We commented last month that video game maker Epic’s legal victory against Google in its antitrust lawsuit was likely to have serious implications for the app store duopoly and for the mobile gaming industry. As both Apple and Google generally charge commissions of as much as 30% to app developers who have few other options, the legal decision was likely to spark a softening of app store rules, which had already come under fire from regulators and lawmakers around the world.
We didn’t have to wait long as Apple just announced a series of changes to its app store policy in the European Union. Starting in March, Apple will notably allow users to download apps from third-party app stores, use alternative payment systems and, importantly, reduce its commissions to 17% or even 10% for smaller app developers.
Even if Apple introduced a couple of new fees in its EU app store revamp (3% payment fee for apps that use Apple’s in-app purchase system, and a EUR0.50 fee per app install for apps installed more than 1 million times in a 12-month period), it’s likely that many developers will end up paying a 20% fee to Apple vs. 30% previously. This is a major cost saving that should contribute to significant margin expansion across the mobile gaming industry (Roblox, EA mobile, Take-Two’s Zynga…).
While the initial impact should not be significant (mid-single digit EPS upside at best) as the Apple policy changes are limited to the EU, the longer-term benefit should be much more material if we assume that Apple heads into the same direction in the US and other parts of the world and that Google follows suit. In that case, the EPS upside for mobile gaming businesses would probably reach 20% at least.