Gene Munster: Where Epic vs. Apple is headed

Apple will win this case, but there are several ways the App Store’s walled garden could give more ground before the appeals are done.

From “Apple Epic Trial Check-In” posted Wednesday to Loup Ventures subscribers:

A potential compromise As it stands today, Apple prohibits developers from informing app users that they can subscribe or make purchases outside the App Store to avoid Apple’s 30% cut, and thus pay lower prices. For example, a Fortnite user could buy V-Bucks (virtual currency) from their web browser or Xbox console and then use them while playing Fortnite on iOS.

Judge Rogers has raised the possible compromise that Apple undo this policy, which would allow developers to explicitly advertise within apps that consumers can subscribe and make purchases outside of the App Store. We believe this compromise would be a reasonable outcome of the trial.

Putting it together If Apple is victorious, the App Store status quo will carry on. That said, we believe the company will likely proactively moderate their take rates over time to remain in the good graces of government regulators. Apple has already halved its take rate to 15% for small developers earning less than $1m in annual App Store revenues, and we believe this decision foreshadows more favorable pricing for all developers down the road.

The bottom line is that regardless of how Judge Rogers rules, the trial’s resolution will provide near-term clarity and certainty for Apple and its investors, which is always a good thing. That said, one negative for Apple is that the trial is shedding more light on the company’s dominant position as it relates to iOS app distribution and payments. This will likely only increase congressional and regulatory scrutiny towards Apple.

My take: Apple will win on appeal and slow-roll the regulators as long as it takes.

25 Comments

  1. Gary Morton said:
    Every other similar store takes 30%. Would keeping with the accepted norm give Apple a stronger legal position than making modifications which some may interpret as an admission of guilt?

    9
    May 19, 2021
  2. Dave Ryder said:
    I wonder if it’s legally acceptable for Apple to require that a developer charge the same amount through the App Store or through their own store. That would allow the App Store to compete based on convenience. But, is this idea part of what got Apple in trouble for their eBook attempt?

    0
    May 19, 2021
    • Gregg Thurman said:
      There are two types of distribution agreements. There is wholesale, in which the distributor pays the manufacturers price and can sell at whatever price the distributor/retailer wishes, and then there is the agency agreement, inwhich the manufacturer establishes the retail price and sells to the retailer at a negotiated price.

      In either case there will be a best price clause in the agreement that stipulates that the manufacturer will not sell its product for less than the retailer is paying.

      The exception to the above is unit volume. When the retailer is buying at distributor volumes it gets discounts not available to smaller retailers buying through distribution. Even then smaller retailers can increase their discount rate with larger purchases.

      In the App Store Apple gives everyone a 15% commission rate on the retailers’ first million in gross revenue. Revenue above $1 million pays a 30% commission rate. Think of it as a progressive tax rate system. Effectively, because of the first tier 15% rate, nobody pays a full 30% commission.

      So concessions as suggested by Gene Munster go way beyond reason.

      Increasingly my respect for Munster is waning. He remains a big booster of Apple/AAPL, but his logic/reasoning is getting progressively weaker.

      4
      May 19, 2021
      • Jerry Doyle said:
        “…. Increasingly my respect for Munster is waning. He remains a big booster of Apple/AAPL, but his logic/reasoning is getting progressively weaker.”

        Thumbs up! I too, have noticed that personal trait trend.

        0
        May 19, 2021
  3. Robert Stack said:
    Re: “Judge Rogers has raised the possible compromise that Apple undo this policy, which would allow developers to explicitly advertise within apps that consumers can subscribe and make purchases outside of the App Store.” Er, ah…yes. Just like Target should be required to post in their store that you can buy this same doo-dad on Amazon for $2 cheaper. /s

    8
    May 19, 2021
  4. Fred Stein said:
    Epic, and their backers, are using the court to provide sound bites for the media, politicians, and regulators – most of whom have little understanding of law or the issues. (I’m no expert either).

    Re ‘the compromise’, Epic already said “not enough”. And their prior behavior says they want rent-free access to iOS (and Android).

    It’s clear, Epic, Sony, Tencent are game publishers, who see mobile as THE game platform of the future. They want to steal it, and resell to predators, data harvesters for 12%.

    Take away ‘rent free’ and their scam collapses.

    9
    May 19, 2021
  5. The cost v benefits equation for Epic’s case (or is this all a big advertisement?) hinges on the impossible. Mobile gamers are a frisky bunch, in my experience. They’ll never follow a link or instructions to leave game action to save a few pennies. Their avatar could be rubbed out in those seconds! Without the current Fortnite app many players already migrated to other platforms or games. Is GTA still huge? Some even matured into Robinhood or sports betting. They sat home many days last year…
    In my experience games are far more thrilling on a bigger screen anyway.

    5
    May 19, 2021
    • Fred Stein said:
      Thanks Thomas, for the insight about gamer behavior, mainly wanting to stay in the game in the moment.

      That explains why Epic, in court, said ‘no thanks’ to the compromise.

      2
      May 19, 2021
    • David Drinkwater said:
      @Thomas.

      I think this court action is something you imply and may also genuinely intend:

      Advertising.

      If they win, they make a l(very) little money.

      If they lose the say, “we the little guy fought the big guy for the little guys everywhere.

      To me, it’s a whole lotta small stuff.

      It’s not about the actual legal or business details. Those don’t really look good for Epic.

      0
      May 19, 2021
  6. Daniel Epstein said:
    So Philip! On your take you see Apple losing the Epic case this round and having to Appeal? Really? Are we in West Texas ? Please explain? Thanks

    0
    May 19, 2021
    • Apple wins with this judge. Epic appeals. Apple wins appeal. There’s talk that it goes to SCOTUS. Not a lawyer, but I have a hard time seeing it go that far.

      2
      May 19, 2021
      • Daniel Epstein said:
        Hey Philip Thanks for the reply. If Apple wins first round but then loses on Appeal by Epic and then Apple wins in third round what are you thinking Epic’s appeal would be won on? One of the reasons I referenced West Texas which seems to have verdicts which the defendant gets tossed out on Appeal. In this case Epic is the plaintiff, Apple is the defendant so that is a bit different unless you think the judge’s decision in this round would have some reasoning that would allow Epic to make its Appeal work. Some obvious ruling that was in Apple’s favor which is completely off base?

        0
        May 19, 2021
        • David Drinkwater said:
          @Daniel, I think you’re talking about East Texas, not West Texas, but who cares? It’s a sh!t case and a sh!tshow.

          Signed,
          Dallasite

          2
          May 19, 2021
      • David Emery said:
        If this goes to SCOTUS, I’d expect the Supremes to decline to hear the case (fail to grant Certiorari.) When that happens, the decision of the Appeals Court stands.

        2
        May 19, 2021
      • Philip, Appreciate your effort to educate Senator Rubio. Light on the subject helps, except when it’s one of the lousiest productions I can recall seeing. It ain’t running as a spot on any network besides Parler Tricks.

        0
        May 19, 2021
  7. Michael Goldfeder said:
    The root agenda in this entire case is Epic is trying to deflect attention away from their indefensible breach of contract violation by creating a smoke and mirrors antitrust violation that doesn’t exist. The written contract they entered into was intentionally breached by them as part of a PR move to get Congress to change the laws and say Apple iOS is a antitrust monopoly.

    They’re getting scorched each and everyday in court, and their claim that everyone with an iPhone is a hostage experiencing Stockholm Syndrome is a complete joke! That’s their entire antitrust claim to obviate a blatant breach of contract.

    The even bigger stretch beyond outright speculation is that developer’s are being prevented from reaching these iOS hostages to offer better pricing and Apps.

    Epic thinks of themselves as the Red Cross delivering relief, food, and freedom for all iOS gamers and everyone else being held hostage by Apple.

    5
    May 19, 2021
  8. Jonathan Haulenbeek said:
    What the market seems to be indicating is that Apple investors are not worried about this. Since the preliminary hearing on September 28, 2020, the stock made a new all-time high, has taken a licking on inflation fears, and is still about 7% higher than it was back then.

    3
    May 19, 2021
    • Spot on. Resilient based on performance. Antifragile based on management. As politically incorrect as it may be now, US investors bought stocks essentially based on management skill, starting in the 1920s through the 70s. Key CEO quits and investors sell…

      0
      May 19, 2021
  9. Dan Scropos said:
    How can Epic even continue this lawsuit, in light of these facts?

    Apple made $100M in commissions from Epic Games’ Fortnite in the two years before the tech giant kicked the blockbuster game out of the App Store for circumventing its “app tax.” The ban led to the current antitrust trial, which has put Apple’s 15-30% commission under the spotlight.
    The figure was revealed during the testimony of Michael Schmid, head of games business development for the App Store, during the ongoing antitrust trial.
    Schmid also testified that Apple spent about $1M to highlight and market Fortnite within the App Store over an 11 month period.
    The trial previously revealed that Epic earned $700M from Fortnite on iOS.

    4
    May 19, 2021
    • Fred Stein said:
      Hi Dan, I upvoted. You asked the perfect question; “how can Epic win in court?”

      See my earlier comment. The court is just their lobbying channel to legislators and regulators.

      1
      May 19, 2021
  10. Jerry Doyle said:
    “…. My take: Apple will win on appeal and slow-roll the regulators as long as it takes.”

    As they (Apple) should. What good going to court to prevail on the legal merits and then subsequently surrender needlessly part of that victory as if it were not deserving? That kind of thinking makes no sense to me.

    1
    May 19, 2021

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