The Epic Games Store gives away free games every week — often good ones — and yet the company has never explained how it’s managed to dole out 749 million copies without going bankrupt. Until now. New documents published as part of the legal discovery process for Epic’s major antitrust lawsuit against Apple were published last week, and between those and a series of tweets from Epic CEO Tim Sweeney, we’re getting our best look yet at how the company’s not quite throwing billions of dollars away.
It’s not spending as much as you’d think
According to Apple’s “proposed findings of fact” document (credit to Eurogamer for spotting some of this over the weekend), Epic Games is losing cash — hundreds of millions of dollars in “minimum guarantees” it pays many developers to give away their games and constantly offer new ones to keep players coming back. That money also covers Epic’s infamous exclusivity deals, so it’s not clear how much goes to the free games alone.
Either way, it’s a sizable fraction of a billion dollars that Epic’s losing here: $330 million, it seems. “Epic committed $444 million in minimum guarantees for 2020 alone,” reads Apple’s legal filing. “That includes at least $330 million in unrecouped costs from minimum guarantees alone.” But both of those numbers are far, far less than the retail value of those games: $17.5 billion, if you do the math based on Epic CEO Tim Sweeney’s chart below.
Apple spins this as “losing money”, but spending now in order to build a great, profitable business in the future is exactly what investment is! It’s equally true whether you’re building a factory, a store, or a game.
— Tim Sweeney (@TimSweeneyEpic) April 10, 2021
How is it paying only a fraction of a billion for both exclusives and freebies, when the freebies alone should cost many billions? Sweeney revealed on April 10th that Epic doesn’t actually pay a fee per game at all, much less the full amount: “Our free game giveaways are negotiated with developers where we pay them an agreed dollar amount, not per copy.”
Epic, and Sweeney, are willing to invest hundreds of millions of dollars into the platform
As you can see in Sweeney’s other tweet above, Epic isn’t expecting to make that money back: the studio has intentionally set aside that huge, nearly half-billion pile of cash to entice developers, and the company thinks it’s working just fine. Sweeney publicly declared his support for those costs on Twitter over the weekend: “[The Epic Games Store] has proven to be a fantastic success in reaching gamers with great games and a fantastic investment into growing the business!”
Theoretically, the constant stream of new games may keep more players using the Epic Games Store and, eventually, maybe even spend their own money on games there. The company claims it’s already seen that borne out in the store’s rapid growth, saying players have spent more than $700 million on the store, with $265 million of that spent on games not made by Epic.
Fortnite is a cash cow
While we don’t know exactly how much Fortnite has made for Epic, it almost certainly is a lot of money: Epic earned more than $700 million on iOS alone in just two years, according to Apple’s filing.
This is pretty much how any company looks to disrupt an existing market.
Worth noting that while Epic Store loses $330m, Epic still generated approx $3.85bn in revenue and $1.54bn in gross profit (Thanks to Fortnite) according to a recent court document. https://t.co/VZrbsFkyme
— Daniel Ahmad (@ZhugeEX) April 12, 2021
And although the game is no longer available on iOS because of Apple and Epic’s ongoing feud, Fortnite is still on many other platforms, and it seems like a safe bet that it’s still raking in a lot of cash everywhere else, giving Epic income as it gives away games on the Epic Games Store.