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In context: Epic Games has been spending the big bucks to compete against Steam. From free game offerings to signing exclusivity deals with third party developers, Epic has been somewhat successful at pulling more customers to its platform, but at what cost? As detailed in the company's court filings in the lawsuit against Apple, Epic reported a $181 million loss in 2019 and $273 million in 2020 on the Games Store alone.
Epic Games and Apple's legal feud has been going on since last August. Back then, Apple decided to remove Fortnite from the App Store after the developer introduced an alternative payment method to bypass the App Store's 30% cut. In preparation for the upcoming trial, scheduled for May 3, 2021, both Apple and Epic have filed their respective "Proposed Findings of Fact and Conclusions of Law," unveiling some interesting data.
In 2019, the Epic Games Store (EGS) lost about $181 million, but in 2020, the expected loss is even bigger at roughly $273 million. As for 2021, the projected loss is supposed to cut 2020's figure by half, to around $139 million.
To recover the three year losses, roughly $600 million, Apple says it will take Epic Games at least six years. On the other hand, Epic predicts it will start to be profitable much sooner, in 2023. According to Epic, the "EGS's 12 percent transaction fee is sufficient to cover the variable costs of running EGS, including payment processing, customer service and bandwidth."
The reason behind Epic's losses seems to be related to its timed exclusivity deals. The filings indicate that Epic Games paid game developers $444 million during 2020 in minimum guarantees. A minimum guarantee is a payment in advance to a developer/publisher that agrees to make its game a timed-exclusive (usually one year) at the EGS. One such example is Epic's payment of $10.5 million to Digital Bros for 1-year exclusivity of Remedy's Control in its store.
Epic Games made $700 million in revenue from EGS in 2020, but "only" $265 million were from third-party games. When comparing these values to the $444 million from minimum guarantees, the exclusivity deals seem to pack quite the punch in Epic's finances.
The filing further details that "the incentives and investments it has made in an attempt to grow EGS will result in 'unrecouped costs'," from which $330 million are from minimum guarantees. This figure suggests that there were a lot of games that didn't break even.
Epic also states that all this spending is part of its business plan. The developer believes that it's not losing money; it's investing. Considering the store is only 3 years old and already has 160 million registered users and 56 million monthly active users, Epic's plan might actually be working.