Apple, Epic, & Margins

No. There are only Federal income taxes and, depending where you live, additional state and city income taxes, sales taxes, excise taxes, payroll taxes, property taxes, estate taxes (i.e. death taxes) and gift taxes. And now for the most successful individuals some in government want a wealth tax which is a cut of everything that is left because they didn’t do a good job of writing the tax code in the first place.

The government is always looking for additional cash because they spend it like drunken teenagers with their father’s credit card. But it’s always been that way. Will Rogers, an actor and humorist in the 1930’s said: “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” :grinning:

1 Like

The opposite is true. Big companies are very conservative and more focused on controlling the market. Apple controls the market aggressively, puts dozens of millions into lobbying (Apple even opposed the Uyghur Forced Labor Prevention Act) and is not afraid to bully state governments.

Granted. But this particular case is effectively a matter of two big companies getting in a legal scuffle over who gets to control the market, isn’t it?

Well, we don’t know that. From what I can tell we have a reason to believe that they opposed at least some part of it as written. But we literally have no data about what they opposed, and it wouldn’t be the first time a bill for a good purpose had potentially-objectionable provisions.

The thing is, I think the products Apple puts into the tech ecosystem are generally a force for good - especially relative to many of their market alternatives. And the fact that Apple is capable of bullying governments can be good, not just bad. I’m thinking their general position on privacy, for instance - both legislative and software-wise.

Right. I’ve always found it fascinating when politicians argue “________ doesn’t pay their fair share”, as if it’s a quasi-criminal thing, when whatever person / entity in question pays every dollar required by the rules & regulations that are on the books. :slight_smile:


9to5Mac came out with some new details that shed some extra light on the fact that Epic Games is only thinking about themselves.

Was there ever any doubt? :slight_smile: My favorite part is this though:

The Epic CEO also acknowledged during his testimony that “30% is most the prevalent rate charged” by various app stores, including Sony, Microsoft, and Nintendo.

Dang Apple and its horrible rent-seeking. It’s completely unpreced…oh…wait…you mean everybody does it? :smiley:

1 Like

In the early days of this Sweeney seemed to be trying to at least pretend that’s not what Epic was doing.

There seem to be a couple of potential ways Apple could lose here. One would be a lower percentage cut of App Store revenue. Another would involve requiring Apple to allow other companies to run their own App Stores. And of course there are probably other things a judge could order that don’t fall neatly into either of those camps.

Which of those ways are you referring to when you say the loss would be good for consumers?

Yeah, I think this is the sort of thing that’s beginning to get into the Windows / Internet Explorer / Office sort of controversy from a couple decades ago. Basically the idea that vertically integrating stifles competition, and you shouldn’t be able to take a monopoly in one market and use it as a wedge into another market.

I think that something like Music should be compartmentalized such that there’s an API that other apps can use. Basically, make that business unit plug into the global API hooks that make the service available, and open it up (within reason) to other apps.

Obviously Apple could be first to market with their first-party app, and it’s possible that they would still be dominant in the space as third-parties might not be willing to comply with the stuff required to integrate properly - but locking Spotify out isn’t a good look.

In this whole domain I feel Spotify has a stronger case, as recently pointed by the EU. Spotify has to pay the App Store fee to Apple and Apple does not, which means, for music steaming services, Apple can charge less and therefore has a home advantage on its own platform that can be considered unfair.

The same cannot be said of Epic: Apple has a games services but it’s entirely different products and a different catalogue which may or may not appeal to the audience.

1 Like

The problem is, that there’s no universal definition of “income”, especially if looking at bigger companies. Which one should you use? EBIT? EBITDA? OIBDA? Each one is valid and it depends on what you want to compare/calculate.

There is too much attention on app stores these days and some things are almost certainly going to change. IMO, this policy may be the first domino to fall.

Right. If Apple were running Apple Music as a separate business and had to plug into APIs and play by the same payment rules (i.e. be profitable while sacrificing a 30% cut - even if the 30% just goes to a different business unit) it would be much more fair.

Yeah. At that point the devs could at least offer customers the option to buy directly via their website, and Apple’s claims that customers prefer the App Store payment system could be tested.

1 Like

Not really.
1: Neither IFRS nor US-GAAP have a standard definition of EBITDA. And most of the time you see an “adjusted EBITDA” (with obscure adjustments).
2. Working capital is not considered.
3. Comparing EBITDA’s without capital intensity…fail!
4. EBITDA might mislead on (long-term) debt services
5. EBITDA and cash flow requirements…problematic.
6. That’s why just looking at EBITDA might be problematic

EBITDA is just one metric and doesn’t give you all the information on financial health/success/etc.

If there’s one lesson we should have learned from the financial crisis and the dotcom bubble: don’t rely on EBITDA.

1 Like

Honestly, Netflix had a pretty clever way of getting around Apple’s tax.

Well, I happen to be more shocked that Epic Games didn’t consider following that route.

And completely apart from the merits of the trial, I don’t think there’s any real question that putting any additional steps between “I want to buy a whatzit in-game” and giving Epic money probably increases breakage. Making somebody go to a website and jump through extra hoops to get the in-game currency makes it more likely they’ll change their mind in the process, or just decide it’s too much work.

It would be colossally stupid for Epic to intentionally introduce more friction into that process.

1 Like

Unless I’m mistaken, they did exactly that. The virtual currency you could buy could be bought on their own platforms at a lower rate, or on iOS, taking into account the App Store fee. The Fortnite update that started this war included Epic’s payment system in the game, allowing the user to choose between the lower or the higher rate depending on your payment system. Which was a flagrant violation of the rules.

Nintendo famously does not sell hardware at a loss. The Nintendo E-Store is way, way, way, way worse than the App Store.

As far as I remember (but I might be mistaken in the current times), they do on the contrary, they were famous for that move with the NES. They make money on licensing costs and games royalties. Sell hardware at a loss, recoup money with game sales. The e-store is junk, but it has accounted for a minor share of their sales for the longest time.