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But everyone can make content that's on brand and stands out with Adobe Express. Meet Adobe X to create on-brand Learn more at a slash express, From the Vox Media Podcast Network, this is Channels with Peter Kafka. That is me. I'm also the chief correspondent at Business Insider. And today we're doing our first ever kind of emergency bonus episode at Channels. It's an interview with Epic Games CEO Tim Sweeney. That is the guy in the company behind Fortnite.
They are fresh off a court victory against Apple last week. Sweeney believes this is a major turning point in the battle between Apple and developers over Apple's control of its App Store, and as Sweeney would argue, the battle about whether you have the freedom to do what you want to do with your device.
A few words before we get into this. I have smart and engaged listeners. That's you. So I'm going to assume you know what Fortnite is. I'm also going to assume you know that Apple increasingly relies on revenue from its app store to show growth. You may also know that Fortnite tried to do an end run around Apple's App Store rules in 2020. It's been kicked off the platform ever since. So, in a narrow way, this story is about the future of Fortnite and whether it can come back to Apple devices.
The bigger picture, as we talk about here, is that Apple's app store rules are under attack around the world. and Apple has spent an enormous amount of time and money fighting back those attacks. If Apple finally has to make meaningful changes in the way it runs its App Store, It will not be for lack of trying. All of this can get pretty wonky, even when you're not talking about the specifics of the court case and the appeal. So in this interview, I repeatedly asked Sweeney why all this matters.
not just to him, but to people who are never going to play Fortnite. and I think he does a pretty good job of making his case. I've asked Apple for comment as well, by the way, but the only communication I've gotten from them is they're going to appeal a ruling. In fact, they have made a filing to that effect.
okay enough rambling from me let's get to me and tim sweeney i'm here with tim sweeney he's the ceo of epic games welcome tim hi peter thanks for having me today yeah thanks for having us i should say before we get started uh i have known you for a while i've never met you in person we play fortnite together sometimes And in the spirit of full disclosure, I should note that you have occasionally bought me some digital cosmetic goods. I think some furry slippers.
So I wanted to get that all in the open. You are smiling. There's no video here, but people can see it. I can relay that you are smiling. I want to talk to you primarily about this legal fight with Apple, which you started. back in 2020. In 2021, it looked like you had essentially lost that case. Last week, it looks like you got a major victory in that case. We can discuss that.
Let's go very big picture. Why is last week's ruling important to you in Epic? And why should a normal person care about that? This is really one of the issues at the heart of our digital freedoms for the future. We live our lives on our smartphones. We're connected constantly to people. We work on them. We play on them. our futures are going to be ever more connected there. And so the freedom for consumers and developers to do business together is of paramount importance there.
You know if you have one monopoly gatekeeper who dictates what people are allowed to play see here and Take exorbitant feeds from every transaction that everybody does online. We're going to have a much, much less free world than the one that we grew up in. I started programming back on an Apple II when I was 13.
You turn the computer on, you get a basic programming prompt. Anybody can write code. Anybody can save it to a floppy disk. You can share it with a friend. You can sell it. Those digital freedoms are essential to the future. And it's a threat to the basic freedoms of a new generation. of citizens everywhere in the world that Apple and Google are intermediating between every
every transaction dictating the contents of these app stores. Because we're increasingly conducting our lives through apps, games and finance apps. shopping apps and communication apps and social apps So you know, we fought Apple over two things. First of all, the freedom to operate stores in competition with Apple's App Store.
And second, freedom to conduct our own payments through our own payment service without Apple adding their own junk fees to the transactions There were really several laws in play there, but the court ruled that EPIC did not prove our Sherman Antitrust Act claims, and so we lost on the battle to open up IOS to competing stores in the United States in the court. But we did win on the California unfair competition law claims in which the court found that Apple's prevention of
developers from telling users they can do business directly with the developer online on the web was in violation of the law. So in 2021, the court issued an injunction telling Apple they had to stop blocking developers from telling users about payments online. Part of the court ruling, Tim, that Apple had prevented developers like you, but also Netflix or Spotify, from saying Hey, if you want to subscribe directly from us,
You can do that. Go to our website. There wasn't, you couldn't, you couldn't even have a language that said that, let alone a link. And that's what the judge said in 2021. Apple needed to allow.
and then I'm just we can talk about what you rolled just now but I wanted to back up to this big picture question because I've written about Your fight with Apple and Apple's App Store fights in general, writing for a general audience, the challenge I normally have is why anyone should care about how Apple runs its app stores and how fees are split up between developers. and users and Apple. And the best I can come up with is it's very important to Apple.
because Apple has slowing iPhone sales, and so they need an increasing amount of revenue from services, and a big chunk of their revenue from services comes from the App Store, and that explains why it's important to Apple. But it's harder to explain why it should matter to a normal human being who uses Netflix or uses Spotify or plays Fortnite why they should care where they are signing up to use those services or how payment flows.
So, and you said, look, in big picture, this is like a freedom, but I think it maybe doesn't register for normal. So I'm trying to advocate on their behalf right now to have you explain why it should matter. how the fine print works out between all the products obviously iphones are enormously popular people seem to be very happy with them why should they care about this fight Apple.
imposes these rules on everybody and so a lot of consumers just assume this is how smartphones work so it's how smartphones have to work and that's just the way the world is but actually there's a much much better world going to be achieved now that developers are free in the United States to do business directly with consumers. If you look at the entire range of Apple restrictions,
They're so pernicious that often we can't imagine the world without them. So first of all, you're paying for these fees as a consumer. Almost no business in the modern world has a profit margin of 30%. So when Apple adds a 30% junk fee on top of every transaction, that's passed along to consumers in the form of higher prices. And if you look at what Epic did in 2020 when we challenged Apple, we gave consumers a 20% price drop when they did business with us directly.
And you find similar savings when you subscribe to Spotify directly or subscribe to X directly versus when you go through Apple's payment mechanism. So consumers are paying these 30% fees. Just like Ticketmaster marking up the price of concerts vastly, you're just getting worse products and paying higher prices for them as a result. But they're even more insidious.
Things going on here. One thing is Apple. I want to stop you right there because I've subscribed to Netflix. I subscribe to Spotify and neither of those are done through. through apple um because in both cases neither of those platforms wanted to pay apple's fee uh so the money goes directly to spotify i use spotify and netflix on my phone
I could maybe argue that it's a bit of a hassle for me to have to deal with Netflix on a website instead of directly through the iOS app. But it doesn't really seem like it's a sort of life and death situation for me or any of the companies involved. Well, hang on. So Apple has two tiers of rules. They have one tier of rules for what they call reader apps, which are basically apps operated by multi-hundred billion dollar companies. Amazon Video, Netflix, Spotify, and a number of others.
Apple lets those apps do business outside of the app and you know they just obstruct They've previously obstructed those developers from telling users about the better deals, like when you go to Netflix and you... don't have a subscription assigned to your account Netflix pops up this ridiculous message saying like oh you can't subscribe to Netflix here sorry can't tell you what to do That's because Apple doesn't...
Correct, correct. And this is what the court ruled is illegal. And we'll talk about that in a second. But I'm just saying, even with that restriction, which is now going to be taken away, It seems like life's okay. Life's okay for me. Life's okay for Netflix. Life's okay for Apple. Everyone is getting what they want. Well, hang on. It was not okay for game developers because
That reader app exception only applied to streaming video, streaming audio, and ebook sites. Apple forced all games, all social media apps, and everything else.
to only do business through their app and to only do business through app. So Apple imposed a rule on all game developers saying If you sell anything for your game anywhere in the world on any platform, then you must sell it on iOS, and you must use our payment method, and you must pay us 30% if your revenue is greater than a million dollars. Game developers did not have a choice, and everything there was just marked up. Yeah, 30%.
okay so let's talk about now about what happens given the ruling last week where the judge came back and said i told you apple you needed to open up you didn't need to open up your store but you do need to be able to tell you do need to allow epic and everyone else to say hey you can leave
the iOS store, you can come to our site, you can do business with us. So what does that mean in general, and then what does it mean for you guys? Well, it means now all users are free to learn about better deals for all developers, and all developers are free to Not just accept payments outside of the app on the web, but to tell users about those.
alternative ways to pay and to give consumers better deals. And that's a key economic gain here. You know, this was the California unfair competition law being enforced by the court against Apple. and what it's doing is it's opening up competition Apple charges 30%. Well, that's a really bad deal. Companies like Stripe charge 3% in similar fees. And so now developers will be able to send users to the web to give them a better price.
and then to make a little bit more money for themselves too as a result of arbitraging that 3% fee versus Apple's 30% fee. But, you know, that's just the first order effect. The second order effect is you can expect if Apple continues to offer such a horrible deal as 30%. that everybody's going to move away and steer their customers towards off iOS payments on the web.
So I would hope that Apple would step up and compete, give developers a much better deal than 30% and actually engage in competition. But whether Apple chooses to compete or not, the court has enabled developers to make the choice for themselves. And most importantly, this is not just
business-to-business argumentation, right? The real beneficiary of this are consumers who are going to get better deals offered to them as a result of the enforcement. We'll be right back with Epic Games CEO Tim Sweeney, but first, a word from a sponsor. Member Week is here at Lowe's. Don't miss your chance to get up to 40% off hundreds of items like paint, stain, tools, flooring, and more.
Shop our exclusive deals happening in-store and online from May 8th through May 14th. Not a member? Join My Lowe's Pro Rewards for free today and get ready to save more. Lowe's. We help you save. Program subject to terms and conditions. Details at Lowes.com slash terms. It's the Smucker's Un- with your host, Uncrustable. is rough around the
Please welcome Crust. Thanks for having me. Today's topic, he's round with soft pillowy bread. Hey. Filled with delicious PB&J. Are you talking about yourself? And you can take them anywhere. Why'd you invite me? We are out of time. Are you really cutting me off? Uncrustables are the best part of the sand Sorry, crust.
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SuperGood Superfoods delivers 15 superfoods in tasty gummy form. Find them at Ollie.com and exclusively at Walmart. Ollie! These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. And we're back. Apple says they're going to comply with the judge's ruling, but they're also going to appeal it. So that means in some amount of time, it's possible the rules get changed again.
Do you think meaningful number of developers are willing to say, well, look, while this window is open, we're going to take advantage of it knowing that it can get it shut down? Or do they say, I don't want to go building a new workflow and payment system, et cetera, for something that may not exist a year from now?
It's 30% of revenue, so all major developers will support alternative payments. Spotify was the first major app I saw that already has done it. Fortnite will do it later this week. And many, many apps are all there. All their developers are doing it. But the great thing is... Wait, I want to stop you there on the Fortnite question. You said Fortnite is going to come back to iOS. You guys were kicked off the platform.
in 2020 for highlighting Apple's rules. There's nothing in the judge's ruling that says Apple has to reinstate Fortnite on iOS. Have you talked to Apple? How do you imagine that Fortnite is going to come back to iOS? Well, Epic has a valid dual breakout in good standing. When the European Digital Markets Act came online, our subsidiary Epic Games Sweden
open up an account in order to distribute Fortnite in the European Union. And that was required by Apple. Apple says if you're going to distribute a store in the European Union, you must have a European developer account. So there's an account in good standing. Our dealings with Apple on that account have been managed by their developer relations team who has been cordial and has followed the rules since the initial kerfuffle where Apple tried to
block us again in Europe. But I think all of that's over. You feel confident that I will be able to play Fortnite on my iPhone later this week? I'm talking to you on Monday, May 5th. I believe so. I would be very surprised. I wouldn't be terribly surprised if we had a bug that took a day or two more to fix, but I would be very surprised if... Apple decided to brave the geopolitical storm of blocking a major app from iOS. Just to be clear, you haven't asked them directly, so this is our intent.
We've told Apple what we're doing. We've told their developer relations team. Their developer relations team has guided us through the process helpfully. Their lawyers reached out to us. uh told us to submit uh fortnite to the app store through the epic game sweden account as we had uh said we thought it was the appropriate way to do it. So you think this is a go? It's a go, for sure, on Epic's end. I would be very surprised if Apple took action to block it.
There's a lot of laws enforced in the United States and around the world. I think it would, not just legally, but also just from the point of view of claiming that they are a good company that doesn't have It respects the rule of law. I can't imagine Apple blocking Fortnite at this point. Apple has this pretty long-standing track record. It's pretty clear they have this strategy because they're fighting App Store rule fights throughout the world.
European Union, like you mentioned, Korea, sort of all over, people you've been taking on in the U.S. And it seems like what they've committed to doing is fighting all of them in the courts, however they need to do it. If they lose a battle... They do their best to comply in the least helpful way. You've complained about that a lot. And they made it clear that, look, they may eventually have to concede.
bit by bit on these App Store rules and these App Store margins that you're complaining about, but they're going to drag it out as long as they can. And like I've said, I understand that logic. They make billions and billions and billions of dollars. They feel like if they lost that, that'd be a real problem for their stock market cap. So we understand their motivation in this fight.
You're a big company. You have a lot of resources, but nothing like what Apple has. You've been at this for five years. How much has it cost you to engage in this fight? Well, we've had legal bills in the matter of Epic versus Apple, over $100 million. Oh, just $100 million? I assume to be much more. You were hiring top shelf lawyers and lots of... Well over $100 million. Are you close to a billion at some point in legal fees and court fights?
In legal fees, no, but if you look at lost revenue, that's another story. We can't predict exactly how much we would have made on iOS, but in the two years that we were on the platform, Fortnite had made about $300 million on iOS, so you could have projected project hundreds of millions of dollars of lost revenue as a result of the fight.
And that's just from people who were playing and couldn't play. And I think about it a lot as future players you would have gotten who don't get exposed to the game because they don't have access to it via their phone. You did a CNBC interview last week. You referenced Roblox, right? tons of young players, right? The majority there are teenagers or below. They're all getting to it via their phone. Those are all people who could have played Fortnite for the last five years and haven't as well.
Yeah, that's right. Metcalf's Law is a real factor here. You're much more likely to play a game or use a social network if your friends are there. To the extent cutting off Apple cutting off Epic from access to the entire 1 billion user iOS audience, that not only affects the players that are directly denied access to Fortnite, There are also a bunch of friends who might have played Fortnite more or might have played Fortnite but didn't because their fans weren't able to play.
So these are real factors. You could easily imagine that there's been a billion dollars or more of impact to Epic in this time. But I think there's Freedom cannot be purchased at 2DR price. The world needs to change here. If it doesn't change, then you're just going to have Apple and Google extracting all the profit from all apps.
Forever. And there will be no proper digital economy. It will just be monopolization. That argument you made, that freedom cannot be purchased at, what is 2DR? 2DR price. That's a quote. I'm bad on my history. I understand the logic and emotion behind that argument. Again, you're running a for-profit company. You have a lot of investors. They put a lot of money into you.
Did they come to you at any point in the last five years and say, Tim, I know that freedom cannot be purchased at too dear a price. On the other hand, I've invested a lot of money in you to be a games company, and your game is banned from mobile phones. Could you just settle this up and declare victory and move on? I guess it wouldn't be fair to call out anybody particularly, but...
Other than one investor who exited Epic right quick, perhaps under the influence of Apple, everybody has stood by us because nobody invested in Epic because they want to make a 30% profit on flipping the stock. The companies who have invested in stock believe in our vision, believe in our potential, and believe that if we succeed in building the metaverse and growing Fortnite from a game into an ecosystem into an open platform serving literally a billion or billions of players that
It will totally have been worth it. And they all realize that if Apple controls the revenue spigot at the top of the funnel, they will use that control to extract all of the profit that will ever be made from this space. Just look at Roblox. Apple makes far more profit from Roblox than either Roblox Corporation or Roblox creators make. Apple and Google together. And that's not just unjust, it also makes Roblox a really bad business for as long as that's the case. And Epic!
Is never gonna be in the business it has the potential to be and Investors see this. Investors value Roblox at $40 billion. I mean, they seem fairly content with the way things are. I asked David Bazzucchi on this podcast a couple weeks ago why.
he wasn't kicking and screaming the way you were, and he kind of didn't answer the question. Why do you think they've gone a different route? Well, Peter, $40 billion in some coal. You know what's coal? A trillion dollars. Like, this is a massively undervalued... Space. because of the control that the platforms exert over the revenue. This is not the case with Facebook, TikTok, or these other ecosystems because
Their advertising revenue is business to business and escapes the Apple and Google tax. They do a tiny bit of business, like subscriptions, they're taxed, but it's the far minority of it. Whereas gaming... is 100% governed by this text. And this is going to be a massively more attractive space for everybody. when the restrictions are lifted, not just in the United States, but worldwide. We'll be right back with Epic Games CEO Tim Sweeney, but first, a word from a sponsor.
Last week's ruling from the judge was scathing. She famously referred Apple for a possible criminal investigation that got a lot of headlines. But it's a court ruling. Apple will appeal it. It could get reversed again. How do you plot out sort of how you guys proceed. You're very excited about how this is going to go, but again, it could turn around again sometime down the future.
Let's look at how the world has changed here. This is not an ordinary court ruling. If you look at rulings against major corporations where they've lost a matter. they don't look like this the court found and it was extraordinarily well documented and evident that Apple attempted to shield all their business conversations, which are not privileged, from scrutiny by the court through fake privilege, just designating documents privileged when they simply were not.
Thinking that they were getting away with that, they then had some actual discussions about their real business plans and their motives for how to extract the maximum amount of profit and undermine the courts rolling. fabricating documents that were a sort of parallel planning session where they planned what they are going to do and tried to justify it and different groups of people writing different documents with some overlap.
But Apple attempted to mislead the court into concluding that they had complied, you know, based on one set of conversations while shielding the real ones from it. That's utterly a wrong thing to do. I think the court was actually rather generous with Apple in the way they phrased it all. But the court also made a criminal referral of Apple, both the company as a corporation and the vice president of finance to the federal attorney overseeing those matters.
It's a very unusual thing and the most important thing is Apple, you know, throughout Epic versus Apple in the early days of it, Apple was presumed to be, you know, a world-class company operating in good faith. And that all changed now. This process Apple was conducting was not just targeting Epic. It was also targeting the European and other international and perhaps domestic regulatory investigations into Apple.
concealing their actual business conversations about how to maliciously comply with the law while fabricating new documents and using all kinds of false attorney-client privilege designations to hide from it. Suddenly, Apple has been trying to convince U.S. regulators or the U.S. administration to stop europe from over regulating and unfairly targeting american companies well guess what that the fees and the fines that the European Union just imposed on Apple for Digital Markets Act violations
They concern the same anti-steering policies that were found unlawful in the United States where Apple was just found in contempt of court for their malicious compliance. These are the same things happening the U.S. litigation against Apple the European regulation of Apple is exactly the same so I think there's there's no way anybody in the State Department or the Commerce Department can ethically
pressure the European Union to stop enforcing law. Let's leave aside Europe and let's leave aside Donald Trump's State Department and Commerce Department. Those are all wild cards. We don't need to get into them here. But just to bring it back here, there is a possibility that the U.S. court system says, leaving aside Apple's image and everything else that Tim Sweeney just said,
What we have to decide here is the merits of the case, and they could go the other way, right? They could say Apple does have the right to say, you know what, we don't need to tell you what's in someone else's store. Just like I can't walk into Amazon and learn that Walmart.com has something else. I can't go to Macy's and learn that Bloomingdale's has something else at a different price, right? They could come back to some version of that. No, they cannot do that. In this case,
was already decided. The injunction was already put in place. It was appealed to the Ninth Circuit Court, which upheld it, and it was appealed to the United States Supreme Court, which did not appear. This is absolutely and finally resolved. the court's injunction as written is 100 law and precedent that is irreversible now and so uh the only specific things that apple can appeal are the precise
precise terms of the court's clarification of the injunction and the court's directive to Apple on exactly what they need to change. So I'm asking if there's a plan B and you're saying, no, there is no plan B, we don't need to worry about it. in the US when it comes to this law. Well, the Ninth Circuit Court will have its say, but there's no question that Apple is obliged to follow the injunction, and it will be very hard.
I think looking at the evidentiary record to conclude anything other than that Apple did maliciously comply and that they must comply. And, you know, there's a standard there of the court having discretion to enforce its injunction, especially in the presence of malicious compliance or contempt of court. I think that's an extraordinary long shot that Apple is going for there and their appeal.
So you feel confident about your chances in this proceeding. You've spent five years, well over $100 million in court fees, a lot of loss there. If this goes the way you think it's going to go, do you go, all right, my work here is done. I can go back to developing and creating games and creating tools for developers. Or are you going to continue to fight with Apple and other...
Well, that's really going to be up to Apple. When Fortnite returns to the App Store under Apple is in full compliance with that, the new rules is clarified by the court. Our fight in the United States will be completely over. There's no further grounds for dispute. in that case And, yeah, we'll continue to press internationally. We have litigation. We had a long trial in Australia against Epic versus Apple and Google. A decision will be coming in pretty soon now.
And then in many other countries around the world, there's legislation, which we have been advocating for and will continue to advocate for. But, you know, I wouldn't say that this is going to be over. The price of freedom is... Everlasting vigilance. We're going to have to constantly be mindful of everything that these companies are trying to do to stifle competition and be willing to resist it if they do new things.
You ever wish you could just go back to just coding and not have to worry about lawsuits? And it's an obvious question. Of course you would. I mean, do you imagine this is the rest of your professional life is doing some version of running a business, doing coding, and then having legal fights with platforms? There's a game and a meta game here. The game is making awesome software, which is
awesomely fun creatively and technically. I love that. But there's a metagame of ensuring that we have the right to do that and that we can profit from the fruits of our labor and that all developers can. So much of our business is not just
Epic profiting from our games. It's epic helping other developers succeed and you know profiting from the success of thousands or hundreds of thousands of different developers themselves so you know Epic is one of the few companies in the industry that's positioned in a way that really forces us to fight for everybody and to continue on. i don't feel bad about this you know i feel like in terms of the time application um you know
I put a lot of brain power into coding over the years. I put a lot of brain power into figuring out how to defeat the monopolies that are blocking us. And I think it's all really gainful. What good is coding if you don't have the right to release your product or the design of your product or its business model is completely dictated by Apple or Google? You have to mix the... love of the passion of the art together with your defense of your right to engage in the art.
I was going to end with some dumb quote of my own, like, great power and great responsibility in quoting Spider-Man, but you just did a much better job than I did. So I'm going to leave it there. Tim Sweeney from Epic Games, thank you. Thanks, Peter. Thanks again to Tim Sweeney for coming on.
I've been trying to pull that one off for a while. Glad we got to do it. Thanks to Jelani Carter for reducing and editing this show on a very tight turnaround. Thanks to our advertisers who bring it to you for free. Thanks to you guys for listening. This is Channels. We're going to see you. on Wednesday at our normally scheduled time for yet another interview. See you then.