Gaming Profits Flow to Apple (AAPL), at Least for Now – Investopedia
Apple Inc. (AAPL) is a technology company best known for innovative phones, computers, software, services, and more. Apple makes no video games, yet it raked in more profit from gaming in 2019 than game makers Nintendo Co., Ltd. (NTDOY), Microsoft Corporation (MSFT), Sony Group Corporation (SONY), and Activision Blizzard, Inc. (ATVI) combined.
That’s according to the Wall Street Journal, which analyzed financial figures released as part of Apple’s antitrust trial with Fortnite maker Epic Games Inc. The analysis of the trial documents indicated that Apple had $8.5 billion in operating profit from gaming in 2019, more than the four other companies put together.
During the trial, Apple said that the operating margins discussed in court were flawed because they included all the revenue but only some of the costs. Thus, they were bloated. However, according to the Journal, U.S. District Judge Yvonne Gonzalez Rogers said Epic’s claims that Apple generated operating margins of more than 75% from the App Store are correct. The judge went so far as to characterize the profits as “extraordinarily high.”
Whatever the operating margins actually are, the fact that Apple takes up to 30% of sales from its App Store is not disputed. This digital marketplace is where Apple generates all its gaming revenue. Every game for every Apple device is sold exclusively through the App Store. That means Apple receives a 30% cut on games from each of the more than 1.65 billion active Apple devices, including 1 billion iPhones that CEO Time Cook said are being used around the world.
However, the App Store revenue stream could be under threat because of Judge Gonzalez Rogers' decision in the Epic Games antitrust suit. While the legal process is still playing out, Apple may have to open apps up to alternative payment methods that exist outside its App Store. That means customers could be taken to online spaces outside Apple's "walled garden" to pay for subscription services, which would obviously hurt its App Store revenue.
Still, with an appeal currently underway (and perhaps more legal proceedings in the future), the availability of alternative payment methods for apps on Apple devices could be years away. In the meantime, the company retaliated by banning Epic Games’ products from the App Store.
So, the future of mobile gaming payments is uncertain. But as it stands now, Apple’s position has made it a giant in the gaming industry, which is growing at a healthy clip. Per the Journal: “Industry global revenue from videogames is expected to almost double to $198 billion in 2024 compared with 2016, according to estimates by technology consulting firm Activate Inc. The biggest chunk of that growth is from mobile games, which Activate predicts will generate $103 billion in 2024."
With so many powerful forces potentially at work—like the legal system, technological innovation, and more—Apple and the gaming industry could be about to experience change. In the current environment, Apple has been profitable with video games. Whether that continues in a changed gaming industry remains to be seen.
Disclosure: The author holds no position in Apple at the time of publication.
Wall Street Journal. "Apple Doesn’t Make Videogames. But It’s the Hottest Player in Gaming."
Reuters. "Apple Sees Revenue Growth Accelerating After Setting Record for iPhone Sales, China Strength."
Bloomberg. "Epic Files Appeal After Loss to Apple in App Store Case."
Ars Technica. "Apple Turns Post-Lawsuit Tables on Epic, Will Block Fortnite on iOS."
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