Confirmed: Epic's big loss was a much bigger loss than they were letting on

Back in 2021, when I was posting about Epic's big gamble having turned into a big loss for them, I suspected that they could only keep the con running for so long.

Of course, even Epic Games can't sustain this kind of burn rate forever; eventually, they're going to have to make changes in order the stop the bleeding, and put in place some sort of plan to "return to profitability" (corporate code of mass layoffs). Given that their legal battle with Apple has only served to make the industry-standard 30% cut to the platform look more essential than ever, and that Epic has done almost nothing to earn back the trust and good will of the Steam community (which, at this point, includes basically all of the PC gaming community), and also given that efforts to repair their brand and rebuild their business can't even start until the Apple lawsuit, at least, is either dropped or settled, I'm starting to have serious doubts about Epic's long-term prospects. I beginning to wonder if Epic will be able to survive at all, in the medium-to-long term.

Well, it turns out that I was a fucking prophet. Epic are indeed burning through cash faster than even Fortnite can make it, and have now resorted to mass layoffs to cut their burn rate.

As reported in Yahoo! Finance:

Fortnite and Unreal Engine maker Epic Games has confirmed that it is laying off approximately 830 employees, representing roughly 16% of Epic's total workforce.

[...]

The memo sent to employees by Epic CEO Tim Sweeney was later posted on the Epic Games website.

"For a while now, we've been spending way more money than we earn, investing in the next evolution of Epic and growing Fortnite as a metaverse-inspired ecosystem for creators," Sweeney said. "I had long been optimistic that we could power through this transition without layoffs, but in retrospect I see that this was unrealistic.

"While Fortnite is starting to grow again, the growth is driven primarily by creator content with significant revenue sharing, and this is a lower margin business than we had when Fortnite Battle Royale took off and began funding our expansion. Success with the creator ecosystem is a great achievement, but it means a major structural change to our economics. [...] But we still ended up far short of financial sustainability. We concluded that layoffs are the only way, and that doing them now and on this scale will stabilize our finances."

I fucking called it. 

More Steam Deck hype

One of the few obvious weaknesses of Valve's Steam Deck was support for Easy Anti-Cheat titles. Epic, who make EAC, had already announced that Fortnite will not support SteamOS, apparently just to hurt Valve; Bungie, who make Destiny 2, have also refused to support the Steam Deck, although whether they're taking that stance to ingratiate themselves with Sony (who are in the process of acquiring them), or just to be dicks, is not known.

Thankfully, though, not every developer of an EAC-laden title is so short-sighted. As reported by Jason Evangelho at Forbes:

Bungie isn’t playing nice with Valve’s Steam Deck, but EA and Respawn Entertainment certainly are. Today’s absolutely thrilling news is that popular hero shooter Apex Legends has earned a “Steam Deck Verified” checkmark, meaning that the game legally and officially supports an implementation of Easy Anti-Cheat (EAC) on Linux. So whether you’re playing on Valve’s handheld or on desktop Linux, Apex Legends is ready for you.

[...]

That’s two massive games getting official Linux support in the last week, the other being Elden Ring, which currently runs more smoothly on Linux than on Windows thanks to Valve’s custom patches.

This is great news for Valve's newly-released handheld PC, because EAC really is the Achilles' heel of the thing. A quick look at ProtonDB's EAC page shows both the problem, and the progress that Valve is making here, but the more momentum that Valve can achieve by convincing developers of EAC titles to support Steam Deck, the better.  

In other news, overall progress "Deck Verifying" games is also brisk:

Two weeks after its official launch, Steam Deck has achieved another milestone with more than 1,200 games certified by Valve as “Playable,” with 10s of 1000s more waiting to be tested.

[...]

It’s remarkable how much progress Linux gaming has made in the past few years. Hopefully holdouts like Fortnight and Destiny 2 will see the light in the near future.

Man, Q2 2022 can't come soon enough...

Confirmed: Epic's big gamble is actually a loss

Or, as Kotaku put it, "Epic CEO Tim Sweeney Is Very Excited About The Epic Games Store Losing A Ton Of Money." This revelation apparently comes to us by way of Epic's own court filings in their ongoing war of legal attrition against Apple, which the eagle-eyed and awesomely-named Tyler Wilde spotted, and wrote about for PC Gamer.

Epic Games has spent the past two years shoveling Fortnite money into the Epic Games Store, making over 100 exclusivity deals and giving away free games every week. We knew Epic was spending a lot of cash to get customers onto its store, but didn't have many specifics until [...] we learned this week that Epic committed around $444 million to Epic Game Store exclusivity deals in 2020 alone.

[...] A "minimum guarantee" is just another way to refer to an advance: It means that Epic guarantees the publisher a certain amount of money whether or not their game actually sells enough to cover it. For example, Epic put down $10.45 million for Control.

[...] Some of those deals must be for exclusives releasing in the future, but according to Apple's learnings, Epic is going to eat "at least $330 million in unrecouped costs from minimum guarantees alone" if you also consider 2019's deals.

I'd posted about Epic's big gamble back in 2018, and have opined before about how Tim Sweeney's arrogant approach was likely doomed to fail; for more, check out "Metro:Exodus proves several of my points about Epic's new marketplace," "PR Communications 101: Sarcasm = Mockery," or "Why platforms aren't your friends" (although that last one was basically an excuse to embed Folding Ideas excellent video on essentially the same subject).

Suffice it to say that I am not at all surprised to learn that Epic are losing money on the EGS; given how much money they were spending to basically bribe both developers and consumers into adopting it, I would have been far more surprised to learn that they were turning a profit. Interestingly, Epic's exclusivity agreements appear to work exactly the way I always thought they did: like the royalty advances of book publishing and other, similar industries, but even I did not predict losses on this scale; apparently even Fortnite's huge haul isn't enough to keep pace. 

I'm also a little surprised that we're learning about these losses at all; I was expecting this information to remain well-buried for a long, long time. I suppose I shouldn't have been surprised, though, given the broad extent of Apple's document pulls from all and sundry in the matter of their legal battle with Epic Games; the California judge overseeing the proceedings described it as Apple having "salted the Earth with subpoenas" from a variety of industry players, including Valve Software. This likely means that Friday's bombshell is likely only the first of many; there are a lot of previously confidential, behind-the-scenes dealings which are about to become part of the public record. That's very exciting. Consumers could be on the verge of learning a lot about the workings of an industry that we previously could only guess at.

For now, though, we can only shake our heads in mock disbelief at the extent to which Epic's Game Store has flopped. Given that the service launched in 2018, and is still hemorrhaging money with no end in sight, I have doubts as to whether Epic can actually turn this around. The brand damage here may just be too deep, and the stench of flop sweat and failure is unlikely to attract new business partners eager to associate their valuable brands with Epic's radioactive one. 

Even worse for Epic: the Fortnite revenue which has been funding the EGS to this point is also down, from $1.8 billion in 2019 to less than $500 million in 2020:

[...] Epic said that players spent $700 million on the Epic Store in 2020, but third-party game sales only accounted for $265 million of that spending.

No wonder Sweeney has resorted to litigation! At this point, the EGS's only hope may be to find a sympathetic judge who'd be willing to "flip the board," disruptive the game of the entire video games business on their behalf. Given how much room to run Judge Hixon is affording to Apple, though, I would recommend that Sweeney not count too heavily on the tree of that particular lawsuit bearing the sort of lucrative fruit that the EGS needs in order to stave of death by starvation, especially since their entire legal argument is that the 30% cut is unnecessary. Apple can now counter that argument by simply pointing out that Epic's 12% cut is losing them money hand over first, and clearly not a sustainable business model. Look for that lawsuit to badly for Epic.

Will Epic's epic-scale Game Store losses cause the company to course-correct?

Probably not, alas. Sweeney is still Epic's majority shareholder, which means that he's basically able to do whatever he wants with the company. Epic's next-largest shareholder, Tencent Holdings, who own 40% of Epic, do have the sort of resources required to put pressure on Sweeney, but they can't simply vote him out as CEO, or off Epic's board of governors, which will limit their options... assuming they're even inclines to intervene here, which is far from certain. For all the suspicion that surrounds any Tencent acquisition, their management style has so far been pretty hands-off, at least with their interests outside of China.

Of course, even Epic Games can't sustain this kind of burn rate forever; eventually, they're going to have to make changes in order the stop the bleeding, and put in place some sort of plan to "return to profitability" (corporate code of mass layoffs). Given that their legal battle with Apple has only served to make the industry-standard 30% cut to the platform look more essential than ever, and that Epic has done almost nothing to earn back the trust and good will of the Steam community (which, at this point, includes basically all of the PC gaming community), and also given that efforts to repair their brand and rebuild their business can't even start until the Apple lawsuit, at least, is either dropped or settled, I'm starting to have serious doubts about Epic's long-term prospects. I beginning to wonder if Epic will be able to survive at all, in the medium-to-long term.

In the near term, however, while Epic still have a fat war chest and a loyal Fortnite fan base, I expect that the PC gaming industry news is going to be very, very interesting. Watch this space...

Epic v. Apple, round one: A split decision, sort of

I guess that it's time to talk about Epic's war-of-choice against Apple.

For those who haven't been paying attention, here's the Coles Notes version. Epic Games, developers of Fortnite, deliberately breached the terms of the agreements with Apple and Google which allowed them to have Fortnite on both the iOS App Store and Google Play. Apple and Google both acted in accordance with the rules of said agreements, and removed Fortnite from both the App Store and Google Play.

This is when Epic, who very clearly wanted exactly this outcome, launched a well-prepared PR campaign against, primarily, Apple. They clearly intended to mobilize Apple-using Fortnite fans against the Cupertino company, intending to litigate their dissatisfaction with Apple's Apple Store payment terms in the court of public opinion, even as they also filed a lawsuit against Apple seeking an injunction to force their own desired payment terms on them "temporarily," clearly hoping that having those payment terms in place for the years it would take to resolve the lawsuit would essentially make it impossible for Apple to ever go back, whether Epic actually prevailed in court or not.

Apple, naturally, are having none of this. They make billions of US dollars every single year from their 30% cut of App Store transactions, and every incentive to "go to the mattresses" in defense of one of their main sources of revenue. And, as it turned out, banning Fortnite from the App Store was only one way they could express their displeasure with Epic's antics: they revoked Epic's developer license, effectively banning their Unreal Engine, and all games based on that engine, from the App Store as well.

Epic, clearly panicked by this drastic and rapid escalation of a fight that they'd clearly thought would be waged entirely on Epic's terms, filed for another injunction, asking the court to block Apple from killing the Unreal Engine dead. And at the end of yesterday, a federal court judge ruled on both injunctions. The result? Basically, it's a draw. The reasoning behind that draw, however, is quite interesting.

VICTORY!!! After waging a very noisy, one-sided war against Google, Valve, and gamers, Epic Games has quietly surrendered

What a difference a year and a half can make.

And, yes, it has been only that long since Epic Games announced the very first EGS-exclusive title: Supergiant's Hades, an early-access game that announced at the Game Awards in December of 2018, and released the same night. That was only a few months after Epic declared that Fortnite: Battle Royale for Android would be side-loadable only from their own digital distribution channel, rather than just making the game available on Google Play like every other developer with an Android app to flog.

Tim Sweeney's Epic Games would go on from there to declare themselves to be so deeply opposed, on principle, to everything about Valve Software's Steam service that they just had to launch a competing service... which offered absolutely nothing to consumers that Steam didn't, and was actually missing a whole bunch of stuff that Steam users were used to. No worries, though, because Tim Sweeney had a plan: to embrace exactly the same platform exclusivity deals that he'd once called evil, back when Microsoft and Sony were profiting from them, and not him.

The message from Epic to gamers was crystal clear: fuck you, pay me. And gamers got the message; they heard Epic loud and clear... and, en masse, gamers refused to pay.

This is how it's done Darq's developer shows the right way to handle Epic's brand toxicity

In my last post, I laid out a seven-point strategy for how to announce your Epic exclusivity deal. That post ran long (and, really, which of my posts don't?) but if there's a single big point that I wanted people in the video game industry, and in the media that cover the industry, to take away, it is this:

When dealing with a subject that you know to be sensitive, be sensitive to the people who are going to hear your message.

Learn to read the room. Comedy is hard; making jokes about subjects which you know other people not only take seriously, but are likely to get angry about, is a high-wire act best left to professionals. Don't open discussions with sarcasm when you want to elevate the overall level of the discourse. Just be straight with people, and be transparent with people, and those people will reward your straightforward honesty with respect.

And now, right on schedule, we have a case study in how to handle the touchy subject of Epic exclusivity the right way. We have Darq.

PR Communications 101: Sarcasm = Mockeryor, Glumberland and Ooblets: A case study in how not to do any of this

Anybody who's been watching the F5 internet shitstorm that is Ooblets ill-considered EGS exclusivity announcement should be familiar with the framing that's been emerging in the last day and a half or so, one which paints the Ooblets developers as essentially blameless victims who are receiving an utterly undeserved tidal wave of inchoate rage and hate from "entitled" gamers whose fragile egos simply can't withstand a simple joke.

However, much as I hate to engage in anything that even resembles victim-blaming, I feel compelled to point out the flaw in this framing of the story: Ooblets' developers are not blameless victims here. Whether knowingly or not, Glumberland picked this fight.

No, they should not be receiving death threats. The people who are forging Discord chat logs and faking videos of Discord chat sessions that never happened, deliberately and for no other reason than to discredit the husband and wife duo that basically are Glumberland, have indeed gone beyond the pale. The level of vitriol on display is wildly disproportionate to both the Glumberlanders' initial offense, and to the Epic Game Store in general. But make no mistake: what Cordingley and Wasser initially did really was offensive, and it's very hard to believe that they weren't aware of that.

RIP, UWP We hardly knew ye, and never cared.

Way back in 2017, I wrote a post that I titled, "UWP is a failure, and Microsoft knows it."

Nearly two years after releasing Windows 10 and UWP into the world with dreams of marketplace dominance dancing in their heads, Microsoft themselves are only now bringing their 2nd-biggest software product [i.e. Office] to their own store. And it isn't a native UWP version of the program, either; it's a port, brought over via the Project Centennial Desktop App Bridge (henceforth referred to as PCDAB).

That's right: Windows 10 and UWP have flopped so hard that Microsoft themselves can't be bothered to develop natively for the platform.

If Microsoft can't be bothered to develop natively for UWP, then nobody else is going to, either, ever, and that means that UWP is effectively dead on arrival. The only programs that Microsoft will see on its storefront from here on out will be PCDAB ports, none of which will perform as well as Win32 executable versions of those same programs, and even that assumes that developers bother to do that much; with the Windows 10 store being such a shit-show, and the added costs involved in maintaining a 2nd version of their software, all in service of lining Microsoft's pockets, I suspect that most developers simply won't bother to port their programs over in the first place.

Worse yet, a dearth of quality UWP apps means that Windows 10 users are spending this crucial time in the platform's life-cycle locking software-buying habits that exclude the Windows store almost entirely. That's not reversible; if even Windows 10 users are thoroughly trained to buy their software elsewhere, then developers have even less reason to develop for UWP, and that is self-reinforcing. It's a vicious cycle, with the lack of adopters resulting in a lack of apps, which ensures not only a slower rate of adoption, but also ensures that new adopters of Windows 10 don't adopt the storefront along with the OS, resulting in ever fewer apps...

At this point, Microsoft would probably love to be faced with a simple chicken-and-egg problem, rather than this rapidly increasing inertia [...] It seems to be that only one question remains: is this vicious cycle now so well-established that Microsoft is simply unable turn it around?

That was then; this is now. And here in the now, we have the answer to this 100% rhetorical question, as reported by The Verge:

Microsoft had a dream with Windows 8 that involved universal Windows apps that would span across phones, tablets, PCs, and even Xbox consoles. The plan was that app developers could write a single app for all of these devices, and it would magically span across them all. This dream really started to fall apart after Windows Phone failed, but it’s well and truly over now.

Microsoft has spent years pushing developers to create special apps for the company’s Universal Windows Platform (UWP), and today, it’s putting the final nail in the UWP coffin. Microsoft is finally allowing game developers to bring full native Win32 games to the Microsoft Store, meaning the many games that developers publish on popular stores like Steam don’t have to be rebuilt for UWP.

“We recognize that Win32 is the app format that game developers love to use and gamers love to play, so we are excited to share that we will be enabling full support for native Win32 games to the Microsoft Store on Windows,” explains Microsoft’s gaming chief Phil Spencer. “This will unlock more options for developers and gamers alike, allowing for the customization and control they’ve come to expect from the open Windows gaming ecosystem.”

That's right; UWP is definitely dead, and I fucking called it, two years ago.

Who's the man? I am.

Why platforms aren't your friends

I tripped over this video on YouTube, and couldn't help but think of the recent Epic/Valve drama. The video, by Dan Olson a.k.a. Folding Ideas, was all about aspiring YouTube competitor VidMe, but made some pretty salient points about how a young, growing platform needs small content creators in order to add content and value to their platform, but that the interests of those small content creators diverge from the interests of the platform owners as the platform's popularity grows.



I couldn't help but think of Epic Games' pitch to indie developers, with revolves entirely around giving them a bigger cut of revenue, but proposes nothing by way of structural codification of those developers' actual needs vis-à-vis better long-term discoverability and promotion of their games. Epic Games are doing for video games exactly what VidMe was attempting in the online video hosting space: it's effectively providing a clone of Steam with no additional functional or structural improvements beyond, effectively, a tip jar.

The fact that Epic are already struggling with customer service, refunds, and other basic functions that any online competitor to a well-established digital storefront is expected to have in place at launch is...a bad sign, frankly. To paraphrase Olson's video, the most charitable reading is that Epic are unprepared, which is already not a good look.

Less charitably, it makes Epic look like grifters, deliberately exploiting vulnerable indie developers to grow their own market presence, all the while knowing full well that the promises of better discoverability and long-term partnership are hollow, since Epic's storefront isn't going to be any more beholden to any single indie developer than Valve's is, or Nintendo's.

Metro:Exodus proves several of my points about Epic's new marketplace

When I posted at length about Epic Games' new storefront, and why it was a much bigger gamble than a lot of people were assuming when it was announced,  fair chunk of that post was about two big points:

1. Steam has a very loyal customer base, who will not be happy if strong-armed into buying into any other ecosystem. Nobody uses Microsoft's storefront, either, remember.
2. Individual indie games, no matter how good, are simply not big enough to act as system-sellers. Yes, having indie games on their platforms did wonders for Steam (and later for the PS4 and eventually Nintendo Switch; even Microsoft's XBox division belated came around to the need for them) but no one indie title or indie developer was responsible for that, and none of them are individually essential to any platform's success.

The sole possible exception to point #2 would, of course, be Fortnite... which launched on Steam, and arguably owes its success to Steam's existence. It's also the only reason that Epic Games have a hundred million or so customers with Epic accounts, customers who don't want anything from Epic except more Fortnite.

The fact that Fortnite players are likely not looking to Epic to satisfy their hunger for varied, non-Fortnite gaming experiences, something which Fortnite can't offer many of anyway, was a clear weakness that Epic needed to address, so it's no surprise that they were actively trying to lure other developers to their storefront, up to and including "poaching" them away from Steam after they'd already announced planned Steam launches. None of those early indie exclusives had moved over to Epic after already selling their product on Steam, but it really was the obvious next move.

It should be no surprise that Epic found some greedy indie dev willing to screw over their Steam customers in an ill-advised "hardball" power play, but I will admit to being slightly surprised that the makers of Metro:Exodus volunteered to be exactly this kind of test case so soon. The problem? Up until five minutes ago, the game was being advertised as a Steam launch, and has been available for pre-order on Steam.

Oh, and the move to Epic came with a $10 price drop, which wasn't immediately offered to customers who'd already bought the game on Steam.

And then there's the fact that the makers of Metro:Exodus are still advertising the game and its DLC on Steam, even though neither the game nor its DLC can be installed from Steam.

Screwed-over Steam consumers are, naturally enough, pissed, and threatening to boycott the game's launch entirely... which, in a world where The Pirate Bay exists, means that they're planning to play the game anyway, but just not pay for it, because fuck Epic and fuck the makers of Metro:Exodus for this egregiously anti-consumer bit of bullshit. All of which has the makers of Metro:Exodus threatening to boycott PC gaming entirely in the future... because that's going to help, isn't it?

Epic Games' big gamble

Having mentioned Epic Games' storefront in passing in my last post, I suppose it would behoove me to elaborate a bit on my thoughts on the issue. Because I'm firmly of the opinion that Epic Games will not become any more a competitor to Steam than any of the other already-existing online storefronts: Origin, Uplay, GOG, Itch.io, etc., for several reasons.

It just. Won't. Die!

Do you remember the Universal Windows Platform? The new paradigm for Windows software distribution, which Microsoft has been pushing since Windows 8, when it was called Metro, and which Windows users have been resoundingly rejecting ever since?

Metro, and Windows 8 with it, was so unpopular that Microsoft was forced to allow OEMs to install Windows 7 instead on machines whose purchasers were paying for Windows 8 licenses. Valve's Gabe Newell saw Microsoft's attempt to seize control over software distribution as so profoundly anti-competitive, and anti-consumer, that it birthed the Steam Machine initiative, whose SteamOS has since given rise to Steam Play/Proton, which is well on its way to making Windows irrelevant for gaming. And UWP-exclusive titles are virtually non-existent, since they can only be installed via Microsoft's storefront of desolation, while basically the entire PC gaming industry distributes their games through Steam.

That is the legacy of UWP for Microsoft: repeated failures, alienated consumers, and a well-deserved reputation for monopolistic bullshit. Well, apparently Microsoft still see UWP as their key to global domination, because it's baaaack!!!