Apple does not develop Fortnite-scale video games or Xbox-scale game consoles. However, without much ado, its CEO Tim Cook turned the company into one of the world’s leading video game industry leaders.
Here and below the source: wsj.com
Apple’s key tool is the App Store, a platform where the company sells thousands of games, from Fortnite to Honor of Kings. At the same time, she receives a commission in the amount of 31% from each sale, and this explains a lot in the current competitive struggle of the tech giant. According to the Wall Street Journal, based on documents submitted in a recent antitrust litigation, Apple has received more revenue from the gaming industry in its 2017. than Microsoft (the Xbox maker), Sony (the PlayStation maker), Nintendo and Activision Blizzard combined – it was $ 8.5 billion, although the company said the official figure was too high.
Risk for Apple is that its role as an intermediary between the gaming industry and more than 1 billion iPhone users, and therefore commissions, may be at risk – from legislation, court orders or other regulations. In 2020 Epic Games filed a lawsuit against the company, accusing it of suppressing competition. Heeding this signal, regulators from Washington to Brussels are looking at ways to contain Apple, which some politicians believe is really hurting competitors.
More one threat to Apple’s profit mechanisms comes from China. The country has adopted new regulations aimed at reducing the time that young people spend playing video games. Three of the five most profitable mobile games on the App Store are developed in China, including Tencent’s Honor of Kings, which generated $ 2.5 billion in revenue.
According to Sensor Tower, in 2020 fiscal year users from all over the world spent $ . % of this money was spent in China, 26 % – in the USA. Apple’s commission was thus approximately $ billion, or about 5% of the company’s total sales, which reached $ 275 billion during this period. Half of this money was received from iPhone sales. Apple does not publish App Store revenues as a separate unit – the company includes this direction in the service category, and here sales volumes reached $ 53, 8 billion. This category includes music streaming, iCloud, Apple TV, advertising and extended warranty.
Apple’s high profit margins from the gaming industry are almost a coincidence. After releasing the iPhone in 2007 and seeing users hacking into their gadgets, the company launched the App Store to download third-party software controlled by Apple. At that time, it became clear that the app store could become a new gold mine. The service was released in 2008, at the time of launch it had 430 applications, many of which were games. As the mobile software economy grew, so did Apple’s profits. This became even more noticeable with the arrival of Tim Cook, who launched the fight against the stagnation of the iPhone.
The new iPhone became a symbol of support for gamers 12 Pro who received 120 – Hz screen – for gaming applications, it really is of value. At the same time, the target audience here is a relatively small group of users. According to court records, only 6% of game buyers in the App Store provided 120% of purchases in 2017 year. On average, they spent more than $ 750 per year. The most “generous” players (1% of the total number of gamers for Apple) generated 64% of sales and spent an average of $ 2694 per year. The biggest hit was Honor of Kings, which according to Sensor Tower was the most profitable game on the App Store over the past year. Other hits include augmented reality Pokémon Go and Candy Crush Saga.
In August 2020 Epic filed a lawsuit against Apple, accusing it of creating an illegal monopoly on software distribution for its mobile devices. and that the company is forcing developers to use its in-app shopping system. Apple vehemently denied the allegations, citing established practices and comparing Google and Microsoft. The company believes the commission is fair and in line with industry practice. District Judge Yvonne Gonzalez Rogers largely agreed with Apple’s argument.
But that doesn’t mean the company has escaped danger. The judge ordered the tech giant to allow developers to offer alternative payment methods with reduced fees inside their apps – bypassing the App Store. This increases the likelihood that Apple could lose this source of income. However, the case lifted the curtain on the company’s gaming business. Apple, which has always valued secrecy, is hiding the impact the gaming industry has on its business. The company said that the figures presented in the court were grossly overstated, and Mr. Cook assured that Apple does not conduct such an analysis at all. But the judge looked at Apple’s sealed documents and denied these claims. Epic’s claims are correct, she noted.
Mobile app sales may seem small compared to Apple’s total revenues, but given the court filings, it is almost net profit for Apple. According to analyst firm Sensor Tower, in the 2019 Apple’s App Store revenue was $ 13, 9 billion, and 69% of this amount was accounted for by games. By some estimates, this year’s App Store operating profit was $ 13, 3 billion or almost one in five dollars of the company’s total operating income.
Apple said last Friday that the estimates were incorrect and the figures are too high. Answering a question from a company representative during the court hearing, Tim Cook said that Apple had never tried to determine the profitability of the App Store as a separate unit, so he could not give estimates in this area. This practice dates back to the days of Steve Jobs, who sought to foster collaboration between the various divisions of the company. And the internal document with the above indicators was just “one-time presentation” . Nevertheless, according to Mr. Cook, the App Store is still a profitable division, even without accurate calculations. He also confirmed that most of the store’s revenue comes from games.
The judge ruled that Apple is not a monopoly, as the mobile games market is developing very quickly, and now cloud gaming is also emerging. Similar to Netflix’s subscription model, native gaming solutions are offered by Microsoft and NVIDIA, and they are available from the iPhone bypassing the App Store. But with Apple’s gaming economy, there is still no clarity. Epic will appeal the judge’s decision, and Apple, according to some reports, is going to appeal the ruling allowing developers to accept payment in alternative ways and.
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