Ready for a scrap
Epic Games, the console game developer, is taking on both Apple and Google in the fight of its life
In May, a nine-minute video captured the attention of the computer games world. In it, a Lara Croft-esque heroine scales caves and cliff faces before entering a shadowy temple filled with terracotta soldiers and passes through a shimmering portal. So far, so standard video games fare. What was different was the game’s appearance. Light realistically bounced off the cave’s rock faces, and dozens of beetles dispersed when the adventurous protagonist entered the temple. It was not only more advanced than any video game to date, it seemed almost photo-realistic.
The video was not displaying a new game. Instead, it was designed to illustrate the capabilities of the “engine” used to create it. Game engines are the scaffolding of the industry: the set of software tools and physics models used to create the expansive 3D worlds that hundreds of millions of people dive into on evenings and weekends.
The jaw-dropping demo in May was the coming out party for the latest version of Epic Games’ Unreal Engine, one of the most widely used engines. But it is also key to a hostile dispute that involves two of the world’s biggest companies, one of the biggest video games and hundreds of millions of dollars.
Earlier this month, Epic, also the owner of the popular online game
Fortnite, sued Apple and Google. Fortnite had been booted off both companies’ smartphone app stores for circumventing the payment system and 30pc commission required by Apple and Google. This was a clear violation of the app stores’ rules, and Epic knew it. Its chief executive, Tim Sweeney, has criticised the “app tax” with mounting regularity.
Epic’s dual lawsuits claim that Apple and Google are monopoly gatekeepers that unfairly extract rent from consumers and app makers. Epic is not the first to grumble, but few developers have as much skin in the game as the company, which some analysts see as a potential tech giant as influential as the companies it is suing. Its battle with Apple and Google is the latest step in a grand plan that could define the future of not just games but the way we interact with technology.
Epic bears little resemblance to most other tech leviathans. Its North Carolina headquarters are distinct in both geography and culture to coastal Silicon Valley and Seattle. Sweeney, who founded the company in his parents’ basement in 1991, is worth an estimated $9bn (£7bn) and is the company’s controlling shareholder, but his largest extravagance is buying thousands of acres of forest for conservation efforts.
During the Nineties and 2000s, Epic was a mid-sized game developer. Its first hit, a shooting game called Unreal, led to the first generation of the engine of the same name, which was a moderate but not enormous success.
Gears of War, a title for Microsoft’s Xbox 360 released in 2006, then became its biggest earner. But it was not until the next decade that the company
started to take today’s shape.
In 2012, Epic received a major investment from China’s Tencent, which had helped pioneer a new
model of gaming in which players did not pay up front for a game,
but purchased upgrades as they played.
In 2017, this led to Fortnite. The bright, colourful shooting game enjoyed near-instant success thanks to its widespread distribution. The title is free to play, with gamers only paying for cosmetic upgrades such as clothing and dance moves, and it is available almost everywhere. While it was once rare for games to be released on more than one console, Fortnite is available on the three major units – Nintendo’s
Switch, Sony’s PlayStation and Microsoft’s Xbox – PCs and, crucially, tablets and phones. Earlier this year, Epic said Fortnite had 350m players. The company has not disclosed revenues from purchases of add-ons, but they are believed to be in the billions.
However, while a success in its own right, Fortnite has also upended the wider industry. When the game was released, players were unable to play with friends who had other consoles. In 2018, as it took off, Sweeney pressured Sony, Microsoft and others to allow gamers who were using different hardware to connect with one another.
This turned the game’s splintered tribes into part of one online universe, similar to a social network like Facebook. Groups of friends meet up
and could hang out in Fortnite after school as they once would in the park, a trend that has only been accelerated by coronavirus. Millions have turned up to watch virtual concerts from major artists. Some of the world’s other biggest games, including Minecraft and children’s title
Roblox, have followed suit in allowing play across multiple platforms.
The trend towards so-called “cross-platform” play has accelerated demand for Epic’s Unreal Engine, for which the company charges 5pc of other game makers’ revenues. As games have become more powerful and gamers demand to play them on several different consoles, the complexity of building virtual worlds has grown, making it more efficient to use another company’s engine than design one from scratch. Hundreds of titles have now been built on it, and the engine is increasingly used in TV production, architectural design and even by the US military for simulations.
The Unreal Engine positions Epic as an infrastructure layer for digital worlds. The future that some technologists envision, in which we are plugged into virtual reality headsets and transported into parallel realities, would probably be built on Epic’s technology. Even if that comes across as unrealistically dystopian, there is no doubt that digital worlds will become more important rather than less. Last year, Epic’s creative director, Donald Mustard, said Epic’s goal was a “metaverse … where all kinds of experiences can happen”.
Joseph Evans, of Enders Analysis, says: “The games industry is growing faster than any other media industry. A business [like Epic] that provides a lot of the plumbing and tools that games realtors use could be very sizeable.”
Investors back the vision. Earlier this month, Epic raised $1.8bn, valuing the company at $17.3bn.
There is just one problem. As Sweeney sees it, the keys to the metaverse are held by a handful of companies determined to charge for access. He has been a vocal critic of Facebook and Google, and mounted a campaign against Steam, the primary way PC gamers download titles.
Epic’s lawsuits against Apple and Google, however, take this to a new level. The companies’ 30pc fees earn them tens of billions of dollars, and pay for running their respective stores. Epic argues that they inhibit developers’ incentives to create, shrinking the entire digital industry (which Epic itself could take a slice of).
Sweeney has given no sign that Epic will back down, even after Apple blocked the company’s developer account, which threatens to restrict the Unreal Engine that dozens of other mobile developers use. Google and Apple are formidable foes but Epic has won such fights before. When it launched a rival to Steam’s PC games store that undercut its rates, Steam was forced to lower its own commission.
And unlike many developers unhappy with Apple’s fees, Epic can survive the battle. “Almost every app maker, content company and service is unhappy with Apple’s rates and policies but Epic is in a unique position, says Matthew Ball from the tech investor Epyllion Industries. He points out that
Fortnite is not reliant on smartphones for revenues, and it is already profitable. “Fortnite is for leisure, not critical productivity work and can thus go on pause and, unlike almost all other large companies, Epic is private and majority controlled by one person,” he says.
Fighting two legal battles against two of the world’s biggest companies might be harder than any video game but Sweeney has been preparing for years.