.  It is asking the court to issue an injunction prohibiting Apples “anti-competitive” conduct and to declare that certain portions of its terms of use policies are unlawful.[6]  Apple has responded with a counterclaim (shoutout to Prof Barton in Civ Pro II) that among other things Epic has breached its contract with Apple.[7]    While Fortnite has taken the center stage so far Epic also provides tools to other app developers mainly in the form of its Unreal Engine.  So far the only court decision has been to enjoin Apple from removing Epic Games developer access to the App Store.  Had Apple been able to remove Epic’s developer access then hundreds if not thousands of other developers may have been unable to publish or maintain their creations on the app store.  Epic’s own game however will not be returning to the app store anytime soon.  The story is not over though, the next hearing is set for Sept 28.

            Epic is no stranger to upsetting the electronic entertainment market.  On the PC side of things Epic released the Epic Games Store in late 2018 in direct competition with Valve’s dominant Steam storefront.  Mirroring the current situation, it was Valve’s 30% revenue split that was cited as a driving factor in its decision.  Epic on the other hand only charges a 12% cut for 3rd party titles sold in its marketplace.  However, the PC ecosystem is more open, and Valve could not prevent Epic from opening its own game store.  One wonders if the main goal behind the Fortnite lawsuit is to force the iPhone to allow rival storefront’s and marketplaces.  Epic would then be able to open its own app store in what used to be exclusively Apple territory.   It is much too soon to tell how the courts will rule on this matter but I am looking forward to quite a show. 

[1] https://www.nintendo.co.jp/ir/en/finance/hard_soft/number.html

[2] https://www.nintendo.co.jp/ir/en/finance/software/index.html

[3] https://www.investopedia.com/tech/how-does-fortnite-make-money/#:~:text=In%202019%2C%20Fortnite%20brought%20in%20revenues%20of%20%241.8%20billion%2C%20according,to%20250%20million%20Fortnite%20players.

[4] https://www.statista.com/statistics/746230/fortnite-players/

[5] https://9to5mac.com/2020/09/02/developers-highlight-more-anomalies-in-apples-30-cut/

[6] https://cdn2.unrealengine.com/apple-complaint-734589783.pdf

[7] https://cdn.pacermonitor.com/pdfserver/WSMVFCA/131165861/Epic_Games_Inc_v_Apple_Inc__candce-20-05640__0066.0.pdf

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