Epic Games is known for a lot of things in the gaming industry. As a developer, it has quite the catalog on PC, beginning with ZZT on MS-DOS in 1991 and introducing the world to Fortnite in 2017, among other things. Tim Sweeney’s company also makes the Unreal Engine and runs the Epic Game Store, which has gained a name for itself as the source of hundreds of free games, including fourteen in December 2021.
While ostensibly trying to get a hold on the PC gaming market that’s currently dominated by Steam, despite the interference of EA, Ubisoft, Microsoft, and GOG (CD Projekt), it wouldn’t be unfair to Epic to state that its behavior is a little erratic. After all, all those free games come at an enormous cost, and Epic has reportedly lost US$454m solely through its storefront in just two years. Worse, those losses seem to be deliberate, forecast well in advance. Epic Games expects 2021 to incur another US$139m in costs.
This kind of wanton expenditure seems obscene, perhaps even unheard of in the gaming industry, with Forbes describing Epic’s losses as “astonishing”. Surely, though, there has to be some method in the madness, as such a business model is unsustainable – or it would be if it wasn’t for the billions of dollars generated annually by Fortnite. That figure has fluctuated wildly since 2018, though, to the tune of almost US$2bn between 2018 and 2019.
Minimum Guarantees
So, what’s going on? Epic’s trove of gratis games is the easiest part of its business strategy to understand. Free gifts get people on board. It’s possible to see this type of generosity in all aspects of entertainment but especially so in online media. In the fantasy sports niche, where competition can be heavy, the operator DraftKings markets its new casino using bonuses and similar perks. The current DraftKings promo codes include a $100 refer-a-friend scheme as well as a welcome package. We can also see the power of freebies taking the form of free subscriptions for a month or sign-up perks.
However, Epic’s strategy is the epitome of throwing money at something until it works. The company expects its store to become profitable by 2023 but it’s hard to see how this goal is achievable. Information gleaned from its antitrust court battle with Apple revealed that all but two of the games Epic bought the exclusive rights to sell on the Epic Store made a loss.
What does that mean? Even if it serves as the only place to buy The Outer Worlds, The Division 2, and Metro: Exodus (which it did), the Epic Store simply isn’t popular enough yet to turn a profit. Epic promised Metro developers 4A games a minimum sales guarantee of US$37m. It made US$14.8m. One of the two success stories, Satisfactory, made Epic a sum of $600,000 after its minimum payout to the creators.
Making matters weirder is the fact that Epic recently bought the rights to host the Antstream Arcade and itch.io gaming platforms, which likely represents another huge outflow of cash. It’s not easy to see what Epic’s endgame is anymore but it certainly won’t be achieved by buying things that don’t turn a profit.