Epic Games CEO Tim Sweeney Acknowledges Financial Problems Leading to Layoffs

Epic Games CEO Tim Sweeney recently made a surprising admission during Unreal Fest, revealing that the company had been grappling with significant financial difficulties just 10 weeks before announcing a series of sweeping layoffs. This unexpected revelation shed light on the company’s challenges, and it was brought to public attention by a video shared by user @ImmatureGamerX on the social media platform X. The video captured a session held on the first day of the annual Unreal Engine conference, although it’s worth noting that this session was not part of the publicly available live streams.

Sweeney went on to elaborate further on the financial troubles that eventually led to the company laying off 830 employees. He candidly stated that the management team became aware of the severity of their financial problems just a short time before making the layoff announcement. He emphasized that this was not merely a routine “right-sizing” decision, as they had originally intended. Instead, it was a survival strategy born out of necessity. Sweeney expressed his love for their initial plans and acknowledged that the layoffs were primarily to stabilize the company’s finances, ensuring that they would not run out of money during their ambitious venture into building the metaverse.

One significant aspect of Epic Games’ financial challenges was their reliance on the revenue generated by Fortnite, one of their most successful properties. It’s not surprising, considering that Fortnite had become a highly profitable free-to-play battle royale game. In 2021, reports indicated that Fortnite had raked in a staggering $9 billion in just two years, boasting 400 million registered users at the time. Despite the substantial revenue from Fortnite, Epic Games had been spending more than it was earning, a fact Sweeney disclosed in a recent letter to the staff.

One of the major financial burdens on Epic was its ongoing legal battle with Apple, which dates back to 2020 when Epic sued Apple (and Google) after both companies removed Fortnite from their digital storefronts. In addition to legal expenses, Epic faced a $520 million fine for in-game purchases made between January 2017 and September 2022 in Fortnite.

Epic Games had also been notably generous when it came to revenue sharing. They offered content creators using the Unreal Editor for Fortnite a 40% cut of the game’s revenue. Two months prior, the company had introduced the Epic First Run program, which allowed third-party developers to retain 100% of the profits for their newly-released games, making them timed-exclusives on the Epic Games Store. Moreover, Epic took a smaller cut than the industry standard for games released on its digital storefront, charging only 12% instead of the typical 30% seen on competitors like Steam.

To diversify its revenue streams and overcome financial challenges, Sweeney revealed that Epic Games planned to increase the price of the Unreal Engine. However, unlike Unity, Epic did not intend to make it more expensive for game developers. Instead, they would adopt a “seat-based” software pricing model, where customers would pay based on the number of people who could access the software.

These insights from Tim Sweeney shed light on the financial complexities and challenges faced by Epic Games, highlighting the measures taken to secure the company’s financial stability as they continue to innovate in the world of gaming and the metaverse.