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Why economists think the ‘Fortnite’ creator is winning

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The fight between Epic Games and Apple, a public feud and lawsuit about App Store policies, is flush with symbolism. The conflict is mainly about cash, of course: Epic is protesting the 30 percent fee Apple takes on digital transactions made via its iOS platform, including those made within its incredibly popular game Fortnite.

For Edward Castronova, a Professor of Media at Indiana University Bloomington who specializes in virtual economies, for this fight to even be happening at all shows that there are major changes coming to the state of gaming as we know it — and that Epic has a serious shot at either winning the lawsuit that Apple is practicing monopolistic tendencies or at least the public debate will permanently affect the industry.

“I think it’s interesting we’re even putting those two companies together in the same sentence,” Castronova tells Inverse. “When I started studying video games, the idea that there could be a game company that would have significant market power over a company like Apple. No one would have believed it. Yet, here we are.”

Epic’s ongoing and unconventional protest has taken the form of a stylized video that debuted within Fortnite that parodies Apple’s iconic “1984” commercial, essentially weaponizing the player base against Apple. But Epic’s first move was to devalue Fortnite‘s in-game currency: In an August 13 blog post, Epic announced that the cost of V-Bucks, which is used to purchase cosmetic items, was being reduced by 20 percent. A thousand V-Bucks now cost $7.99, down from $9.99, with steeper discounts applied to bulk purchases.

Pointedly, the company showcased two options: an Apple payment option at $9.99, and a cheaper “Epic direct payment” option. “Choose Epic direct payment to get the best deal on V-Bucks and real-money purchases,” the company not-so-subtly explained. $2 doesn’t seem like much, but it’s enough that players will always make the obvious choice to pay less. And when you multiply that by millions of players, Epic’s stunt to skirt around App Store policies was enough to trigger a much bigger and more important conflict for gaming as an industry.

Fortnite has proven to be a real-world success, with no real need for the advertising that a smaller game would need in Apple’s App Store.Paul Butterfield/Getty Images Entertainment/Getty Images

Castronova, a Ph.D.-trained economist, has been studying video games for almost two decades, and he believes the mobile monopoly on gaming is overdue for the shakeup. His first book on the subject, Synthetic Worlds, was released in 2005 and examined the economies within games like EverQuest and World of WarCraft and how these experiences bled into reality. Since then, he’s written several books on gaming, including 2014’s Wildcat Currency: The Virtual Transformation of the Economy.

While other developers like Blizzard have also seen a great deal of financial success, Castronova says that Epic has a “scale of operations that makes Apple care about what they do.” Apple may have an estimated market cap of nearly $2 trillion, which dwarves Epic Games’ paltry $17 billion. And yet, $17 billion is more than enough to make Apple pay attention to what Epic does, even before they slashed the price of V-Bucks.

“It’s like that old saying,” Castronova says. “If you owe the bank $1,000, the bank owns you. If you owe the bank a million dollars, you own the bank. … I don’t think this is going to hurt their bottom line very much. Apple can’t do anything to them.”

Apple — a computer and phone giant from Cupertino, CA — has already done enough that one blogger wrote an article titled “Apple Is Going Thermonuclear on Epic Games.”

On August 13, shortly after Epic’s announcement about alternate payment strategies, Apple removed Fortnite from its vaunted App Store, making it impossible to download the battle royale game on any Apple devices. Google followed Apple’s lead shortly thereafter, putting one of the world’s most popular games in a possibly precarious position.

“That there are only two stores is the reason they can charge such exorbitant fees,” Castronova is quick to point out.

“It’d be like if everyone in America suddenly got 20 percent richer.”

But challenges like these don’t mean much to a gaming behemoth like Epic Games, Castronova says. Epic has its own Game Launcher that’s free to download, through which anyone with a Mac can download Fortnite for free. “When people want to play the game, they’ll figure out how to play it,” Castronova says. “It’s not that big a deal from the user’s perspective, to press an Epic button as opposed to an Apple button to get access to the game.”

It’s rare for free-to-play games like Fortnite to suddenly lower the prices on its in-app currency, considering such purchases are the lifeblood of apps like these. But Fortnite, which in 2019 made $1.8 billion on in-game sales, isn’t like most games. The only effect of these price reductions that Castronova sees playing out in-game is simply, “More.” More guns, more dance moves, more purchases, more money overall flowing through the system, and therefore more revenue and profits for Epic. The war against Apple, it seems, was just another intended consequence.

“It’d be like if everyone in America suddenly got 20 percent richer: more cars, more houses, more entertainment,” he says. This experiment Epic is trying out with V-Bucks, like the entire feud with Apple, is an experiment that only a company like Epic can afford to try out. What do they really gain from using the App Store?

The App Store doesn’t actually do anything for the Fortnite player, after all. The App Store’s main value comes in its prestige, the high standards Apple has set for its walled garden. Within that garden, a smaller game can stand out through great reviews, word of mouth, or the right placement on a curated list of recommendations.

Fortnite, which has around 350 million registered users worldwide, not to mention merch in Target, Walmart, and Amazon, has no real need for an advertising push in the App Store.

There are only a handful of other games out there with Fortnite’s power, but Castronova thinks that companies like Apple are going to run into Epic-like tensions more and more as gaming’s popularity grows.

“Game companies are bigger than anyone realizes,” he tells Inverse. “People should pay attention to the transition that’s been underway for more than a decade. The role of games in daily life and the economy is getting bigger and bigger, and it ain’t gonna stop.”

The war between Epic Games and Apple is only the beginning.

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