May 23, 2022

Epic Games Losing Hundreds of Millions to Provide Alternative to Steam

Will it pay dividends, though?

Whether you approve of its methods or not, one thing you must admit; Epic Games is providing an alternative to Valve’s monopoly in PC gaming.

However, in its attempts to gain a larger market share, Epic is spending hundreds of millions of dollars.

The ongoing Apple-Vs-Epic legal battle shed light on Epic’s spending; some $444 million in minimum guarantees for last year, alone. A “minimum guarantee” is an advance paid towards publishers and/or developers. This is regardless if the game generates enough revenue to build the advance back. It’s a large cost for Epic, but guarantees companies like 505 Games will receive money regardless of how the game (in this instance, Control) performs on one platform.

“Not Profitable for Multiple Years, If Ever”

Apple’s summary of arguments it is bringing to court cites that Epic’s executives declare the Epic Games Store [EGS] as “unprofitable”. Furthermore, Apple interjects that EGS, “will not be profitable for at least multiple years, if ever”. According to Apple’s filings, Epic lost somewhere in the region of $181 million in 2019 (EGS was established in 2018). Initial projections for 2020 put Epic’s loss in the ballpark of $273 million. Epic confirmed around $700 million was spent by PC players on EGS in 2020. However, only $265 million was spent on Epic’s third-party PC games.

Epic added that it believes this trend will continue this year as well; Epic expects an estimated loss of $139 million in 2021. To further escalate this and its above statement, Apple claims; “at best, Epic does not expect EGS to have a cumulative gross profit before 2027″… “As a result, Epic has funded and must continue to fund, EGS through funding and capital raised by other parts of its business”. Epic actually believes it can turn a profit on EGS by 2023;

“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 per cent transaction fee is sufficient to cover the variable costs of running EGS, including payment processing, customer service, and bandwidth”.

Scribd

The Apple-Epic trial goes to Court in May.


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