• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

Apple's Battle with Epic Games Shouldn't Do Major Financial Harm

It's possible that Apple eventually changes its App Store payment policies due to growing pressure from a number of parties. But only a small fraction of its revenue is at risk.
By ERIC JHONSA
Aug 19, 2020 | 08:00 AM EDT
Stocks quotes in this article: GOOGL, SPOT, AAPL

The PR storm that Epic Games' fight with Apple (AAPL) has ignited, together with Epic's lawsuit against Apple and ongoing antitrust scrutiny from both U.S. and E.U. regulators, just might make Apple revise its payment policies for iOS and iPadOS apps by the time the dust settles.

However, such a turn of events probably wouldn't cause major damage to Apple's bottom line. Indeed, it might only do moderate damage to its App Store revenue.

To recap: Epic filed an antitrust lawsuit -- clearly prepared in advance -- against Apple last Friday shortly after Apple pulled Fortnite from the App Store for adding a payments feature for in-game transactions that circumvented the App Store's payment-processing system (and with it, the App Store's 30% revenue cut on in-game transactions). Not long afterwards, Epic sued Alphabet/Google (GOOGL) for pulling Fortnite from the Play Store for similar reasons.

Since then, we've seen a slew of other moves that suggest both Apple and Epic are digging in for a long fight. Among them:

  1. Epic put out a 1984-themed commercial (echoing Apple's famous Super Bowl ad introducing the original Mac) that puts Apple in the role of Big Brother.
  2. Apple has told Epic that its developer accounts for Apple platforms will be terminated on Aug. 28 unless it pulls its Fortnite payments feature. This is something that stands to remove all Epic apps from the App Store and end Epic's access to Apple developer tools.
  3. Epic responded to Apple's threat by filing for a preliminary injunction to prevent its developer accounts from being terminated, while also claiming that their termination will lead third-party developers to lose access to the popular Unreal game engine on Apple platforms.
  4. Epic is reportedly talking with Spotify  (SPOT) and other developers upset about Apple's App Store policies about forming a united front.

One key difference between the Apple and Google fights: Google's actions only served to take Fortnite off the Play Store, while Apple's actions served to end their distribution on iOS and iPadOS devices altogether. Though Fortnite can be installed on Android by other means, its removal from the App Store makes it effectively impossible to install on iPhones and iPads.

As a result, unlike its Google lawsuit, Epic's lawsuit against Apple is about two pretty different things: Apple's insistence that all iPhone and iPad apps be distributed through the App Store, and its insistence that all digital content transactions taking place on those apps go through the App Store, with Apple receiving a substantial cut along the way.

While I think it would be foolhardy to predict exactly how a federal court will rule on these two policies, a lot of observers have argued that Epic faces an uphill fight in both instances. Ben Thompson, though critical of Apple's App Store policies in many respects, has pointed out that past Supreme Court rulings suggest Apple is under no obligation to deal with Epic under the terms that Epic seeks.

Also, Apple can point out that the iPhone only has about a 15% global smartphone unit share -- its share of smartphone app store revenue is admittedly a lot higher, thanks in part to favorable demographics, but is still well below monopoly levels. And with regards to its control of app distribution, Apple can argue that this control is in the interests of mainstream consumers, as it prevents buggy, insecure and/or privacy-unfriendly apps from being installed on its hardware.

But when it comes to its fight over App Store payment policies, Epic and like-minded developers could score some victories in the court of public opinion, including among (as The Verge's Nick Statt pointed out) younger gamers who have been loyal buyers of Apple hardware. And they're also likely to find sympathetic ears among some of the antitrust regulators scrutinizing both Apple and other tech giants.

The fact that Apple demands that certain types of transactions happening on iOS and iPadOS apps go through the App Store, but is fine with alternate payment methods being used for many other transactions (for example, e-commerce transactions, ride-sharing, ticket purchases and food delivery) will probably get a lot of attention as this fight plays out. So will the fact that -- unlike game console makers, which typically lose money on console sales and try to make it up via 30% cuts on game sales and transactions -- Apple already generates substantial profits on iPhone and iPad sales, profits that have helped make it the world's most valuable company.

Throw in the fact that many iPhone/iPad gamers would be less satisfied with their devices if popular games from Epic and other developers -- or for that matter, cloud gaming services currently not supported by Apple hardware -- remain unavailable on iPhones and iPads for an extended period of time -- and Apple arguably has strong incentives to reach some kind of compromise here. Perhaps one in which Apple maintains the App Store's control over iPhone/iPad app distribution, but lets alternate payment systems be used for digital content transactions.

And if such a compromise was reached, it would be far from a crippling blow for Apple. The App Store appears to have generated about $15 billion in revenue in 2019, a number that's equal to less than 6% of Apple's revenue for the year.

And even if Apple was to allow alternate payment options for content transactions, a lot of that App Store revenue probably wouldn't go anywhere. Paid download transactions would be unaffected, and many smaller developers would still probably use the App Store for in-app transactions, given that many users are still likely to prefer App Store-based payments for reasons of both trust and convenience.

All of this helps explain why Apple's stock has been largely unscathed by Epic's lawsuit. Though it's far from clear how a battle that simultaneously has legal, regulatory, PR and user experience angles to it will play out, even a worst-case scenario will probably do limited damage.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, was long GOOGL and AMZN.

TAGS: Investing | Technology

More from Technology

Gravity Is Pulling on Apple

Mark Sebastian
May 23, 2022 2:32 PM EDT

Here's where I see AAPL going and how to play it.

How Zoom Is Positioned Ahead of Earnings

Bruce Kamich
May 23, 2022 8:52 AM EDT

Bullish divergences may finally generate a bounce, Here's how to trade it.

How to Move on MongoDB

Bruce Kamich
May 20, 2022 2:19 PM EDT

Let's take a technical follow-up look at MDB -- and give a word of caution on this software name.

I'm Cautious on Marvell Technology Ahead of Earnings

Bruce Kamich
May 20, 2022 11:52 AM EDT

Let's review the charts and indicators.

If You're Looking for a Hero in This Market, Don't Look to Apple, ARKK

Ed Ponsi
May 20, 2022 10:30 AM EDT

Folks are asking if it's finally time to buy the ARK Innovation exchange-traded fund or Apple. Let's check the charts.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:24 PM EDT PAUL PRICE

    An Interesting Chart

    I'm betting heavily that stocks will be way up aga...
  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login