New court filing shows Epic has lost more than $450 Million on the EGS in the past 2 years and other interesting facts
- Thread starter CommodoreKong
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Surely you agree that just because a business chooses money over my interests doesn't mean I have to like it? Nor blindly accept it?
it's.. literally in the OP. They're only covering current operating costs but losing money on investment in growth. They do not expect to be in a position to turn a profit at any point before FY2027
I mean the financial statements filed in court seem to not match that little tweet. Think id rather bet on court fillings as opposed to a tweet
Only in certain markets and epic allows devs to use whatever payment processing in-game to fit the market theyre in. Server costs and all that are relatively cheap..
Why care about security if it brings extra costs?
(sadly details are censored in public version)
Which page and paragraph are you two referring to? Where in their court filing does it state 12% is only enough for break-even for them?
You love to see less competition in video game stores? I think it's nice to have someone try to challenge VALVe.
Then you should complain about the likes of Deep Silver, Ubi and Psyonix for choosing money. My point is, Epic doesn't make these decisions by themselves. The pub/dev whose game it is, looks at their own financial situation and chooses the best path forward for them, as is their right.
Competition for the sake of completion is not how markets work
Covering operating costs is not a profitable business, you yourself quoted that from the OP. At 12% they are breaking even /after offloading certain payment fees to customers as well)
There's no way to "challenge" Valve anymore, the battle is over.
As said before, Fall Guys in a month did more money in Steam than EGS games sales in a year. And they're probably the second biggest store.
I quoted the person who wrote the OP.
You said, "I mean the financial statements filed in court seem to not match that little tweet. Think id rather bet on court fillings as opposed to a tweet "
Which page and paragraph are you referring to?
Epic's method of competition doesn't benefit the players at all though. Offering a shitty storefront and then trying to make your competitor storefront weaker by denying it games with timed exclusivity deals isn't elevating the PC gaming experience; it is making it shittier. No one wants or needs their approach to competition in the PC space.
Not gonna go diving into the 300 pages document right now. You seem to be fine using the op as a source since the summary was acceptable to you.
Is your confusion here that you don't understand what it means to cover operating costs, and how that differs from profit? Or do you think they have some other source of revenue beyond the 12%?
Your question doesn't really make sense.
Revenue is all the money they take in, which as the document is at some pains to spell out, is 12 % of sales + (optionally) 12% of IAP.
Operating costs are everything it takes to run the store – salary, servers, payment processing fees, etc, excluding deals with developers and publishers they cut to grow the market.
Profit = revenue – operating costs. Normally, businesses want to be profitable (ie make more money than it costs to keep the lights on) so that they can invest the profit into running the business. This is all business 101 stuff.
If they're saying "hey, our revenue is only enough to cover variable operating costs but growth costs mean we aren't profitable" (and they say this in several places, including the pull quote in OP but also page 141 scribd, 135 in the doc, although they contradict themselves on when they think they'll finally be profitable), then by definition they're saying exactly what you're asking – 12% is only break-even.
But it's actually worse, because there they're carefully saying that the 12% covers variable operating costs – meaning they're excluding fixed costs like salary and benefits for employees. So there they appear to be tacitly admitting they're not even break-even without spelling it out.
That clears it up.
I think you misunderstood. I was simply asking people to explain why they were saying that EGS can't be profitable on 12% (and my personal position is that 30% is greed, definitely not borne of necessity), and they said the court docs showed that, but then it turns out they hadn't actually looked at the court docs.
That's an interesting point you bring up about salary costs for store development, however that is included. Here are two quotes from their court doc, pages 134-135:
"Epic decided to charge developers a 12% revenue share after it concluded that 12% would be competitive, sufficient to cover its costs of distribution and allow for further innovation and investment in EGS."
"EGS's 12% transaction fee is sufficient to cover the variable costs of running EGS, including payment processing, customer service and bandwidth."
One could argue their customer service costs are probably near zero :-) But they clarify that innovation and investment is included in the 12%, and as you mentioned, they forecast becoming profitable after the initial expensive burst of early user acquisition.
They made a couple of interesting comments about Apple's 30% fee too. First, that Apple picked that number originally without any consideration of their costs. Second, that their own executive talked in 2011 about reducing the rates to 20% because they were already so profitable (page 78).
"Epic decided to charge developers 12% after it concluded […]" is purely based on their initial projections. The store launched with that number, so it's not based on their sales data. It's their initial guess. It doesn't not reflect backwards on the reality of the store.
Additionally, it's claimed that innovation and investment is covered by this amount. However, it's clear that they are losing money on their investments, as per the other evidence in the document. And "innovation" is moot. The store has barely progressed since launch, and is still lacking in basic features most of its competitors have. Clearly innovation is not something they are seriously investing in. In fact, given all the data, one could argue that the reason the store is so bare bones is because it barely covers their operating costs and they can't justify spending more money on improving the experience.
Finally, the 12% number is a bit misleading, considering, unlike other stores, they offload payment processing costs to the customer.
No, it's not included. "Variable operating costs" has a specific meaning in accounting contexts that explicitly excludes salary and other fixed operating costs. These are universal definitions across the US. When they say "customer service" as a variable operating cost they mean things like processing fees on refunds that vary based on sales, not CS rep salary, which doesn't fit in that cost category.
Do note that they're being very, very precise with their wording in these 2 statements. The first doesn't say that the 12% does cover distribution and growth – it just says they decided on 12% after concluding it would. That first statement is true even if they turned out to be wrong about what the 12% covers, which given their other declarations, they're kind of dancing around admitting.
And then again, with the second statement: there's no reason to say "12% covers our variable operating costs" rather than "12% covers our operating costs" unless it's not covering fixed operating costs.
If anything this whole ordeal just strengthens my initial suspicion that Epic legitimately expected Apple to just fold and give them what they want because of threat of litigation/public outcry/whatever Tim Sweeney imagined would happen in his head. There is no way anyone in their legal counsel wanted this type of long, drawn out litigation where damning financial disclosures of this sort would be forced into the public eye.
Yeah, I mean why buy on Epic if the game is available on Steam? I would never personally do that. I'd rather just wait a year to get it. The only games I've bought day one are the Kingdom Hearts games.
OP, want to add this into the first post?
Eh, I'd be careful attaching too much judgement to fixed vs variable costs in EGS.
1. there's a good chance that CS for the store shares responsibility for CS for games. That cost cannot be solely fixed to the store and would be accounted for elsewhere.
2. Even in the case that it's not shared, there's a non-zero chance that to handle volume Epic actually handles through a CS agency which does spin-up and down the number of CS agents then charging based on average use which would put it in the realm of variable costs.
3. EGS for better or worse is built on top of UE. A lot of the costs of development outside of the occasional feature specific to the store is accounted for in the cost of developing UE.
1. there's a good chance that CS for the store shares responsibility for CS for games. That cost cannot be solely fixed to the store and would be accounted for elsewhere.
2. Even in the case that it's not shared, there's a non-zero chance that to handle volume Epic actually handles through a CS agency which does spin-up and down the number of CS agents then charging based on average use which would put it in the realm of variable costs.
3. EGS for better or worse is built on top of UE. A lot of the costs of development outside of the occasional feature specific to the store is accounted for in the cost of developing UE.
OP
OP
Does Epic lose more money if I download their free games or if I don't? I assume they're doing a ton of data collection if I have the client installed, so they're gonna make money off that. Is it more damaging to them if I redeem games from a virtual machine?
senj Very good points. I suppose their projections early on, and their current projections for when it will be profitable, rely on the store doing a certain base line of revenue. That April 2019 tweet suggests they earn about 5% before salary costs i.e. store investment, so of course the larger number that 100% represents, the more likely 5% of that will cover those costs. Back of the napkin math, say 100 devs at an average $250K each total cost, if the store was doing $500M annually then 5% would cover those costs. It's already doing that, but presumably a lot of that revenue is Fortnite.
I checked the invoices for a couple of purchases I've made, and it was just the store advertised price plus sales tax. I was using credit card which has a fee of 2% or so iirc, which must have been included in the price. Don't fall for the narrative that the likes of Steam need 30% because of payment processing, especially when most of their sales are probably from low fee sources, and besides that, I don't feel I as a consumer should be paying for someone else's higher payment processing fee.
I don't know what's going on with their store innovation, but I'm sure it's not because they "can't justify spending more money". Perhaps they are having trouble hiring suitably experienced staff, I don't know. Whatever it is, there's no indication that they're hurting for money as a company, and if they were, they'd save a hell of a lot more by not offering free games like GTAV rather than pulling an engineer or two off the project.
I checked the invoices for a couple of purchases I've made, and it was just the store advertised price plus sales tax. I was using credit card which has a fee of 2% or so iirc, which must have been included in the price. Don't fall for the narrative that the likes of Steam need 30% because of payment processing, especially when most of their sales are probably from low fee sources, and besides that, I don't feel I as a consumer should be paying for someone else's higher payment processing fee.
You're still dodging the question though. You're holding criticism of EGS to a standard you're not holding yourself to.
I think some parts of the world are getting much better regional pricing with EGS. It probaly still makes sense for them to be loyal EGS customers.
To be 100% fair, EGS was giving away free games from Day1. Which made their initial hardcore stance against insane sales for "devaluing games" (while giving away games 100% free) all the more nonsensical. It was just part of the surrealism that was the first 6 months of EGS' "market disruption"
I will say this for EGS, though: the $10 coupons made it the best place to buy UPlay titles. I think I bought like 5 or 6 "complete editions" for 100 CAD (just under one full-price "Gold Edition" of the latest AssCreed games) in the 2020 Summer sale.
And Ubi titles from EGS can be linked to the Uplay account without needing to actually use the EGS launcher to play them.
Aside from Ubi titles, I don't see myself actually buying anything from Epic until they start releasing the games they're publishing from PlayDead, Remedy and GenDesign.
At which point they'll be just another proprietary launcher, like Origin, Uplay, or Battle.net
Another good thing about EGS is that most of their indie titles are DRM-free, which means once the exclusivity's up, they show up on GOG (which is my preferred store and platform)
Ah yes, how could I forget the free games. I'm admittedly in a privileged position where I neither need nor want them out of principle, but fair point, that does benefit many players. Enjoy it while it lasts I guess.
Salt for not taking free games available to everyone? lol
I don't take them too.
Me neither.
There's definitely a degree of salt involved for me though. I disagree with their overarching strategy towards players and don't want any part in it until that changes. I have too many games I already paid for but haven't played anyway.
In any case, the free games seem mostly targeted to people relatively new to PC and aimed to recenter people's libraries around EGS, based on the games they've given out. Lots of yesteryear's greats, so to speak. Not as appealing a proposal if you've played those already. Though they've shifted to more recent stuff now, I think?
There's definitely a degree of salt involved for me though. I disagree with their overarching strategy towards players and don't want any part in it until that changes. I have too many games I already paid for but haven't played anyway.
In any case, the free games seem mostly targeted to people relatively new to PC and aimed to recenter people's libraries around EGS, based on the games they've given out. Lots of yesteryear's greats, so to speak. Not as appealing a proposal if you've played those already. Though they've shifted to more recent stuff now, I think?
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OP is worded as if this is doom and gloom, but these kind of sums are often invested in things that takes years and years to build. This isn't really big news.
There's plenty of game stores without EGS. I can get PC Games from humble, CDKeys, Fanatical, Amazon, BestBuy, Xbox, etc.
And what Epic Store did to Valve/Steam since it went live? Competition means pushing others to do things, so far Valve is still pushing everyone else to do things and not other way around.
Valve did that weeks before EGS launched and how is it benefitting me exactly when Ubisoft or other publishers shareholder get more money for the EGS exclusive bullshit?
Yeah. I think it would be more interesting if indie devs made more money at Steam, not Ubisoft, EA....
You haven't explained what data or evidence you base your stance "30% is greed" on. You hold this stance very strongly, so surely you have some sort of information to back it up.
We're talking about the company that did more 180° turns with their plans and communication than Tony Hawk did in his lifetime.