$146m Borderlands Deal Tip of Iceberg for Epic Games Spending

Court documents released as part of the lawsuit between Apple and Epic Games have given us a peek into Epic's mammoth spending habits as it works to unseat Steam from the the digital games distribution throne.

First up: Epic Games paid Take-Two $115 million to make Borderlands 3 an Epic Games Store exclusive for the first six months of its release, per documents reviewed by journalist Simon Carless. That included a minimum guarantee of $80 million to cover costs, a marketing commitment of $15 million, and an additional $20 million to cover non-recoupable fees.

Take-Two and Epic bundled the Borderlands Handsome Collection and Civilization 6 into the Borderlands deal for $11 million and $20 million, respectively, bringing the total price up to $146 million.

Epic also spent a fortune making the deals that allowed it to hand out 38 free games between the store's launch in December 2018 and September the following year. Epic pays developers or publishers a flat fee for their games. That fee can vary widely, and adds up to $11.6 million spent over that period.

The most expensive deal Epic's made to give away games for free was the $1.5 million it spent on the Batman Arkham games. Major franchise, tons of content — makes sense. More surprising is the $1.4 million it paid for Subnautica and the $1 million it paid for Mutant Year Zero. Other indie games — typically older ones — went for significantly less. Super Meat Boy and World of Goo, for instance, cost Epic $50,000 each.

The documents from the court case cover less than half of the more than 100 games Epic has given away since the EGS launched, and leaves out the May 2020 giveaway of Grand Theft Auto 5 — a giveaway so popular it temporarily crashed the store completely.

Epic's aggression appears to be paying off, at least based on documents released through the court case. The company recouped that $80 million minimum guarantee on Borderlands 3 within the first two weeks of the game's launch and hit a net revenue of $9.2 million from sales. Epic's numbers indicate 1.56 million people played Borderlands 3 through the EGS, and 53% of those users were new to the platform.

The giveaways have also proven successful in luring in new customers. Nearly five million new users joined the platform to claim their free games in the period covered by the documents, amounting to around $2.37 per new user for Epic. If each of those users bought a single $20 game on the platform, Epic would completely recoup the costs.

In total, Epic says it's acquired 18.5 million new users via game giveaways as opposed to 2.2 million via paid games. Of those who joined to claim a free game, 1.32 million — a little over 7% — went on to make a purchase on the EGS.

These are promising numbers, and proof Epic is making inroads on Steam's vice-like grip on the market. But the EGS has quite a way to go before it takes the crown for itself. Epic spent $444 million in minimum guarantees for exclusive releases in 2020; the store lost $181 million in 2019 and nearly $273 million in 2020.

Epic predicts another $139 million in losses for 2021, and expects the store to become profitable by 2023 at the earliest. More pessimistic projections (such as one done by Apple as part of court proceedings) predict profitability won't arrive until 2027. Epic has plenty of funding to continue this spending pace, and CEO Tim Sweeney seems committed to the effort, but the reckoning will one day come.

The outcome of the lawsuit between Apple and Epic could serve as a bellwether of whether Epic's ambition is misplaced. Epic has accused the Apple App Store of monopolistic practices, especially regarding its 30% commission on in-app purchases. The trial continues this week, with a decision likely still some time away.