30 for 30?
The curious case of the 30 percent cut…
There’s a lot going on in the battle between Apple and Epic. And while you could and probably should argue that it’s about more than the 30% cut Apple is taking from Fortnite, that’s undoubtedly one core element.¹ Those in the pro-Apple camp are quick to note that this is the standard cut in the gaming industry. As is Apple. And they’re not wrong. But that doesn’t make it right.
As Takashi Mochizuki for Bloomberg reminded us yesterday, the whole 30% cut has a sort of humorous/fascinating history in the gaming industry:
But what was the 30% supposed to pay for in the first place? It was the Nintendo Entertainment System that first introduced the platform fee in the early 1980s. It began when Namco Ltd., the creator of Pac-Man and a major provider of arcade games at the time, wanted to expand its distribution via Nintendo’s nascent console — called the Famicom when it was released in 1983 in Japan. Namco got together with another game maker, Hudson Soft Co. (creator of Bomberman), to persuade Nintendo Co. to open its platform to outside software makers, according to Hisakazu Hirabayashi, an independent industry consultant.
Both were eager to be on Nintendo’s popular console, but Hudson couldn’t make its own cartridges, according to Hirabayashi. And so Namco proposed paying Nintendo a 10% licensing fee to be able to be on the console while Hudson paid an additional 20% for Nintendo to make its game cartridges. Nintendo agreed — and that two-component fee, licensing and manufacturing, became the basis of today’s 30% “tax.”
The 10% Namco proposed to pay Nintendo to get on to their console sounds reasonable. But a full 20% of the 30% fee we all now live with stems from Hudson paying Nintendo to produce the physical game cartridges.
I don’t know about you, but it has been a looooong time since I’ve used a game cartridge. Maybe since the Nintendo 64? The world subsequently moved on to optical discs or memory cards, which are, of course, much cheaper to produce. More recently, the world has shifted to fully digital distribution. All iOS devices fall into the latter camp, obviously.
And yet Apple still charges the 30% fee to game developers. As do the other platform owners. It’s a standard because it’s a standard, even though every other standard for this business has changed.
Are there other costs associated with gaming infrastructure now? Sure. And soon streaming is going to be a big one, it would seem. But 20% big? Maybe! But the odds that the cut would be and should be the exact same as producing a physical cartridge to ship out to millions of customers seems… low.
The iPhone, of course, does a lot more than play games. And actually, the real history of the 30% cut from the App Store is seemingly more directly tied to iTunes. That is, Steve Jobs decided Apple should take such a cut of paid apps (this was an era before in-app purchases — but it became the standard there as well, of course) in order to “keep the lights on” in the App Store. And he likely chose that cut because it’s the same amount Apple got from the music labels when $0.99 tracks were sold in the iTunes Store. Back when such a thing was also still the norm. And became a standard.
With such arbitrary history in mind, you can see why developers are starting to push back against the 30%. The App Store has allowed businesses to be created that could never have been dreamed of when the iPhone launched. And game cartridges are more long gone than Hudson Soft itself. Yet the 30% remains.
If I were Epic, for my next troll, I would agree to pay the 30% but only if Apple mass-produces cartridges of Fortnite.
¹ The bigger issue, of course, is that Epic nor any other gaming company can use their own payment plans or infrastructure within the App Store. Which is to say that if their game is on iOS and they make money from it, they have to pay Apple 30% of that money. Again, I don’t think anyone is saying Apple doesn’t deserve a cut for the platform and services they offer, but in an ideal world they would get at least part of that bounty by competing with the best offerings (such as in-app payments versus Epic payments or whatnot).
