Epic didn't sue game console makers because they sell hardware at a loss

Alfonso Maruccia

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A hot potato: Epic Games is challenging what it perceives as the monopolistic control of Google and Apple over their individual mobile app ecosystems. The company is reluctant to incur any extra costs to participate in these ecosystems, although it doesn't raise objections to the fees imposed by Sony, Microsoft, and Nintendo.

Epic Games' lawsuit against Google is reaching its conclusion, and the Fortnite developer has now clarified why it is specifically targeting mobile companies while not challenging the three major game console manufacturers. During a recent jury trial in San Francisco, Epic presented a taped deposition by CFO Randy Gelber, recorded in September 2022. The recording sheds light on why the company is willing to pay additional fees for selling in-game content in console versions of Fortnite.

According to Epic's financial head, PlayStation, Xbox, and Switch represent "competitive markets" with an entirely different cost structure compared to a mobile app store. Gelber explained that the main distinction is that Sony, Microsoft, and Nintendo sell their own hardware, and as per "widely published" reports, the hardware is always sold at a loss.

The three home console companies need to offset the hardware cost, Gelber said, justifying the additional fee. While Apple also sells its own mobile hardware, Gelber didn't address that issue at all. Furthermore, console makers control closed ecosystems that are as restricted as those of mobile vendors, with no opportunity to establish an additional store controlled by a third-party company.

The Epic executive explained that mobile apps are typically small in size but have higher costs. Mobile app developers also have to cover customer service, Gelber stated, as users usually don't contact Google when they need support with their game.

During the trial, Google revealed how much Epic owes in damages for briefly enabling direct payments in the Android version of Fortnite. According to economist Gregory Leonard's testimony, the company should pay around $400,000 after having collected $1,329,770 in revenues before the game was removed from the store.

Now that Epic and Google have presented their evidence, the trial is awaiting closing statements and the jury's verdict. Judge James Donato ordered the two companies to hold settlement talks before proceedings resume on December 11.

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The crux of the issue is the amount of the fee for the service provided.

Apple does very little for its 30% which is why it had to ban even the mention of paying somewhere else let alone providing a link to a website to pay. Any % only for mobile apps is already broken because the popular apps are essentially subsidizing the unpopular apps' cost. So, some flat monthly rate for being in the store and then a % for processing the payment/ease of use charge (probably in the 5-10% range) would be the way to go.

The business model of consoles makes that more difficult because Sony, MS, and Nintendo won't sell the hardware at a loss if they can't make it up later by selling games - which would result in the hardware at the same cost as PCs at which point you don't have enough customers to bother making console games and that market just goes away (somewhat offset by those that switch from console to PC).
 
Yeah, I don't see an issue with console manufacturers controlling profits when they take an upfront hit to get the console in the home. I really wish mobile devices were treated more as PCs and not their own thing. My schedule at work os through an app, I clock in and out of work by scanning a QR code from my phone in an app. There is an authenticator app that my bank uses that operates only on my phone.

I hate how integrated they have become and how little control we have over how they function and the data they collect on us.

I hate "phones" so much...
 
Yeah, I don't see an issue with console manufacturers controlling profits when they take an upfront hit to get the console in the home. I really wish mobile devices were treated more as PCs and not their own thing. My schedule at work os through an app, I clock in and out of work by scanning a QR code from my phone in an app. There is an authenticator app that my bank uses that operates only on my phone.

I hate how integrated they have become and how little control we have over how they function and the data they collect on us.

I hate "phones" so much...
Don't worry, PCs are also slowly being treated as phones in the ways you describe. 😁
 
Oh I see, we’re still pretending console manufacturers sell them at a “loss”…

They really pulled that narrative off didn’t they, impressive.

Just to convince us all that paying an extra £10-15 a game is worth it vs just paying an extra £50-100 for the console…
 
In theory, what EPIC is saying makes sense. In reality, they probably held back from taking MS, Sony and Nintendo to court because it will ensure the entire platform shuts down since all of them will throw Fortnite out. They cannot afford to annoy all the platforms they offer their software and services.
 
Epic should just go away,

I don't see the issue with google and apple getting their money and locking down their stores.

if someone stole my dusty ps4 all they could really do is mess up my psn account or buy some games, on the other hand my cellphone carries almost all the info of my life and its important, the fact google/apple doesnt want a bunch of bolted on stores and payment systems makes sense, they would just lead to more holes and chances for bad actors to snag your info.
 
In theory, what EPIC is saying makes sense. In reality, they probably held back from taking MS, Sony and Nintendo to court because it will ensure the entire platform shuts down since all of them will throw Fortnite out. They cannot afford to annoy all the platforms they offer their software and services.
They can't without a good reason last I heard. The courts would force them to list Fortnite again, as you can't retaliate against a legal challenge with such a move.
 
They sell the machine at a loss and then have licensing fees and internet fees, but I still don't think it justifies blocking digital store competition. Console makers would still get their licensing fees even if you buy the game from another digital store, just like with physical sales. Blocking competition is still wrong.
 
Well, I applaud them for this thinking and kind of agree on it, but they’re still just a money-hungry machine that would do the same. I’m sure they’re getting a pretty penny from developers using the Unreal engine, and are bringing in a buttload of money from Fortnite. Epic Store could be a wash, just like it supposedly is for consoles. My biggest gripe about them is the drop of the entire Unreal Tournament franchise. What a way to flip off their former supporters and really put out the message that they only care about the financial bottom line.
 
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