Epic Games to challenge Apple in court over App Store practices

Yahoo Finance’s Brian Sozzi, Myles Udland, Julie Hyman, and Dan Howley discuss what to expect from Epic Games’ lawsuit against Apple.

Video Transcript

- Hi. Welcome you back to Yahoo Finance Live on this Monday morning. I see all three majors are higher as we get the week of trading underway. The Dow is leading the way up about 7/10 of 1%. And one prominent Dow member, Apple, today heads to trial with Epic Games, the maker of Fortnite. And the issue here is not really about anything that Fortnite does specifically. The issue is about Apple's AppStore.

Yahoo Financer Dan Howley joins us now to discuss what to expect out of this trial, and I guess, how I would ask it? Is this the big one when it comes to Apple's AppStore practices? Or does this seem to you like merely the beginning of what are likely to be a series of legal challenges related to how Apple runs pricing there?

DAN HOWLEY: Yeah, it seems like this is the first big step for Apple to be challenged on its AppStore kind of policies. This is really Epic Games charging Apple and saying, look, you guys charge this 30% fee. You force us to pay it by not allowing us to use our own kind of payment system in our own app despite it being downloaded from the AppStore. So they are essentially saying that Apple is using the AppStore and its huge reach to push forward these kind of anti-competitive measures.

And so, Apple though, counters that and says, look, just because you guys are able to use the AppStore doesn't mean you can use it for free. We built this, we allowed the third party apps to be a part of the AppStore, and we provide resources that allow for your apps to work well across our various devices. So, that's why we need that 30% fee.

Now, Apple has gone back and forth with the kind of fees that it does charge. Recently, they said that any company that makes less than a million a year in revenue doesn't pay 30%. They pay 15% until they eclipse that $1 million in revenue. And then they also only charge 15% after the first year for subscription services. So, I think if you purchased a Netflix or something through Apple's AppStore, they would pay 30% to Apple for that revenue and then 15% for every year after that.

But I think, obviously, the big thing here is what the outcome is and what it means for Apple going forward. And look, there's other companies that do charge similar fees. We're looking at the likes of Microsoft for the Xbox game store, Sony for its own game store. Excuse me, Nintendo for its own game store. And then there's other companies that charge similar rates.

So, it's not as though this 30% is completely, you know, far-field. But Microsoft recently announced that they're lowering the fees for its PC game sales in its app's store. So they're cutting that down from that 30%, so it seems like there's going to be perhaps a sea change at some point where all of these companies have to start lowering the amount that they charge just to keep developers happy or to prevent them from being hit with this. This also could just be a strategic move on Microsoft's part to say, look, we're not the bad guys still, keep the light off of us for a while and just keep it on Apple. We kind of like it that way a lot more.

But it'll be interesting to see what the outcome of this. It could be a big deal for Apple's businesses. Obviously, services has been where they're trying to grow the most. And so, if there's a hit there, it could be a big problem for them.

- Yeah, I like how you frame it. Microsoft has gotten accustomed to not being the big bad guy that it was in days of yore. So Dan, talk to us. When you talk about the outcome, let's talk about the two main outcomes, right? Either Epic wins here and Apple has to lower its fees or maybe get rid of its fees. If Epic loses, I mean, what recourse does it really have? Especially if all of Apple's competitors charge similar fees. They just kind of have to suck it up or find other sources of revenue to make up for having to pay those fees?

- Yeah, essentially. And look, I think one of the arguments that Apple is going to make and has made is the fact that Fortnite isn't exclusive to iOS. Right? It's available on the Playstation, the Xbox, on Android. By the way, Epic also is filed suit against Google as well for its app store practices, but it's available on the Nintendo Switch. You can get it on the PC.

So, it's not like it's locked in on iOS. And that's one of the big things I think that Apple is going to continue to push and say, look, not only is this game available on other platforms, but they're charging the same thing that we charge. So, what's the deal there? I don't know what it would mean for effort going forward outside of them just kind of having to swallow their pride and say, you know, either we're going to try to get back on iOS in the AppStore or we're just going to avoid Apple going forward.

Now, it wouldn't make as much sense for them just because obviously how large iOS is and the fact that people who use iPhone are more likely to pay up for apps. So that means in app purchases would be more likely under the iPhone than it would be on an Android device. So, I think it would make more sense for them to obviously go back and team up with Apple again. But this isn't expected to last more than a month, so we should find out in about a few weeks.

- All right. Yahoo Finance's Dan Howley on the upcoming Apple drama that I'm sure you'll stay on top of, Howley, as that trial unfolds. As you mentioned, expected to be a three-week trial here with Epic Games, challenging Apple's AppStore policies. We'll follow that as things develop.