Epic Loses Hundreds Of Millions Per Year On EGS, But That's Likely Part Of The Plan

Epic, and the Epic Games Store, is going roughly half a billion dollars in the hole to compete with Steam. Eurogamer is reporting that documents filed in court last week indicate that Epic committed $444 million in minimum guarantees for games released on EGS in 2020 alone. In other words, that's the minimum it will pay out to developers it brought to the platform, regardless of whether their games sell there; Eurogamer cited the €9.49 million (about $11.3 million) handed out to Remedy Entertainment for Control.

Combine those guarantees with the 12% cut of revenue from games -- as opposed to 30% by its primary competitor, Steam -- and it's understandable why many developers would choose Epic over Valve. While Epic and Apple are sparring over the exact figures, Epic itself admits that it will lose a further $139 million in 2021. Apple predicts that EGS will remain unprofitable until at least 2027, while Epic counters with a claim of 2023.

How is Epic keeping afloat? As the documents state, through "funding and capital raised by other parts of its business, which have been 'incredibly profitable' for 'several years'" -- in other words, Fortnite. So it's likely that Epic can keep this trend going for a while, assuming that Fortnite stays strong, which is far from a guarantee in today's crowded battle royale market.

That's the "how," but the bigger question might be "why"?

A few weeks ago, I watched a video about Amazon and how it's still not profitable, and hasn't been for every year of its existence -- and that's an intentional strategy. That plan, it would seem, is to acquire a large enough portion of the market share by undercutting competitors until Amazon is effectively the only game in town.

That's probably Epic's long-term plan, too, and while it doesn't have quite the deep pockets that Amazon does, it should be able to sustain losses for a few more years before having to shift into "profit mode." It will need to have snagged enough of Steam's customers to do so -- no guarantee -- and if it does happen, what will happen to the free games and that generous 12/88 revenue share? Only Tim Sweeney knows that answers to that.