Here’s Why Epic Games Can Give Away $17.5 Billion Worth of Games for Free
The Epic Games Store gives away free games every week for months now and at times they give away huge titles and yet the company has never explained how why or how it’s managed to give out 749 million copies without going bankrupt.
New documents recently published as part of the legal finding process for Epic’s major antitrust lawsuit against Apple were released last week, and between those and a series of tweets from Epic CEO Tim Sweeney, we’re getting our first look yet at how the company’s not quite losing billions of dollars.
IT’S NOT SPENDING AS MUCH AS YOU’D THINK
According to Apple’s “proposed findings of fact” document (credit to Eurogamer for finding some of this over the weekend), Epic Games is wasting cash — hundreds of millions of dollars in “minimum guarantees” it pays many developers to give away their games and constantly give new ones to keep gamers coming back. That money also covers Epic’s notorious exclusivity deals, so it’s not clear how much goes to the free games alone.
It’s a small 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 anticipating to make that money back: the studio has deliberately set aside that huge, nearly half-billion pile of cash to lure developers, and the company thinks it’s going just fine. Sweeney openly declared his support for those charges 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 steady stream of new games may keep more gamers using the Epic Games Store and, ultimately, maybe even spend their own money on games there. The company insists it’s already seen that borne out in the store’s fast growth, saying gamers have spent more than $700 million on the store, with $265 million of that used on games not made by Epic.
FORTNITE IS A CASH COW
While we don’t know the exact numbers about how much Fortnite has made for Epic, it almost certainly is a buck load of money: Epic made 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 is on iOS because of Apple and Epic’s ongoing fight, Fortnite is still on other platforms, and it seems like a secure bet that it’s still gathering in a lot of cash everywhere else, giving Epic income as it gives away games on the Epic Games Store.