Epic Games Will Lose Over $300M On Epic Games Store Exclusives
To take on Steam, Epic Games has spent the past two years shoveling Fortnite money into the Epic Games Store, making over 100 exclusivity deals and giving away free games every week. We knew Epic was spending a lot of cash to get customers onto its store, but didn't have many specifics until now. Thanks to Epic's big legal fight with Apple, we learned this week that Epic committed around $444 million to Epic Game Store exclusivity deals in 2020 alone.
More precisely, that's $444 million on "minimum guarantees" for games that release on the Epic Games Store but stay off of Steam for a year. A "minimum guarantee" is just another way to refer to an advance. It means that Epic guarantees the publisher a certain amount of money whether or not their game actually sells enough to cover it. For example, Epic put down $10.45 million for Control.
Apple says that Epic lost $181 million on the Epic Games Store in 2019, projected a loss of $273 million last year, and projects another loss of $139 million this year.
In its end-of-year report, Epic said that players spent $700 million on the Epic Store in 2020, but third-party game sales only accounted for $265 million of that spending. That $444 million in advances to third-party devs isn't close to being recouped, then. Some of those deals probably haven't started making money yet (as in, the game hasn't released), but according to Apple's learnings, Epic is going to eat "at least $330 million in unrecouped costs from minimum guarantees alone" if you consider 2019's deals, too.
As for how much the Epic Game Store will have lost in total by the end of 2021, factoring in exclusives and all other expenses, projections say it's less than $600 million. Just a bit of spending money, then.
These estimates come from Apple's (pretty spicy) summary of the arguments it's bringing to court next month as it defends its App Store policies against Epic's antitrust complaint. As part of its defense, Apple's lawyer army wants to show that the Epic Games Store isn't comparable to its iOS App Store, and so its fact finding includes everything Epic has said about how unprofitable the Epic Games Store is.
Citing depositions from Epic Games Store VP and GM Steve Allison and Epic VP of business development Joe Kreiner, Apple says that Epic lost $181 million on the Epic Games Store in 2019, projected a loss of $273 million last year, and projects another loss of $139 million this year. Added up, that's an estimated $600 million that the Epic Games Store will need to recoup before it'll be profitable on the whole. Apple points out that Epic doesn't think that'll happen until 2027.
In its new filing, Epic puts a more positive spin on its business plan, saying that it expects the Epic Games Store to start earning annual profits in 2023. And what Apple calls 'losing money,' Epic would probably call 'investing money.' This spending is all part of the plan, says the company, and its 12 percent revenue cut will eventually be enough to sustain the store, something it has said from the start.
"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," reads Epic's filing, citing CEO Tim Sweeney.
