One of the biggest video game companies in the world from Apple (but for how long?)
Apart from the years 2008 Texas holdem, Apple doesn’t have a single game title under its belt, and yet it turns out that it actually makes a lot more revenue from the game than all of the major console makers combined.
The secret is Apple’s App Store, and it’s not hard to see why Epic Games was so keen to go to war with Apple for its control of the iPhone app ecosystem. It’s a huge pie that everyone wants a slice of.
We already know that the App Store brings in a massive amount of money, but now a recent analysis of The Wall Street Journal (Apple News +) puts a bit of context around this, revealing how far Apple is pulling from the video game industry.
The WSJ analyzed the numbers from the recently concluded landmark trial between Epic Games and Apple, finding that in 2019, the iPhone maker was making more games on the App Store than all the money Nintendo, Microsoft, Activision Blizzard made and Sony.
Concretely, the operation profits Apple pulled only game titles from the App Store in 2019 alone amounted to $ 8.5 billion.
To be fair, these numbers come from figures leaked during the trial, using operating margins that Apple’s lawyers said flawed, and therefore higher than reality.
With little fanfare, chief executive Tim Cook has made the iPhone maker one of the largest video game companies in the world.
Tim Higgins, The Wall Street Journal
Trial judge, however, Yvonne Gonzalez Rogers, reviewed Apple’s sealed financial records, verifying Epic’s claims that Apple made more than 75% profits on the App Store – margins that ‘she described as “extraordinarily high”.
According to WSJ, Apple’s $ 8.5 billion mobile gaming profit on the App Store actually gave it a $ 2 billion lead on operating profit generated in the same 12-month period. by Sony, Activision, Nintendo and Microsoft, based on filings and analyst estimates for the other gaming giants.
Apple continues to describe these margins as “too high”, claiming that they leave out a large part of the operating costs of the App Store.
During the lawsuit, Apple CEO Tim Cook claimed that Apple had “never tried to determine the specific profitability of the App Store as a stand-alone business” because the former CEO and co -Apple founder Steve Jobs had discouraged this practice to promote cooperation, rather than competition, between different business units of the company.
Cook claimed that a 2018-2019 internal report presented as evidence describing the operating margins of the App Store was a “one-off”. The internal document was not made public, but was part of the information reviewed by Judge Rogers. The report, which had been sent directly to Cook, calculated the App Store’s operating margins at 74.9% and 77.8% for 2018 and 2019, respectively.
In other words, if these numbers are correct, about three-quarters of all the money Apple receives from its 15-30% reduction in App Store sales is pure profit.
For example, the WSJ report cites data from Sensor tower, an analytics company that regularly publishes sales and revenue reports for various online markets, including the Apple App Store. Sensor Tower estimated that Apple received $ 15.9 billion in overall App Store revenue in 2019, 69% of which came specifically from games.
Based on the margins of 75% of the deal, this means that Apple made $ 12.3 billion in overall profit on the App Store in 2019. This would affect all apps, games, in-app purchases and subscriptions sold. this year. The 69% share of that equates to about $ 8.5 billion.
Of course, over a billion Apple devices in the wild make it easy to explain why Apple’s revenues are so much higher than those of the big console companies, because there is a much larger audience.
For comparison, Sony has sold around 500 million PlayStation devices over the past 20 years, but only around 130 million PS4 / PS5 units. Microsoft’s Xbox sales are significantly lower, at around $ 60 million. Nintendo’s best-selling consoles and handheld gaming devices are arguably behind, with around 90 million Switch devices in the wild.
Globally, App Store customers spent around $ 45 billion on mobile games last year, with nearly 31 percent from China and 26 percent from the United States. is just a fraction of the $ 275 billion it made last year.
Notably, however, court records also show that 88% of all App Store gaming revenue in 2017 came from just 6% of App Store customers, but this is a group that is clearly willing to spend. :
- On average, App Store gamers in 2017 spent over $ 750 per year.
- The top 1% of Apple gamers accounted for 64% of App Store game revenue, spending an average of $ 2,694 per year.
The largest milking cows, the WSJ remarks, include Honor of kings, which was the highest-grossing game of last year, while Pokémon Go and Candy Crush Saga also continue to dominate the charts year after year.
Even though Apple repeatedly claims that it is not a monopoly due to its relatively small market share compared to other platforms like Android devices, it is clear that it has a dominant position in the gaming market. In fact, during the trial, Judge Rogers noted that Apple enjoyed a “considerable market share of over 55% and extraordinarily high profit margins,” but did not accept Epic’s argument. that Apple was a “monopoly”.
Part of it was just that Epic failed to prove his case. However, Judge Rogers also added that the mobile gaming market is changing so rapidly that it is impossible to assume that a single company will maintain a dominant position for long.
The rise of streaming game services is starting to change that landscape, bypassing the App Store, and of course there are still more legal battles to be fought, from Epic’s appeal in the Apple case to a new legislation starting to take shape in several jurisdictions. .