What's Up With Apple: Video Gaming Revenue, Chasing Ad Dollars and More

Technology

Published: October 4, 2021 7:53 am

Last Updated: October 4, 2021 7:54 am

Even though Apple Inc. (NASDAQ: AAPL) is not known for its video gaming prowess, in 2019 the company hauled in more profit from games than industry giants like Nintendo, Activision Blizzard, Sony and Microsoft combined.

In a report Sunday, The Wall Street Journal said Apple’s operating profit from games in 2019 totaled $8.5 billion, based on a review of documents released during the lawsuit brought against Apple by Epic Games, maker of Fortnite. Apple said the reported operating margins revealed during the trial were too high.

The Wall Street Journal cited research by consulting firm Activate estimating video game revenue reaching an industry total of $198 billion by 2024, nearly double its current level. Of that amount, the firm estimates that $103 billion will be generated by mobile games.

Apple’s revenue comes, of course, from the commissions it charges game makers to list their games in the App Store. Until earlier this year, Apple charged a commission of 30% on all game sales and all in-app purchases made through the App Store. The company chopped its commission in half for companies whose revenues were less than $1 million.

That’s a lucrative business. From The Wall Street Journal report:

Globally, customers spent a total of $45 billion on mobile games through the App Store in fiscal 2020, according to Sensor Tower. Almost 31% of that money was spent in China while 26% was in the U.S.; Apple’s cut came out to an estimated $13.5 billion or about 5% of Apple’s overall sales that year of $275 billion. Fifty percent of Apple’s revenue came from hardware sales of iPhones.

If Apple is forced to loosen its grip on iPhone gaming (and other) apps, as now seems likely, the company is going to need some way to replace that revenue and profit. Analysts at RBC Capital Markets remarked in a note to clients last week that Apple’s App Tracking Transparency feature that the firm “viewed [the feature introduced in iOS 14.5] as a sign that Apple may want to compete in global advertising.” In the same note, RBC initiated coverage of Amazon, Facebook and Alphabet. That Apple may be considering getting more active in the advertising business is not exactly breaking news. Apple added a second advertising slot to its App Store search results page in April. Because the company allows only two ads on that page, and the people who see the page are at the App Store to buy or at least download something, the ads on the search results page are undoubtedly premium-priced.

For travelers planning a trip on United Airlines, the company announced Friday that it would allow iPhone users to show proof of COVID-19 vaccination with their phone’s Health app.