Hey Apple! Do Me A Favor. Don’t Do Me Any Favors.
Bits of Signum | 1.25.24
Apple has offered game developers in the European Union alternative options to their 30% tax. At first glance, we were excited to read about Apple’s new “compliance” with the Digital Markets Act (DCA). We saw the news and wondered, did Tim Sweeney win a major battle against Apple, pressuring them to reduce their 30% commission to 17%?! Alas, no. See math below, using Apple’s own calculator, to demonstrate a game developers’ new option to pay 2x relative to the status quo of Apple’s existing terms.
In addition to a lower commission (10% for App Store Small Business Program developers, 17% for everyone else), Apple will also charge a per install fee, similar to Unity’s runtime program. Developers were furious with the Unity news, and many signs point to the idea that the company has not recovered. When game developers understand this disingenuous move by Apple, we wonder if they will feel equally as angry? Granted, they don’t have much power to retaliate as they had with Unity. Did Apple just illuminate the idea that Epic Games’ Tim Sweeney is the only giant in the space who is fighting for, and defending, game developers’ livelihoods? This appears to be a very risky move on Apple’s part. Even if developers are stuck with the Apple tax, as Rick Vanmeter, the Executive Director of the Coalition for App Fairness stated in response, “This plan does not achieve the DMA’s goal to increase competition and fairness in the digital market. It is not fair, reasonable, nor non-discriminatory.”
Our Assumptions:
Game Developer X generates revenues of $10m
10m game downloads
In example below, assume 3rd party marketplace commission is paid to Epic Games Store - 12% including payment processing*
*Epic adds a payment processing fee to the high-overhead international payment methods and a few non-primary payment methods
Assumptions (Annual):
Game Developer Revenues - $10m
Game Downloads - 10m
3rd Party Marketplace commission (Epic Games Store) - 12% (including payment processing*)
*Epic adds a payment processing fee to the high-overhead international payment methods and a few non-primary payment methods
Option 1 - The Status Quo - Apple’s Existing Terms
Distribution - Apple App Store
Payment Processing - Apple App Store
In this scenario, the developer keeps 70% of their revenue.
Total Payout Breakdown of $10m revenues:
Paid to Apple = $3m (or $250k/month as illustrated below); 30% of revenues
Distribution + Payment Processing = $3m
Core Tech Fees (NEW) = $0
Paid to Developer = $7m, or 70% of revenues
Illustration below:
Option 2 - New Alternative Offered by Apple - Pay a lower commission (10% or 17%), but pay an additional install fee, similar to Unity’s runtime fee.
See example below. At first glance, it appears that game developers are offered optionality.
Apple will charge a reduced commission of 10% or 17%; 10% for App Store Small Business Program, and 17% for everyone else. The below assumes distribution through the Apple App Store, i.e., no commission is paid to a 3rd party marketplace
Apple will charge a 3% payment processing fee if using Apple’s service; 0% processing fee will be charged if using a third party payment processor
In addition to the reduced commission, Apple will also charge an install fee of €0.50/install for total installs above one million in the last 12 months (applicable to all marketplaces - Apple or 3rd Party)
Option 2a - Apple-Only Scenario
Under the new business terms lets see how much the developer earns using the same assumptions from Option 1 above:
Distribution - Apple App Store
Payment Processing - Apple App Store
In this scenario, the developer would only keep 31.1% of their revenues, compared to 70% of their revenues under the original Apple terms.
Total Payout Breakdown of $10m revenues:
Paid to Apple = $6.89m (or $574k/month as illustrated below); 68.9% of revenues
Distribution = $1.7m; 17%
Payment Processing = $3m; 3%
Core Tech Fees (NEW) = $4.89m; 48.9%
Paid to Developer = $3.11m; 31.1% of revenues
Illustration below:
Option 2b - 3rd Party (e.g. Epic Store) Only Scenario
Under the new business terms, lets see how much the developer earns using the same assumptions from Option 1 above with a change to 3rd party service providers:
Distribution - Epic Game Store
Payment Processing - Epic Game Store
In this scenario, the developer would only keep 39.1% of their revenues, versus 70% of their revenues under the original Apple terms.
Total Payout Breakdown of $10m revenues:
To Apple = $4.89m (or $408k/month as illustrated below); 48.9% of revenues
Distribution = $0
Payment Processing = $0
Core Tech Fees (NEW) = $4.89m; 48.9%
To Epic Game Store = $1.2m (or $100k/month as illustrated below); 12% of revenues
To Developer = $3.91m; 39.1% of revenues
Illustration below:
Rick Vanmeter, the Executive Director for App Fairness stated in response, “This plan does not achieve the DMA’s goal to increase competition and fairness in the digital market. It is not fair, reasonable, nor non-discriminatory.”
