How Does Epic Games Make Money

Fortnite is a cross-platform game available on mobile, personal computers, and consoles – all major gaming platforms.

Players compete against 100 other players, fighting, building, and generally staying alive their way to victory In Fortnite's Battle Royale mode.

The game's design and look are more inclined towards fantasy than violence – think of it as a more sanitized version of The Hunger Games combined with fantasy football – and every team up with friends to maximize Fortnite's social gaming model.

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Numerous Fortnite fans also prefer to watch the game video play rather than play it themselves.

In March 2018, over 630,000 people watched a popular Fortnite game on Twitch, an Amazon (AMZN) owned TV, a gaming video platform.

As the advertising adage goes, that kind of publicity cannot be purchased. Without a doubt, this explains why Epic Games is positioning itself for a massive financial windfall from Fortnite.

Success Story of Fortnite

Fortnite is a free-to-play game set in a zombie-infested post-apocalyptic world. The game was created by Tim Sweeney and released in July 2017 by Epic Games Inc.

Fortnite got an enormous success, even though the game's format is not unique; shooter-style games are prevalent in the industry.

Although its free-to-play business model is flexible, anyone can play a fully functional game for free.

Fortnite business model differentiated Fortnite from its competitors and has been credited with contributing to the game's success. Fortnite attracted 125 million players and generated $1.2 billion in revenue in its first ten months.

Fortnite earned a whopping $2.4 billion in revenue in 2018 — the highest annual income for any game in the gaming industry's history, a record that has yet to be broken.

After being launched on iPhone on April 1, 2018, Fortnite reportedly earned $2 million per day from Apple Inc.'s (AAPL) iOS users.

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While other games have surpassed $1 billion in revenue in their first year, Fortnite was the first to do so as a free-to-play game.

Despite this, Fortnite accounted for only 2.2 percent of the gaming industry's global annual revenue of $109 billion in 2018.

While many of us are unaware, the gaming industry has grown to be the largest entertainment industry segment.

Even larger than the film and music industries, which together generated $60.8 billion in global revenue in 2018.

Around 80% of the gaming industry's total revenue in 2018 and 2019 was attributed to the free-to-play business model — which Fortnite also uses.

We'll delve deeper into Fortnite in this article, detailing how it became a cultural phenomenon and its business model.

Fortnite Business Model

Fortnite consists of Fortnite: Battle Royale, and a more recent version, Fortnite: Save the World, was released as paid game with early access in July 2017. While a free-to-play version has been rumored, it has yet to be released.

In Fortnite: Battle Royale, 100 players are dropped onto a storm-ravaged island and must survive, fight, or build their way through a shrinking map to win the game.

Fortnite is a cross-platform video game, which means it can be played on computers, mobile devices, and consoles such as Sony's (SNE) PlayStation 4, Microsoft's (MSFT) Xbox One, and Nintendo's (NTDOY) Switch.

Teenagers, celebrities, and athletes all play watch, and talk about the game obsessively, which is the type of marketing muscle that enables Fortnite to earn money despite being free to play.

As is the case with most free-to-play console games, Fortnite provides access to the game for free but requires payment to enhance the Fortnite experience for players.

To fully grasp how Fortnite generates such large revenues, it's necessary to understand the "free to play" gaming model.

Free to play means precisely what it says – players can play most of the game independently, with Fortnite's full game-playing functionality available to everyone.

Fortnite's now-famous game map and gameplay mode are available to all players, whether they pay or not.

The revenue wrinkle is in the game's quality of play. For instance, Fortnite charges a fee to customize a gaming character's costume and color, as well as add-ons such as a character's tools and weapons.

Additionally, Epic developed a revenue model called "Battle Pass" – a $10 quarterly fee paid by Fortnite players that grants them exclusive access to the game's system updates, such as map changes and new character features that free players do not receive.

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The Battle Pass allows you to switch between default and premium skins, which does not necessarily provide an advantage but provides a more pleasing optics experience for Fortnite players, most of whom continue to pay $10 per quarter for the enhanced gaming user experience.

As a Player, you don't need to purchase the quarterly Battle Pass, but you save money over buying new gaming skins, dances, and other buzzes and bells separately from the Epic store.

Fortnite players can also purchase gaming features using V-Bucks, a virtual currency created by Epic to reward players for successful play. You can use V-Bucks to buy Fortnite features and extras. In essence, 1,000 V-Bucks equals $10 in US dollars.

Epic Games is aware of its customer base and has built a business model around repeatable play and repeatable digital payments to the benefit of Fortnite's creators.

While several popular shooting games, such as Activision Blizzard's (ATVI) Call of Duty franchise, attempt to replicate reality through graphic violence, Fortnite stands out for its comic antics and customizable whimsy.

While players compete for the coveted "Victory Royale," they also have the option of teaming up in the game's "Save the World" mode.

Fans of Fortnite can not only play together but also watch together. On March 14, 2018, a Fortnite game drew 630,000 concurrent viewers on Twitch TV, Amazon's YouTube-like platform for streaming competitive video game streams, shattering the previous record of 388,000.

There were over 7 million concurrent viewers across Twitch, Twitter, and YouTube during a Fortnite event in October 2019.

How Does Fortnite Make Money?

Though Fortnite is free to play, However Fortnite earns money from sales of V-Bucks at $9.99 per 1,000, which players can use to unlock additional features and customize their games.

V-Bucks are used to purchase emotes, or dance moves, and skins, or outfits and accessories.

Additionally, you can purchase Battle Passes, which unlock a variety of rewards based on the season.

Spending money on Fortnite is far from an uncommon occurrence. According to a LendEDU survey, nearly 70% of players admitted to making in-game purchases, with the average person spending $84.67 between July 2017 and June 2018.

As previously stated, Fortnite features three different gaming modes, each with its distinct monetization strategy.

Apart from that, Fortnite earns money through virtual tournaments and merchandise sales.

Let's understand how Fortnite makes money from each of three different gaming mode in detail:

Fortnite Battle Royale

As previously stated, Fortnite Battle Royale is completely free to play.

Players are never required to spend money if they choose not to, but close to 70% of players make in-game purchases to gain access to dance moves and skins, which are outfits and accessories.

What's remarkable is that none of these outfits or accessories confer any advantage on players in the Fortnite World.

These elements work together to differentiate paying players from non-paying players, enticing more non-paying players to make purchases.

To entice more players to make in-app purchases, Fortnite instills a sense of urgency by restricting access to in-app purchases to a limited time.

In-app purchases are made exclusively with Fortnite's in-game currency, V-bucks.

The following table details the price of V-Bucks in USD:

1,000 V-Bucks for the price of $9.99
2,500 (+300 Bonus) V-Bucks for the price of $24.99
6000 (+1,500 Bonus) V-Bucks for the price of $59.99
10,000 (+3,500 Bonus) V-Bucks for the price of $99.99

You can use V-Bucks to purchase Battle Passes, which unlock season-specific rewards.

While everyone's level is reset at the start of each season, Battle Passes grant access to new accessories and items not included in the base game.

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It's critical to emphasize once again that none of these new rewards provide you with an advantage in the game — they simply make you look different than other players in the game.

Fortnite Creative

Access to Fortnite Creative was restricted to players who purchased a Battle Pass during the game's launch.

After a week, Fortnite creative was made available to everyone for free, allowing players to create their islands.

Fortnite announced that players could submit islands they created to be reviewed and possibly featured in the game.

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Epic Games stated in the submission guidelines, "Epic Games reserves the right to use anything you submit to us for any purpose, including commercial purposes, without compensating you, notifying you, or obtaining your permission."

Fortnite could either charge for access to these featured islands or use them in some other way to compensate for the game remaining free to play.

Fortnite Save the World

When Fortnite Save the World launched as an early access game in July 2017, it earned revenue the old-fashioned way: charging players $40 upfront.

While there were rumors that Save the World would ultimately become 'free to play,' Epic Games chose to maintain the 'pay to play model when the early access label was removed on 30th June 2020.

Fortnite World Cup

Not only do people play Fortnite, but they also watch players play for hours at a time on Twitch and YouTube.

In October 2018, the game was viewed for 67.7 million hours on Twitch, ranking second, and 42.4 million hours on YouTube.

Ninja, a creator on YouTube and Twitch, reportedly earns $500,000 per month from streaming Fortnite.

With such a devoted fan base centered around the game, the Fortnite World Cup is simply another way to capitalize on the attention.

Epic Games held the first Fortnite tournament in July 2019 at New York's famed Arthur Ashe Stadium, typically reserved for the US Open tennis tournament.

Fortnite World Cup attracted 40 million players. Following several elimination rounds, the stadium event pitted the game's top 100 players against one another in the finale.

The tournament had a total prize pool of $30 million. Finally, a 16-year-old player named Bugha" took home a $30 million first-place prize.

While the event's economics are not publicly available, we're guessing the earned media coverage generated by the event was more than enough for Epic Games.

Apart from the coverage the event received from major news outlets, it is estimated that 2 million people watched the event live and that videos of highlights have been viewed millions of times.

Fortnite Merchandise

A well-known business strategy that is self-explanatory, the only point worth noting is that Epic Games sells Fortnite-branded apparel and other branded products such as toys, speakers, and so on.

How did Fortnite Become so Popular?

Fortnite had been in development for more than half a decade by Epic Games, one of the gaming industry's biggest names.

The game's first game mode, dubbed 'Fortnite Save the World,' failed to ignite the video gaming world launched as an early access title in July 2017.

And it wasn't until Fortnite introduced a new gaming mode that it exploded into global popularity.

Let's take a step back to set the stage for the launch of Fortnite's new gaming mode.

Four months prior to the launch of Fortnite, a PC game dubbed 'PUBG' gained traction, largely due to word of mouth and streamers on sites like Twitch, a user-generated video platform similar to YouTube but dedicated to video games.

The game was inspired by the plot of a Japanese novel titled "'Battle Royale," PUBG launched a new gaming mode with the same name.

The new gaming mode was unique: 100 players descended from a parachute onto a large island, scavenging weapons and hunting one another until only one remained alive.

And as the game progressed, a circular contracting border forced players to face off against one another.

The success of PUBG quickly caught the attention of major game developers, and it was only a matter of time before they attempted to replicate the new gaming mode.

Epic Games, the company that created Fortnite, was in a solid position to do so.

Apart from being well-known for its games, Epic Games is also renowned for developing the unreal engine, a video game code that it licenses primarily to other game developers.

Due to the unreal engine's platform independence, it can be used to develop games for PC, gaming consoles, and mobile devices, a capability that will be critical to Fortnite's success.

Two months after the original Fortnite launched, Epic introduced a new free-to-play gaming mode called "Fortnite Battle Royale," which was essentially a rip-off of PUBG with some tweaks.

While PUBG is a more military-themed game, Fortnite has a cartoonish aesthetic, which is one reason it became popular.

Developed by a minor team without the benefit of years of experience, PUBG was still a work in progress despite its rapid popularity.

On the other hand, EPIC Games had decades of experience developing games, privileged access to the Unreal Engine, and a nearly perfect game for the famous "Battle Royale" gaming mode.

Additionally, Fortnite was available on consoles such as the Xbox and Playstation — the most popular gaming hardware.

PUBG would not be available on consoles until late 2017, and even then, it was still in development.

Fortnite Battle Royale earned a whopping $1.2 billion in ten months, despite the game being fundamentally free to play (we'll discuss how it makes money later).

Epic Games introduced a new gaming mode called Fortnite Creative in December 2018.

Unlike the Battle Royale game in which the last man standing wins, Fortnite Creative emphasizes building rather than combat by putting players on an island and allowing them to create battle arenas, racetracks, and perform challenges.

By March 2019, Fortnite had grown to around 250 million players, up 25% from 200 million in November 2018.

What is Fortnite Net Worth?

According to the Wall Street Journal, Epic Games is valued at nearly $15 billion and is backed by Kleiner Perkins, Walt Disney Co., and Tencent Holdings.

Again, this is not unique to Fortnite, but it demonstrates the game's meteoric popularity.

Can User Earn Money with Fortnite?

Yes, video game players can earn money. Twitch is free to use for the creators, but viewers can subscribe for as little as $24.99 per month to receive benefits such as custom emotes and other perks.

Typically, streamers share this revenue 50/50 with the company. Additionally, Fortnite streamers can earn money through virtual tipping services such as StreamElements and Streamlabs, the latter claims to have processed $141 million in donations to gamers in 2018.

Fortnite is also making waves in the e-sports community. Third-party websites frequently host online tournaments with small cash prizes, and Epic Games announced in May that it would dedicate $100 million to Fortnite tournament prize pools.

A Fortnite scholarship has been awarded to at least one college student. Others offer their services as Fortnite tutors or sell their Fortnite accounts, despite Epic Games' prohibition.

Key Challenges of Fortnite

While Fortnite has exploded in popularity over the last few years, there is some evidence that the phenomenon is waning.

Notable is the decline in viewership for competitive Fortnite games.

Additionally, Superdata's data for the highest-earning games in June 2019 reveals a significant decline in Fortnite's profits compared to its historical performance and that of its competitors.

The primary challenge for any product is to retain current customers while also attempting to attract new ones. This is especially true in the gaming industry, given the fickle nature of the players, who are predominantly younger and have short attention spans.

While the game's popularity has dwindled, Epic Games continues to view Fortnite as a cash cow.

Whether it remains a consistent moneymaker in the future will largely depend on its ability to adapt to a rapidly changing marketplace.

Epic Games has made no indication of switching to a more traditional business model.

Apple and Epic Games, the creators of Fortnite, began a significant feud on August 13, 2020, when Fortnite was released on the Apple App Store that allowed users to make in-game purchases without paying Apple the 30% cut that Apple typically takes from microtransactions.

Apple made a decision to remove Fortnite from the App Store the following day, and Epic Games filed a lawsuit against Apple, alleging that Apple's payment system violated antitrust laws.

Later that day, Google removed Fortnite from the Google Play Store, prompting Epic Games to file a parallel lawsuit. Fortnite is still available on Android devices; however, it is not available through the Google Play Store.

Apple's control over its app store was previously investigated by European regulators, the United States Justice Department, and state attorneys general in the United States.

Apple suspended Epic Games' developer account on August 28 and filed a breach of contract lawsuit against Epic Games on September 8, 2020.

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