The lawsuit between Epic Games and Apple is an opportunity to uncover some industry secrets. Today we learn that Microsoft has never made any money with its Xbox consoles. If the machines have always been sold at a loss, the Redmond firm however has other adjacent revenues.
The lawsuit between Epic Games and Apple is currently being held in California. All eyes in the industry are on this courtroom for two main reasons. The first is that the verdict could drastically change the economic system of online sales platforms. The second is that some crispy secrets are revealed. For example, we learned that Steve Jobs spoke of Facebook in derogatory terms and that Apple was not bringing iMessage to Android on purpose. Today, it is the Xbox that is talking about it.
Lori Wright, vice president of the gaming division at Microsoft, has been called to the bar by the lawyer for Epic Games. The goal was to show that the market for consoles is very different from that of mobiles, and therefore that the 30% margin on these platforms is justified on Xboxes, and not on iOS.
MICROSOFT IS SELLING ITS XBOXES AT A LOSS
The witness was questioned about Microsoft’s earnings. If the Redmond firm publishes its balance sheet every quarter, it is still a little vague on the details. Lori Wright clarified the situation by stating that her company was not making a dime from Xbox sales.
“_ How much margin does Microsoft touch on each console sold?
_ There are not any. We sell consoles at a loss “
A clear answer, which in reality does not surprise. Selling machines at a loss has always been a common practice in the video game industry, with profit being made from games at first (the console generating revenue later, when the components become less expensive).
Wright did not say how much money Microsoft was losing with each console sold. The Xbox brand does not earn anything with its machines, the income being generated with its subscriptions. As we recall, more than 20 million subscribers pay a minimum of 10 euros per month to have access to a game catalog via the GamePass.
MICROSOFT WILL NOT LOWER THE CONSOLE DEVELOPER TAX
xCloud, included in the Ultimate subscription, is already available on Android as an app. However, on iOS, it will have to go through the web. Wright indeed explained what we already knew, that is to say that Microsoft did not want to override the 30% tax imposed by Apple, but that it is a logistical reason that pushes it to use a solution via browser. Cupertino required that each game on the platform have a product sheet on the Appstore, which was impossible. Apple refused to give Microsoft the same pass as Netflix or Audible.
Lori Wright also returned to the margin imposed by Microsoft on developers. Not long ago, the company announced that it was lowering this margin from 30% (like on other consoles) to 12% on the Windows Store. A choice made to attract studios, and compete with different platforms on PC, namely the Epic Games Store and Steam. However, this will not be possible on the Xbox, which will leave the tax at 30% for revenue concerns. In fact, this shows for Epic’s lawyer that while the console world needs this 30% margin, this is not the case on PC and mobile.
The battle between Apple and Epic Games therefore reveals a lot of things. As a reminder, Epic criticizes Apple for its excessively high margins and its grip on games and applications on iOS. It all started in August 2020, when Epic decided to sell Fortnite goodies on its iOS game by bypassing this tax. Subsequently, the