Ekaterina Bespyatova

Full timeline of the trial between Epic Games and Apple

Tags:

  • On May 3, the trial of Epic Games and Apple began. After that, a lot of documents surfaced online revealing the internal processes of companies and their witnesses. We keep you informed of what’s going on.

Important: The trial is expected to last three weeks, so this publication will be updated regularly.

The conflict between Epic Games and Apple broke out in mid-August 2020. Then, in the iOS version of Fortnite, users were able to pay for content directly to developers, bypassing Apple’s commission. After that, Apple removed the game from the App Store. For several months, the companies have been exchanging lawsuits, but only now has the case reached a full hearing.

The main topics of the process: the return of Fortnite to the store and Apple’s monopoly on the payment system.

The hearing is being held in the Oakland District Court, USA. The case is handled by Judge Yvonne Gonzalez Rogers.

May 21 -----------------------------------------------------------------------------------------------------------

Tim Cook and the judge’s dispute: what ended the three-week trial in the case of Epic Games and Apple

The last witness in the trial between Epic Games and Apple was Tim Cook. He stayed in the courtroom for at least two hours, the last minutes of which he had to spend in a tense debate with the judge. Among other things, she was interested in why iOS users can’t buy in-game items outside of the App Store.

Cook replied that users already “have a choice”: to buy cheaper Android or iPhone phones.

This answer did not convince the judge.

She also asked questions about a possible change in the store’s monetization model and about solving the problem with the dissatisfaction of 39% of iOS developers. Cook’s answers to them did not fully satisfy the judge either.

May 20 -----------------------------------------------------------------------------------------------------------

Apple has suggested that Microsoft is using the Epic Games trial to its advantage

The company outlined such an accusation in another statement, in which it demanded that the court recognize the testimony of the vice president of Xbox as unreliable. According to Apple, the creators of Fortnite can be a “figurehead” for Microsoft. Apple argued its point of view by the fact that the corporation did not take part in the trial as a separate party. Also, five Epic Games witnesses had connections with Microsoft, and the developers themselves discussed with Bill Gates‘ company bypassing the commission in the App Store.

Microsoft denied Apple’s statement.

19 May -----------------------------------------------------------------------------------------------------------

Apple has earned at least $100 million on the commission from Fortnite

Such data was shared by Michael Schmid, head of the gaming business development department at the App Store. He declined to give the exact amount, saying it would be “inappropriate.”

We add that according to Sensor Tower calculations, Apple‘s earnings from the commission in Fortnite could amount to about $354 million. Since the release of battle royale, gamers have spent $ 1.2 billion in the iOS version of the game.

Fortnite’s App Store marketing has cost Apple a million dollars over the past 11 months

Apple actively helped with the promotion of Fortnite in the App Store, said Michael Schmid. It is not known how much the company has spent on marketing the title for the entire time of its existence, but from October 2019 to August 2020, it invested $ 1 million. Lauren Moskowitz, a lawyer at Epic Games, described it as a “bargain.”

Apple: iOS platform is not so important for Fortnite

Apple‘s lawyers have asked the court to dismiss one of the ten main points in the Epic Games lawsuit. In it, the authors of Fortnite claim that the promotion of the game on iOS is necessary for effective business development.

Apple reminded the court that Fortnite was a success even before it became available on the App Store. After its appearance in the store, iOS users generated only 7% of the total revenue of the battle royale. The company also added that Epic Games can work with iOS not only through the App Store, but also through the browser.

The head of the software development department at Apple believes that macOS does not have a high enough level of security

During the meeting, Craig Federighi said that there are “unacceptably many” malware on Mac computers. This is due to the openness of their operating system — Mac users can download applications not only from the App Store.

As Federighi explained, ten times fewer people use technology on macOS today than iOS devices, which is why Apple allows “such a low” level of security. In addition, iOS is much more attractive to scammers due to the fact that smartphone owners store banking, medical and other personal data there. This is one of the reasons why Epic Games‘ request to make iOS as open as macOS is not liked by the company.

May 18 -----------------------------------------------------------------------------------------------------------

Apple management still doesn’t know if the App Store makes a profit

The day before, Phil Schiller had already stated that at the dawn of the App Store, the company was not sure that the store would become profitable. But now he clarified that even after 13 years, Apple still cannot say for sure whether the store has a profit or not. The reason for this was the difficulties with calculating operating expenses.

May 17 -----------------------------------------------------------------------------------------------------------

Phil Schiller: Apple didn’t know if the App Store would make money when it created it

During the court proceedings, Phil Schiller, former vice president of marketing at Apple, spoke about the launch of the App Store. He recalled that the first iPhone was released in 2007 and initially only Apple’s own applications worked on it (the rest could be opened through the Safari browser). However, due to numerous attempts by developers to hack a smartphone, the company decided to tighten control and launch an official store in 2008.

Apple hoped to “bind” people to the iOS ecosystem using the App Store. But the project was risky, and at first the company was not sure if it would bring money. Moreover, Steve Jobs stated that Apple does not intend to make money on the App Store at all.

The App Store does not charge a commission on the sale of physical goods, because it cannot guarantee their quality

In 2019, $400 billion worth of physical goods were sold through the App Store. By them, Apple means buying things on Amazon, food delivery, taxi, etc. Despite the impressive turnover of funds, the company claims that it does not charge a commission on such transactions. According to her, unlike digital purchases or subscriptions, here she cannot guarantee either the quality or whether the consumer will receive his order at all.

Recall that even without the revenue from the commission from physical sales in 2019, the App Store’s revenue amounted to $ 50 billion.

Every year Apple spends $50 million to host the WWDC conference

The Worldwide Developer Conference (WWDC) costs Apple an average of $50 million. This was stated during the trial by Phil Schiller. He also noted that the costs of its implementation are not taken into account in the category of operating expenses of the App Store.

Three quarters of the games in the App Store are completely free

Most of the content in the App Store is distributed for free. Phil Schiller estimates that about 84% of all applications in the store can be downloaded without payment. Speaking about the games in the App Store, he added that 75% of them are fully fritupley. In another 17%, gamers need to buy in-game items to unlock content. 6% of titles are paid. 2% work by subscription.

Apple: Unlike Netflix, streaming services offer interactive and changing content

Apple continues to make arguments why services such as xCloud should not appear in the App Store. Now she stressed that gaming streaming services are fickle, which cannot be said about video platforms like Netflix. The games in them are like separate applications, interactive and constantly changing. Despite the fact that Netflix also has interactive content. For example, the movie “Black Mirror: Bandashmyg”.

May 14 -----------------------------------------------------------------------------------------------------------

Roblox now calls games inside the platform of the same name “experience”

As stated by Roblox, this is consistent with the company’s vision of the metaverse concept. They say that Roblox users get into many virtual worlds where they can not only play or create their own projects, but also engage in other activities. For example, to hold virtual concerts.

This probably happened because of the trial between Apple and Epic Games. During the last meeting, among other things, it was discussed whether Fortnite could be called a metaverse, and not a game. Epic Games tried to question the procedure for checking applications in the App Store, referring, among other things, to games in Roblox.

May 13 -----------------------------------------------------------------------------------------------------------

The share of paying users in Fortnite exceeds 24%

Most free-play games cannot boast a conversion rate to a paying user of more than 10%. But Fortnite has this indicator equal to 24.2%. Epic Games did not provide data from every platform where there is a battle royale, but noted that 5.6% of players make purchases in the iOS version of the title.

Apple’s witness: In-game items can be purchased not only in the app

Lorin Hitt from the Wharton School of Business tried to prove that the browser can circumvent the ban on billing in the App Store. He stated that for at least eight games from the list of the top 25 projects at the box office in the store, you can buy content outside of iOS.

In response to his words, the lawyer of Epic Games tried to buy items in Candy Crush Saga. It turned out that you can really buy things on the game’s website, but for the PC version of the title. As a result, out of the entire Hit list, this method was suitable only for three projects: PUBG Mobile, Roblox and Fortnite.

62% of App Store revenue comes from microtransactions in games

This was reported by an expert witness from Apple, Lorin Hitt. He did not specify the amount of the amount, nor to what period it relates. However, he noted that until 2018, iOS users spent an average of $5 per in-game purchase. The price tag has risen to $10 with the appearance of Fortnite in the App Store.

May 12 -----------------------------------------------------------------------------------------------------------

Nintendo, Roblox, Spotify and other companies are asking the court to hide their internal documents in the case of Epic Games and Apple

A lot of large companies are unhappy that their internal information is leaking to the network because of the proceedings between Epic Games and Apple. Among them: Nintendo, Roblox, Spotify, Sony, PayPal, Samsung, as well as Epic Games themselves with Apple. They demanded that the court close access to the documents.

Judge Gonzalez Rogers rejected some of the requests, noting that it makes no sense — the media has already reported all the important data from the papers. Nevertheless, the judge granted some other requests. Mainly concerning documents that have not yet been published on the web.

May 11 -----------------------------------------------------------------------------------------------------------

Epic Games: the browser does not solve the problem of banning billing in the App Store

Apple prohibits developers from not only implementing their own payment systems, but also generally telling users about discounts outside of iOS. For example, they cannot be sent emails with an offer to buy a subscription or game currency on the game’s website cheaper than in the App Store. Also, you cannot specify similar information in the application itself.

According to David Evans, an expert witness from Epic Games, the abolition of such a rule would already reduce Apple’s monopoly. But not strong enough. According to him, this will be useful only for subscription applications that have their own website and can ask people to pay through the browser. Whereas mobile games mostly rely on microtransactions, and therefore will not feel the changes.

May 10 -----------------------------------------------------------------------------------------------------------

Epic Games: Fortnite has almost reached the limit of growth on consoles

According to Matthew Weissinger, marketing director of Epic Games, Fortnite has practically nowhere else to grow on consoles. The authors of the battle royale see the biggest opportunities for growth in mobile. He explained this by the fact that everyone has smartphones, unlike consoles and gaming PCs. Weissinger also added that before Fortnite was removed from the App Store, there were only 2.5 million DAU titles on iOS — 10% of the total DAU of the game on all platforms.

May 7 -----------------------------------------------------------------------------------------------------------

About 40% of applications annually do not get into the App Store due to violations of Apple’s privacy rules

Tristan Kosminka, one of the heads of the App Store, said that in 2017-2018, developers of 5 million applications applied for publication in the store. Approximately 40% of them were unable to pass moderation due to a violation of Apple‘s privacy policy. For example, in 2019, out of 4.8 million applications, slightly more than 1.7 million (36%) were refused publication.

By the way, only 1% of developers usually try to challenge Apple’s decision.

Apple is unhappy with the store of indie games Itch.io . It hosts “extremely offensive adult games”

Less than a month ago, an application appeared in the Epic Games Store Itch.io — stora for indie games without DRM. As Apple noted, the standards of this site are very different from the EGS standards. In particular in Itch.io there is a Sisterly Lust game that includes “a list of fetishes with words that should not be uttered in federal court.” Although Epic Games itself does not encourage such content.

Apple strongly opposes apps with sexual or other controversial content. She fears that if Epic Games wins, such games may come out on her platform.

Epic Games offered Sony $200 million for the right to port its exclusives

According to internal documents, Epic Games negotiated the purchase of 4-6 titles. Moreover, it is not completely clear from the wording: is $200 million the price tag for all the games or for each of them separately? If this is the price for one game, then in total the company was ready to spend up to $1.2 billion on Sony PC exclusives.

Epic Games also had similar conversations with Microsoft and Nintendo.

Epic Games wanted to attract Steam Bestsellers to the Epic Games Store

The owners of the Epic Games Store planned to earn about $500 million if 80 of the best-selling Steam games appeared in their store. The company developed the plan in 2019. In it, Epic Games also explained that without these bestsellers, it would be problematic for her to get a large share of the PC market. However, we note that by the end of the year, the company had agreed only with the developers of 22 titles.

GTA V distribution has brought over 7 million new users to the Epic Games Store — more than any other distribution

Epic Games has revealed data on the distribution of games from December 2018 to October 2020. In the graph, the company showed how many newcomers came to the Epic Games Store after these promotions. The most profitable was the distribution of GTA V — over 7 million new users. In second place was Sid Meier’s Civilization VI — 2.5 million people.

In 2019, Epic Games Store users spent $21.8 million on the Christmas sale

By the spring of 2020, there were five sales in the Epic Games Store. The largest was during the winter holidays in 2019, when gamers left $21.8 million in the store. But a few months later, the most “unsuccessful” sale took place in the store — $ 5.7 million. Later, Epic Games held another sale, but it also collected several times less than the Christmas one — $ 9.9 million.

Microsoft requires independent developers to agree to support xCloud

Indie developers are required to agree to support the xCloud streaming service if they want to publish games on Xbox. Epic Games‘ internal documents state that this is a matter of principle for Microsoft, and the company uses “harsh expressions regarding the requirement.” Microsoft does not allow or removes all unsuitable games from the Xbox ecosystem.

The tough stance has worried some Epic Games Store partners who have signed an exclusivity agreement with the store.

the 6th of May -----------------------------------------------------------------------------------------------------------

Apple demands to recognize the testimony of a Microsoft representative in court as invalid

Apple‘s lawyers have asked the court to invalidate the testimony of Lori Wright, vice president of Xbox. She appeared in court as a witness on the part of Epic Games and, among other things, said that Microsoft does not receive any profit from the sale of consoles.

As the lawyers pointed out in their letter, Microsoft did not provide documents that would confirm Wright’s words.

Epic Games planned a high-profile campaign against the 30% commission in the App Store and Google Play even before Fortnite was removed

On July 27, 2020 — two and a half weeks before Fortnite was removed from the App Store — Epic Games sent the Project Liberty roadmap to the board of directors. This is a plan that described the company’s actions to combat the 30% commission in the App Store and Google Play.

The plan included: a coalition with other platform holders, a 20% reduction in the price tag for gamers on PCs, consoles and mobile devices using the Epic Games payment system and the launch of a high-profile campaign on August 13, 2020.

By the way, Epic Games did not plan to reduce the commission in other stores and called its size fair in them.

May 5 -----------------------------------------------------------------------------------------------------------

Tim Sweeney admitted that he does not know what consequences the victory of Epic Games will bring to non-gaming applications

One of the fundamental points defended by Epic Games is the permission to use third—party payment systems in the App Store. According to the company, this will “put an end to Apple‘s monopoly”, and users will receive more convenient and cheaper payment methods inside applications.

That’s just such an innovation will affect all iOS applications, not just games like Fortnite.

The judge asked Tim Sweeney, the head of Epic Games, if he was even familiar with the ecosystem of non-gaming applications: food deliveries, dating apps or messengers. Sweeney said no. He also noted that he has no idea how his initiative will affect such services.

Epic Games has previously warned that the court’s decision in this case could turn into “serious problems” for Sony, Nintendo and Microsoft.

The conflict between Microsoft and Apple over xCloud led to the removal of the Shadow streaming service from the App Store

Last year, Microsoft fought for the appearance on iOS of the service for “playing in the cloud” xCloud. From the letters published during the trial between Epic Games and Apple, it became known that a similar Shadow Cloud Computing service suffered because of this struggle.

The fact is that Apple did not let xCloud on her devices for a long time. The company explained this by the fact that streaming services give gamers access to games that it cannot check for compliance with the rules of the App Store. After that, Apple demanded to release games from such services as separate applications.

Microsoft in response asked why, in this case, Netflix, Shadow and other similar services are in the store. After this issue, Shadow was suddenly removed from the App Store.

Later, Shadow was returned to the store, and xCloud was launched on iOS via the Safari browser.

Microsoft: Xbox consoles are always sold at a loss, and games and services bring profit

Lori Wright, vice president of Xbox, appeared as a witness in the trial of Epic Games and Apple. She said that, unlike Apple, console manufacturers are forced to charge game developers a 30% commission. All because it will allow companies to stay in the black.

Wright clarified whether this means that Microsoft does not make a profit from the sale of consoles. The vice president of Xbox confirmed this.

Wright also stressed that the company continues to sell consoles despite the loss in order to ensure “continuous gameplay.” Xbox games and services bring her profit.

As analyst Daniel Ahmad noted, this is a common practice in the gaming industry. For example, Sony also does not profit from consoles.

May 4th -----------------------------------------------------------------------------------------------------------

The App Store management planned to reduce the commission to 25% or even 20% back in 2011

Phil Schiller, Apple‘s head of marketing, who was also responsible for the App Store, made such a proposal. In his letter to Steve Jobs and Eddie Cue, he stressed that someday “the company will face enough problems that will force it to adjust the 70/30 model.” Therefore, as soon as the App Store revenue exceeds $1 billion, it is desirable for Apple to reduce the commission itself.

Tim Sweeney discussed with Microsoft the cancellation of the Xbox Live Gold paid subscription by the time of the launch of the 14th season of Fortnite

Shortly before the start of the confrontation with Apple, the head of Epic Games asked Microsoft to make multiplayer on Xbox consoles free. He sent a letter with this idea to Phil Spencer, the head of Xbox.

In a letter, Tim Sweeney asked to coincide the cancellation of Xbox Live Gold with August 27, 2020 — the day when the 14th season of Fortnite starts.

Sweeney also hinted that Epic Games has “certain plans for August, which provide an exceptional opportunity to emphasize the value of offers for consoles and PCs, as opposed to mobile platforms, and attract new console users.” Probably, it was about the upcoming changes in the mobile version of Fortnite, after which the conflict with Apple began.

In a reply letter, Spencer partially supported such a proposal, but with a note that right now Microsoft is not ready to abandon paid multiplayer.

Walmart worked on a streaming service and showed it to Epic Games

Walmart planned to launch its own game streaming service called Project Storm. It was supposed to be released on Windows and support launchers like Steam, Epic Games Store, Origin and Battle.net . It was also assumed that games in Project Storm could be obtained through subscription and direct purchases.

In 2019, Walmart showed the service to the authors of Fortnite and offered to add this battle royale to it.

The beta test of Project Storm was supposed to take place in July 2019. Whether it was, and whether a full—fledged release of the service will take place is unknown.

Epic Games was going to spend over a billion dollars to buy exclusives for the Epic Games Store

In 2019, immediately after the launch of the Epic Games Store, the owners of the store developed two scenarios for its development: aggressive and cautious. In an optimistic scenario, Epic Games hoped to get 50% of the PC market (but it depended on whether Steam would react to the company’s actions). In the pessimistic — to keep only 8% of the PC market.

In both cases, Epic Games was ready for large-scale spending because of exclusives. Their size from 2019 to 2021 is $1.7 billion and $1.38 billion, respectively.

Tim Sweeney apologized to the head of Ubisoft for a large number of fraudulent transactions in The Division 2

On May 11, the head of Epic Games sent a letter to Yves Guillemot, the head of Ubisoft. He wrote that in the last 48 hours, 70% to 90% of fraudulent transactions in The Division 2 have passed through the Epic Games Store.

Tim Sweeney called the incident an exceptional situation, noting that usually the level of fraud in EGS games does not exceed 2%.

Epic Games took all the blame.

Tim Sweeney: If Apple had offered a deal only for Epic Games, he would have agreed

During the hearing on the case, the head of Epic Games admitted that he would be satisfied if Apple decided to soften the conditions in the App Store only for his company. Apparently, it was about reducing the commission by 30%.

Note that earlier Tim Sweeney claimed that he protects the interests of all developers.

May 3 -----------------------------------------------------------------------------------------------------------

Sony takes a commission from publishers for crossplay on PlayStation

In 2018, Epic Games asked Sony to add a crossplay feature to Fortnite. For this, the company promised an exclusive for PS VR 2, a unique character for PS Plus subscribers, PlayStation-style branding of Epic Games at E3 and concessions in the license for the Unreal Engine 4 engine.

Sony disagreed.

Since August 2019, Sony has begun to conclude similar deals, but with one caveat — a commission is charged for crossplay. However, not all publishers should pay a commission, but only those who have a PSN game revenue in relation to the share of gameplay on PlayStation consoles less than 0.85. According to Sony, only in this case it can compensate for losses from crossplay.

It should be noted that Sony later demanded that the court hide the documents posted online with this information.

Epic Games spent $11.6 million on the first distribution of games in the Epic Games Store

In the first nine months of the Epic Games Store‘s existence (December 2018-September 2019), Epic Games laid out $11.6 million to purchase games for giveaways. In total, the company paid publishers 38 titles.

The most expensive was the Batman: Arkham Collection trilogy, for which Epic Games gave $ 1.5 million. The collection broke the record for downloads, collecting 6.5 million downloads. But of these, only 614 were made by new users of the store, each of which eventually cost the company $2.44.

Indie projects performed well — many had a cost for one newcomer to EGS less than a dollar.

Epic Games earned $53 million on giveaways in the Epic Games Store in the first months of the store’s operation

Giveaways in the Epic Games Store attracted the attention of players. During the first nine months of the store’s operation, 20.7 million people registered on it. Of these, 18.5 million people came to the site because of the giveaways.

However, only 1.3 million people bought at least one game after the giveaways. In total, they spent $53 million in EGS (33% of all revenue).

2.2 million people who came to the store for purchases, not giveaways, in total brought Epic Games another $107 million (67% of all store revenue).

Borderlands 3 Exclusivity could cost Epic Games Store $115 million

The Borderlands 3 looter shooter was released in September 2019. For six months, it remained exclusive to the Epic Games Store. In case of failure, it would cost the owners of the store $ 115 million.

Under the contract, $80 million of the amount was allocated as minimum guarantee payments. Their Epic Games promised to pay 2K Games if the game itself does not collect the same amount in EGS. Another $15 million went to Borderlands 3 advertising, and $20 million went to “non—refundable cash fees.”

Already in the first two weeks of sales, the PC version of the luther shooter earned $100 million: $77 million in EGS and $23 million in retail stores and resellers.

Note that in a place with exclusive rights to Borderlands 3, the EGS team also paid $11 million and $20 million each for the distribution of Borderlands: The Handsome Collection and Civilization VI.

Fortnite’s revenue of $9.2 billion and Unreal Engine’s revenue of $221 million — how much did Epic Games earn in 2018-2019

During the hearing, Epic Games, among other things, shared its financial results for 2018-2019. Below, the main ones.

  • In two years, the games brought the company $9.29 billion. Most of the amount was collected by Fortnite — $9.2 billion.
  • During this period, Epic Games Store earned $235 million.
  • Unreal Engine‘s revenue was $221 million, and merchandising was $92 million.
  • Epic Games’ EBITDA for 2018-2019 reached $3.6 billion.
  • In 2019, most of the company’s indicators fell seriously and came out below the minimum forecast. For example, EBITDA for 2019 was twice lower than expected and 295% less compared to 2018.
  • Among the reasons for the drop: the lack of revenue from esports, M&A deals, increased operating costs, increased hosting costs due to increased MAU, bots and creative mode in games, as well as the cancellation of the December battle pass and winter pass in the company’s titles.
  • According to the forecast, in 2020, almost all the indicators of Epic Games were to continue to fall (except for EGS revenue). Whether it was justified is unknown.

Tags: