Apple Inc. doesn’t make hot videogames such as “Fortnite,” or consoles such as the Xbox. But with little fanfare, Chief Executive Tim Cook has turned the maker of the iPhone into one of the world’s largest videogame companies.
The key is the App Store, its digital marketplace, where the company sells and distributes thousands of games by other companies and developers, from Epic Games Inc.’s “Fortnite” to Tencent Holdings Ltd.’s “Honor of Kings”—and takes a 30% cut of sales. That explains a lot about the tech giant’s current battles with rivals.
Apple raked in more profits from games than Xbox maker Microsoft Corp., gaming giants Nintendo Co. and Activision Blizzard Inc. and PlayStation maker Sony Corp.—combined—in its fiscal year 2019, according to a Wall Street Journal analysis of figures released as part of the company’s recent antitrust trial.
Apple’s operating profits from games that year totaled $8.5 billion, according to the Journal analysis, exceeding the other four companies’ combined gaming operating incomes in the same period. The tech giant said operating margins discussed during the trial were flawed and as a result are too high.
Apple’s dominance, however, is under threat. Its position as the gatekeeper to the gaming economy places it at odds with Facebook Inc., Microsoft and “Fortnite” maker Epic Games Inc. as each company prepares for the next frontier in technology: virtual reality.
Many digital activities—from search to social to shopping to live events —could take place inside of games in the coming years. Industry global revenue from videogames is expected to almost double to $198 billion in 2024 compared with 2016, according to estimates by technology consulting firm Activate Inc. The biggest chunk of that growth is from mobile games, which Activate predicts will generate $103 billion in 2024.
The risk for Apple is that its role as the gatekeeper between the gaming world and its more than 1 billion iPhone users as well as the fee it collects as the middleman could be disrupted—whether by legislation, court order or regulatory action. Epic sued the company in 2020, alleging that it stifled competition. Because of Epic’s lawsuit and increased scrutiny of Apple’s sway, lawmakers and regulators from Washington to Brussels are considering ways to potentially upend the company’s power, which some fear hurts rivals.
Another threat to Apple’s profit engine comes from China. New rules in that country aim to decrease the number of hours young people can play games. Three of the top five grossing mobile games in the App Store are from China, including the No. 1 title “Honor of Kings” from Tencent, which generated an estimated $2.5 billion last year from users, according to analytics firm Sensor Tower.
Globally, customers spent a total of $45 billion on mobile games through the App Store in fiscal 2020, according to Sensor Tower. Almost 31% of that money was spent in China while 26% was in the U.S.; Apple’s cut came out to an estimated $13.5 billion or about 5% of Apple’s overall sales that year of $275 billion. Fifty percent of Apple’s revenue came from hardware sales of iPhones.
Apple doesn’t break out revenue from the App Store; instead it includes the business as part of its services category, which it said generated $53.8 billion in sales last year. That category also includes music, iCloud, Apple TV, advertising and extended warranties. It doesn’t say how profitable each of its product categories is but disclosed an overall company operating profit of $66.29 billion during the period.
A new gold mine
That such a large part of Apple’s business comes from the gaming world is almost a fluke. After releasing the iPhone in 2007 and seeing developers hack their gadgets, it designed the App Store so users could download third-party software to their phones under Apple’s control. Apple’s late co-founder Steve Jobs and his team came to realize that the store could be a new gold mine.
In 2008, the year the App Store launched, it had 500 apps, many of them games. Apple’s profits from gaming got bigger as the app economy expanded. The shift became even more important under Mr. Cook as he looked to combat stagnating iPhone sales.
In a nod to how important hard-core gamers are to the company now, Apple introduced its new iPhone 13 Pro last month with upgrades to the screen aimed at giving a smoother video experience. The feature is particularly attractive to those who use it for gaming.
Apple is appealing to a rather small group. Just 6% of App Store game customers in 2017 accounted for 88% of all the store’s game billings for the year, according to court records. On average they spent more than $750 annually. The biggest spenders, who made up 1% of Apple gamers, generated 64% of billings and spent on average $2,694 annually.
Blockbusters include “Honor of Kings,” which allows users to battle as historical Chinese characters and was the top grossing game last year in the App Store, according to Sensor Tower. Other top money generators are “Pokémon Go,” an augmented reality game based on the popular Japanese anime, and “Candy Crush Saga,” a puzzle game where users match clusters of jelly beans and gumdrops.
Bri Thomas, a 38-year-old human resources professional from Dallas, likely fits into the medium-high category of spenders who accounted for 3% of gamers and generated 20% of billings in 2017. On average that group spent about $373 each year.
She said she typically spends as much as $50 each month. The convenience of having the iPhone in her pocket means it is easy to spend money to access special perks in mobiles games such as “Empires & Puzzles,” a puzzle game.
“It’s very convenient,” Ms. Thomas said. “You can get carried away really easily.”
Lifting the veil
By Mr. Cook’s own admission, he is not a gamer. He said so during an appearance before a judge in the antitrust case that consumed Apple’s attention for much of the past year.
In August 2020, “Fortnite” maker Epic filed a lawsuit against Apple claiming the company held an improper monopoly over distribution of software on its mobile devices and forced developers to use its in-app purchasing system. They went to trial in May.
Apple vehemently denied the claims, pointing to everything from Google devices to the XBox as alternative ways for users to play games and arguing that its fees were in line with the industry and fair. U.S. District Judge Yvonne Gonzalez Rogers mostly agreed with Apple in an early-September ruling.
That doesn’t mean Apple is out of danger. The judge ordered the tech giant to let developers inside their apps advertise alternative, cheaper payment methods that exist outside of Apple’s App Store. That raises the possibility that game developers could deny Apple money for those games.
The case lifted the veil on Apple’s gaming business. The company, which has long prized secrecy as it seeks to draw users to new products and services, keeps under wraps the extent to which gaming is at the center of its profits and business.
Apple said records introduced during the trial purportedly showing profitability of the digital store weren’t correct, and Mr. Cook testified in court that the company doesn’t do such analysis. But Judge Gonzalez Rogers, who reviewed Apple’s records under seal, contradicted this assessment.
She wrote that Epic’s claims that Apple generated operating margins of more than 75% from the App Store are, in fact, correct and characterized them as “extraordinarily high.”
App sales may be small in comparison with overall revenue but court documents suggest they are almost pure profit for Apple. As part of the legal battle, Apple handed over millions of internal documents to Epic. Using those materials, an expert witness for Epic named Ned Barnes, a forensic accountant, calculated that Apple’s App Store generated a 79.6% operating margin—a measure of profitability that subtracts costs from revenue—during both the 2018 and 2019 fiscal years.
The late discovery of an internal report sent to Mr. Cook supported that assessment. The report, according to court records, included the company’s own calculations for the store’s operating margin of 74.9% and 77.8% for fiscal 2018 and 2019, respectively.
“Mr. Barnes made appropriate adjustments based on sound economic principles to reach his conclusions,” the judge wrote. “Apple’s protestations to the contrary, notwithstanding the evidence, shows that Apple has calculated a fully burdened operating margin for the App Store as part of their normal business operations.”
Another view of how much Apple collects from its App Store—and gaming—comes from Sensor Tower, the analytics firm. It estimated that Apple received $15.9 billion in revenue from the App Store in fiscal 2019, with 69% of that amount coming from games. Using Apple’s operating margin calculation described in court records, the company’s App Store had an implied operating profit of $12.3 billion that year—or nearly one out of five dollars of the company’s overall operating profit.
Gaming alone would have earned $8.5 billion, according to a Journal analysis. That is $2 billion more than the operating profit generated in the sector during the equivalent 12-month period from gaming giants Sony, Activision, Nintendo and Microsoft, according to company filings from the first three and an analyst estimate for Microsoft.
Apple said Friday the disputed operating margins come from an analysis that doesn’t include many joint costs for the App Store and results in margins that it describes as being too high because it includes all revenue but only a fraction of the costs. During the trial, Apple vehemently denied the accuracy and during public court testimony Mr. Cook took issue with the margins as well.
Under questioning from Apple’s lawyer, he said the company had never tried to determine the specific profitability of the App Store as a stand-alone business and that he couldn’t put an exact figure on how profitable it might be. The practice of not tracking business-unit profitability, he said, dated back to a desire by Mr. Jobs to encourage cooperation across the company’s various units. The internal document that calculated operating margin, which wasn’t made public, was a “one-off presentation,” he said.
Nevertheless, Mr. Cook said he believed the App Store was profitable even without calculating it. “We haven’t done that, but, you know, I have a feel—if you will,” Mr. Cook said. While being questioned by the judge, Mr. Cook said a majority of App Store revenue came from games.
The judge ruled that Apple wasn’t a monopoly in part because the mobile gaming market is evolving so quickly, including the nascent streaming game services. Similar to how Netflix Inc. offers movies, Microsoft, chip maker Nvidia Corp. and others are pushing subscription game services that could be accessed on iPhones through websites. That allows them to bypass the App Store.
As for Apple’s gaming economy, it is unclear what happens next. Epic plans to appeal the judge’s ruling, and some legal observers said Apple will appeal the order to stop prohibiting developers from communicating cheaper alternatives to the App Store. The company said it is reviewing the matter.
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The federal government is ordering the dissolution of TikTok’s Canadian business after a national security review of the Chinese company behind the social media platform, but stopped short of ordering people to stay off the app.
Industry Minister François-Philippe Champagne announced the government’s “wind up” demand Wednesday, saying it is meant to address “risks” related to ByteDance Ltd.’s establishment of TikTok Technology Canada Inc.
“The decision was based on the information and evidence collected over the course of the review and on the advice of Canada’s security and intelligence community and other government partners,” he said in a statement.
The announcement added that the government is not blocking Canadians’ access to the TikTok application or their ability to create content.
However, it urged people to “adopt good cybersecurity practices and assess the possible risks of using social media platforms and applications, including how their information is likely to be protected, managed, used and shared by foreign actors, as well as to be aware of which country’s laws apply.”
Champagne’s office did not immediately respond to a request for comment seeking details about what evidence led to the government’s dissolution demand, how long ByteDance has to comply and why the app is not being banned.
A TikTok spokesperson said in a statement that the shutdown of its Canadian offices will mean the loss of hundreds of well-paying local jobs.
“We will challenge this order in court,” the spokesperson said.
“The TikTok platform will remain available for creators to find an audience, explore new interests and for businesses to thrive.”
The federal Liberals ordered a national security review of TikTok in September 2023, but it was not public knowledge until The Canadian Press reported in March that it was investigating the company.
At the time, it said the review was based on the expansion of a business, which it said constituted the establishment of a new Canadian entity. It declined to provide any further details about what expansion it was reviewing.
A government database showed a notification of new business from TikTok in June 2023. It said Network Sense Ventures Ltd. in Toronto and Vancouver would engage in “marketing, advertising, and content/creator development activities in relation to the use of the TikTok app in Canada.”
Even before the review, ByteDance and TikTok were lightning rod for privacy and safety concerns because Chinese national security laws compel organizations in the country to assist with intelligence gathering.
Such concerns led the U.S. House of Representatives to pass a bill in March designed to ban TikTok unless its China-based owner sells its stake in the business.
Champagne’s office has maintained Canada’s review was not related to the U.S. bill, which has yet to pass.
Canada’s review was carried out through the Investment Canada Act, which allows the government to investigate any foreign investment with potential to might harm national security.
While cabinet can make investors sell parts of the business or shares, Champagne has said the act doesn’t allow him to disclose details of the review.
Wednesday’s dissolution order was made in accordance with the act.
The federal government banned TikTok from its mobile devices in February 2023 following the launch of an investigation into the company by federal and provincial privacy commissioners.
— With files from Anja Karadeglija in Ottawa
This report by The Canadian Press was first published Nov. 6, 2024.
LONDON (AP) — Most people have accumulated a pile of data — selfies, emails, videos and more — on their social media and digital accounts over their lifetimes. What happens to it when we die?
It’s wise to draft a will spelling out who inherits your physical assets after you’re gone, but don’t forget to take care of your digital estate too. Friends and family might treasure files and posts you’ve left behind, but they could get lost in digital purgatory after you pass away unless you take some simple steps.
Here’s how you can prepare your digital life for your survivors:
Apple
The iPhone maker lets you nominate a “ legacy contact ” who can access your Apple account’s data after you die. The company says it’s a secure way to give trusted people access to photos, files and messages. To set it up you’ll need an Apple device with a fairly recent operating system — iPhones and iPads need iOS or iPadOS 15.2 and MacBooks needs macOS Monterey 12.1.
For iPhones, go to settings, tap Sign-in & Security and then Legacy Contact. You can name one or more people, and they don’t need an Apple ID or device.
You’ll have to share an access key with your contact. It can be a digital version sent electronically, or you can print a copy or save it as a screenshot or PDF.
Take note that there are some types of files you won’t be able to pass on — including digital rights-protected music, movies and passwords stored in Apple’s password manager. Legacy contacts can only access a deceased user’s account for three years before Apple deletes the account.
Google
Google takes a different approach with its Inactive Account Manager, which allows you to share your data with someone if it notices that you’ve stopped using your account.
When setting it up, you need to decide how long Google should wait — from three to 18 months — before considering your account inactive. Once that time is up, Google can notify up to 10 people.
You can write a message informing them you’ve stopped using the account, and, optionally, include a link to download your data. You can choose what types of data they can access — including emails, photos, calendar entries and YouTube videos.
There’s also an option to automatically delete your account after three months of inactivity, so your contacts will have to download any data before that deadline.
Facebook and Instagram
Some social media platforms can preserve accounts for people who have died so that friends and family can honor their memories.
When users of Facebook or Instagram die, parent company Meta says it can memorialize the account if it gets a “valid request” from a friend or family member. Requests can be submitted through an online form.
The social media company strongly recommends Facebook users add a legacy contact to look after their memorial accounts. Legacy contacts can do things like respond to new friend requests and update pinned posts, but they can’t read private messages or remove or alter previous posts. You can only choose one person, who also has to have a Facebook account.
You can also ask Facebook or Instagram to delete a deceased user’s account if you’re a close family member or an executor. You’ll need to send in documents like a death certificate.
TikTok
The video-sharing platform says that if a user has died, people can submit a request to memorialize the account through the settings menu. Go to the Report a Problem section, then Account and profile, then Manage account, where you can report a deceased user.
Once an account has been memorialized, it will be labeled “Remembering.” No one will be able to log into the account, which prevents anyone from editing the profile or using the account to post new content or send messages.
X
It’s not possible to nominate a legacy contact on Elon Musk’s social media site. But family members or an authorized person can submit a request to deactivate a deceased user’s account.
Passwords
Besides the major online services, you’ll probably have dozens if not hundreds of other digital accounts that your survivors might need to access. You could just write all your login credentials down in a notebook and put it somewhere safe. But making a physical copy presents its own vulnerabilities. What if you lose track of it? What if someone finds it?
Instead, consider a password manager that has an emergency access feature. Password managers are digital vaults that you can use to store all your credentials. Some, like Keeper,Bitwarden and NordPass, allow users to nominate one or more trusted contacts who can access their keys in case of an emergency such as a death.
But there are a few catches: Those contacts also need to use the same password manager and you might have to pay for the service.
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Is there a tech challenge you need help figuring out? Write to us at onetechtip@ap.org with your questions.
LONDON (AP) — Britain’s competition watchdog said Thursday it’s opening a formal investigation into Google’s partnership with artificial intelligence startup Anthropic.
The Competition and Markets Authority said it has “sufficient information” to launch an initial probe after it sought input earlier this year on whether the deal would stifle competition.
The CMA has until Dec. 19 to decide whether to approve the deal or escalate its investigation.
“Google is committed to building the most open and innovative AI ecosystem in the world,” the company said. “Anthropic is free to use multiple cloud providers and does, and we don’t demand exclusive tech rights.”
San Francisco-based Anthropic was founded in 2021 by siblings Dario and Daniela Amodei, who previously worked at ChatGPT maker OpenAI. The company has focused on increasing the safety and reliability of AI models. Google reportedly agreed last year to make a multibillion-dollar investment in Anthropic, which has a popular chatbot named Claude.
Anthropic said it’s cooperating with the regulator and will provide “the complete picture about Google’s investment and our commercial collaboration.”
“We are an independent company and none of our strategic partnerships or investor relationships diminish the independence of our corporate governance or our freedom to partner with others,” it said in a statement.
The U.K. regulator has been scrutinizing a raft of AI deals as investment money floods into the industry to capitalize on the artificial intelligence boom. Last month it cleared Anthropic’s $4 billion deal with Amazon and it has also signed off on Microsoft’s deals with two other AI startups, Inflection and Mistral.
