Mobile

An Epic expert witness claims that the Apple App Store makes big dollars as a monopoly

February 26, 2023
Mr. Dwayne Johnson

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An epic trial begins this Monday. Or should we say that the trial of Epic Games and Apple will begin this Monday. The latter threw Epic’s popular Fortnite game out of the App Store when it was found that the developer allowed users to make in-app payments through Epic’s own payment platform.

Epic Games says Apple’s App Store profit margins were 78% in 2019

Epic’s actions violated Apple’s rules that require developers who offer in-app purchases to get them to go through Apple’s in-app payment systems. But Epic, like Spotify and Netflix, wanted to avoid paying Apple a 30 percent cut in in-app fees. Some call Apple’s role here anti-competitive and monopolistic, and the Class Action suit accuses Apple of forcing app prices higher than they would be without its rules.

The Class Action suit claims that a 30 percent so-called Apple tax is forcing developers to charge higher prices for apps in the iOS app store. And since then Apple does not allow users to download apps from third-party app stores, iOS users have it worse than Android users, who can theoretically shop at a lower price.
When the Epic v. Apple bench investigation (a bench trial is one in which a judge does instead of a jury) is only two days away from the start, some of Epic’s expert opinions have leaked. According to Bloomberg, economist and financial researcher Ned Barnes says the App Store’s EBITDA margin was 78% in 2019. Barnes said he obtained documents “prepared by Apple’s business planning and analysis team and produced from files by Apple CEO Tim Cook.”

Despite Barnes ’remarks about obtaining numbers from Apple and Tim Cook’s files, the company disputes the accuracy of his calculations. Apple is also asking the court to impose a strict lock on the public discussion of App Store profits. Although an Apple employee told Barnes that the numbers he received from Apple didn’t show the whole story, he did the rest of the calculations himself to find out that the App Store had an EBITDA margin of 79.6% in 2018 and 2019.

Apple has its own expert witness that it intends to take a position to overturn Barnes. Richard Schmalensee, an economics expert at Massachusetts University of Technology (MIT), says Barnes ’estimate of the App Store’s EBITDA is unreliable because it looks at one segment of the iOS ecosystem separately in a way that artificially adds to the segment. “Schmalensee added that” all accounting measurements of the App Store’s separate profitability are also arbitrary and thus unreliable as any indicator. “

Again, Apple has asked the court not to allow Epic to mention the App Store’s financial information in the courtroom. Apple said it was concerned that doing so could “unnecessarily confuse the securities market and those in that market, including many pension funds, mutual funds and other ordinary investors who own Apple shares.”

Today, Apple issued a statement saying Epic’s “calculations for the App Store’s EBITDA are simply false and we look forward to having them overturned in court.” App Store margins – and thus App Store profits – are expected to continue to rise more from 2019 onwards. Sensor Tower says the App Store generated $ 22 billion in commissions for Apple last year, while Bernstein’s Toni Sacconaghi says the App Store’s gross profit margin is 88%.

Apple executives say the company does not look at the P / L numbers of individual units. Cook said in his preliminary investigation that “Apple’s business is not built so that a person can press a button and acquire the App Store” income statement. Apple chief Kyle Andeer said at a congressional hearing last month: “When we look at the App Store, it’s not a separate business for us. It’s an integrated feature on our devices.”

It’s weird to see that the better the expected performance of the App Store, the more anti-competitive the company is considered.

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