Epic Games has mastered the art of giving away games for free while still raking in billions in profits. But how exactly does Epic make money from free-to-play games like Fortnite and Rocket League? And what‘s behind its strategy of offering new free games every week in the Epic Games Store?
In this guide, I‘ll break down the slyly genius ways Epic monetizes "free" games across its platforms. You‘ll learn how Fortnite keeps players hooked with in-game purchases, how Unreal Engine makes money through royalties, and why Epic‘s willingness to burn cash on exclusives pays off handsomely.
Let‘s dive in and unlock the secrets behind gaming‘s most successful purveyor of free titles!
Fortnite: The Free Game That Prints Money
Fortnite Battle Royale launched in 2017 as a free-to-download game supported entirely by in-app purchases. Two years later, Fortnite had raked in an astonishing $5.1 billion in revenue through the sale of digital items.
What‘s truly wild is that over 350 million people have downloaded this free game that now generates more annual revenue than household names like Netflix and YouTube.
So how does Fortnite keeps the cash flowing in? Here are the main ways it monetizes players:
In-Game Cosmetics: Skins, emotes, gliders, pickaxes, wraps, and pets can be purchased for V-Bucks. Rare skins are especially sought after. Players have spent over $2.4 billion on in-game cosmetics alone.
Battle Pass: The current season‘s battle pass unlocks bonus challenges and cosmetic rewards as you gain XP. Purchasing the pass costs 950 V-Bucks (about $10).
Save the World Mode: This paid co-op PvE mode offers progression and loot. It cost $40 initially before going free-to-play.
Tournaments & Events: Epic sells virtual tickets for live events like concerts within the game. It also monetizes the Fortnite World Cup tournament through branded cosmetics and in-game challenges.
Referral Bonuses: Epic pays players V-Bucks when they refer friends who spend money in-game.
Brand Collaborations: Epic has created exclusive in-game cosmetics with brands like Marvel, DC, and Nike, likely for large sums of money.
With over 12 million concurrent players daily in 2021, even converting a small percentage into paying customers generates staggering revenue. Top Fortnite streamers and pros also entice fans into purchases through giveaways and gifting popular skins on stream.
Unreal Engine: A Royal Revenue Stream
Epic‘s Unreal Engine is one of the most widely used video game engines. Developers must pay Epic a 5% royalty on game sales if they use Unreal Engine.
In 2020, popular games built with Unreal Engine generated over $10 billion in sales. That means Epic pocketed at least $500 million just from Unreal Engine royalties.
Given Unreal‘s growing market share compared to competitors like Unity, Epic‘s "tax" on developers‘ game sales represents a rapidly expanding revenue stream.
Unreal Engine brought in an estimated $97 million in royalties in 2015. Just 5 years later, estimates pegged that figure at $600 million in 2020.
As gaming explodes into the mainstream over the next decade, the revenue potential for leading game engines like Unreal is immense.
Epic Games Store: Controlling the Market with Exclusives
In late 2018, Epic launched its PC games storefront called Epic Games Store (EGS) to take on behemoth Valve‘s Steam marketplace. It boasted a generous 88/12 revenue split for developers compared to Steam‘s 70/30 split.
This was great for devs. But how would Epic persuade gamers to use EGS over the dominant Steam?
The answer was exclusives. Epic enticed developers to launch big titles like Borderlands 3 exclusively on EGS by covering lost sales. Epic paid a reported $10.5 million to make Metro Exodus a one-year EGS exclusive.
This loss-leader strategy has fueled Epic‘s rise as Steam‘s chief competitor while costing Epic an estimated $444 million as of mid-2020.
But Epic plays the long game. It knows exclusives will steadily attract more gamers and boost EGS revenues in the future. EGS also offers a free game every week which has enticed millions to create accounts.
Once gamers are invested in the EGS ecosystem, Epic ultimately wins by keeping more of the revenue compared to Steam‘s 30% cut.
Free Games Today, Profits Tomorrow
Between free-to-play Fortnite and the weekly free EGS games, Epic is clearly playing the long game by sacrificing short-term profits.
But is this "grow now, monetize later" strategy sustainable?
Free games are certainly costly upfront. Leaked documents revealed Epic spent $11.6 million on just 5 months of EGS freebies. And Forbes estimated Epic‘s total investment in free games at $600 million so far.
However, the user acquisition and brand awareness benefits outweigh the costs. And Epic can leverage its Fortnite billions to play the long game.
Free games also scale infinitely with zero marginal costs. The more users Epic can attract, the more they stand to benefit from in-game profits, Unreal Engine royalties, exchanging referrals, and more.
This chart summarizes Epic‘s total developer payouts so far:
|Fortnite Revenue Share||$1.8 billion|
|Epic Games Store||$700 million|
|Unreal Engine Royalties||$1.2 billion (estimated)|
These massive investments in developers represent Epic‘s end game – cultivating an entrenched ecosystem of game creators, players, and brands that will pay dividends for years to come.
So while losing millions giving away great games seems counterintuitive now, it may just be the smartest long-term strategy in gaming.
Epic Games has proven savvy at leveraging free games to hook masses of players, while monetizing a select few. Fortnite‘s in-game purchases alone represent an endless revenue fountain. Add in Unreal Engine royalties, the high-potential Epic Games Store, and Epic‘s strategic investments, and the path to long-term dominance is clear.
While some decry Epic‘s practice of buying up exclusives, it‘s hard to argue with the results. And with over $3.5 billion invested in developers so far, Epic is putting its money where its mouth is.
So next time you‘re enjoying another free game from Epic, remember it‘s all according to their grand design for gaming supremacy powered by free titles. Pretty epic indeed!