Apple Inc. is poised to increase its market share in the global video game industry as the company tightens its grip on the lucrative mobile gaming space.
Even though the iPhone maker doesn’t produce any of its own gaming hardware or software, the discount it charges for every transaction in the App Store has made the company one of the biggest earners in the industry. . Still, analysts believe it’s inevitable that Apple will deepen its involvement in the game to keep abreast of evolving technology and regulatory issues.
“With games accounting for approximately 70% of the overall App Store revenue, it’s very safe to say that Apple is very invested in the gaming industry,” said Angelo Zino, principal analyst at Apple. industry at CFRA Research. “Nevertheless, there are still significant opportunities for further growth potential in the game, and it is only a matter of time before the company exploits them.”
Apple charges a standard 30% commission on apps and in-app purchases in the App Store. The commission drops to 15% after one year, while developers with less than $1 million in annual App Store sales can also sign up for a 15% commission.
An overwhelming majority of games on the App Store are free-to-play titles that include in-app purchases. Apple has wreaked havoc in this space, raking in $14.80 billion in 2021 to make it the second-largest company by global gaming content revenue, according to Kagan estimatesa media research group within S&P Global Market Intelligence.
Apple’s main mobile app rival, Alphabet Inc.’s Google LLC, ranked No. 3 on the list with $12.40 billion, also taking cuts from the Google Play Store. China’s Tencent Holdings Ltd., the game’s biggest revenue earner by wide margin, also earned the bulk of its $32.50 billion in revenue from mobile games.
While the explosive growth of mobile gaming is expected to decline in the coming years, it will remain the most profitable space in the video game industry, according to mobile app analytics firm Sensor Tower.
“We estimate that by 2026, mobile games will account for 43% of consumer spending on the App Store, down 23 points from 2020,” said Craig Chapple, mobile intelligence strategist at Sensor Tower. “However, this will still represent a record $70 billion according to our forecast, of which Apple will take its share.”
App Store sales also propelled Apple’s Services revenue, which rose 17.3% year-over-year in the March quarter to $19.82 billion. The segment also includes sales of Apple’s advertising, Apple TV+ and AppleCare services, among others.
While Apple’s gaming revenue comes primarily from App Store cuts, the company’s mobile gaming subscription service, Apple Arcade, is poised to steadily grow its user base over the of the coming year.
The offer, which lets subscribers download and play a collection of games on Apple devices for $4.99 a month, is expected to grow its subscriber base to 70 million and generate $1.20 billion in revenue by 2025.
Apple Arcade was launched in September 2019 and features over 200 games that do not include any apps or in-app purchases. Google operates a similar subscription service, Google Play Pass, which has the same monthly subscription fee but also includes other apps outside of games.
“Apple Arcade has made inroads with carrier offerings and bundling options, but any long-term success will depend on a quality content pipeline,” said Neil Barbour, analyst at Kagan, a content research group. media within S&P Global Market Intelligence.
It’s very likely that Apple will expand into the space with more substantial products in the coming years, Zino said.
“It’s possible that Apple will do a lot more on the service side in conjunction with the launch of new gaming hardware,” Zino said. “However, they also take their time when it comes to launching new product lines, as they have done with wearables.”
A growing risk to Apple’s growth in games is the heightened regulatory scrutiny the company faces due to its market power in mobile apps.
After Epic Games Inc.’s Fortnite was banned from the App Store for implementing a new payment method that bypassed Apple’s payment system, the gaming company sued Apple for allegedly abusing its market power. Although Apple largely won the lawsuit, the court sided with Epic on the issue of Apple prohibiting app developers from highlighting other payment methods besides Apple’s own system. Apple.
The issue resurfaced in the Netherlands after the country’s competition regulator pressured Apple to allow dating app customers to use alternative payment methods. After receiving multiple fines, the company finally started complying in June and enabled third-party payment options in apps.
“The lifting of restrictions on dating apps in the Netherlands is just the start, and it’s only a matter of time before it spills over to other territories and other apps. , including games,” Zino said.
However, giving consumers the option to pay using alternative methods is unlikely to have a significant impact on Apple’s long-term results, the analyst said.
“While overall growth may slow down a bit, consumer behavior still leans toward convenience, and Apple’s integrated payment systems will always be the easiest option to use,” Zino noted.
Apple has also been criticized for not allowing third-party app storefronts on its platforms, including the Epic Games Store. The company also restricts apps for other game streaming and subscription platforms such as Microsoft Corp’s Game Pass. and Stadia from Google.
Documents presented in Epic’s legal proceedings against Apple showed Microsoft failed to negotiate with Apple to bring Game Pass to Apple’s devices. The service is currently accessible on Apple devices by streaming on browsers.
Microsoft declined to comment when asked if it had been involved in recent discussions with Apple to allow the Game Pass app to work on Apple’s platforms.
“Apple has no real incentive to trade consistent revenue generation on in-app purchases for reduced subscription revenue,” Kagan’s Barbour said. “And cloud service providers are probably in no rush to pay Apple a commission while starting a potentially disruptive new market.”
However, the changing regulatory landscape is likely to force significant changes to Apple’s business practices in the coming years, potentially providing an opening for competitors to offer their services with fewer or no restrictions, Zino added.