We wanted to get some authoritative answers from Epic regarding revenue reports & royalties:
Regarding quarterly revenue reporting: Some platforms (ex. Apple via App Store) use reporting periods that don’t line up with calendar months/quarters (for example, [edit] Apple’s last financial report for us was for Feb 5 thru March 4, 2017). Is it sufficient to report revenue from, for example, all statements with an end-date within Jan 1-Mar 31, Apr 1-Jun 30, Jul 1-Sep 30, Oct 1-Dec 31 to Epic within Q1,2,3,4 respectively, as long as we are consistent?
For currency conversion purposes, is it sufficient for reporting to Epic to use the conversion rates provided by the platform on disbursement (in this example, Apple)?
How exactly does Epic define a single “Product” for the purposes of the $3000 per-quarter per-Product exemption, and for the purposes of notifying Epic of releases? Is it, for example, by distinct Apple app ID, Apple bundle ID/Google package ID, or similar unique identifier for various distribution platforms?
45-day deadline: Is there a separate deadline for the reporting procedure vs. the actual payment to Epic? As long as the report is made within 45-days of calendar-quarter-end, will the payment also be made on time?
Does Epic have a W-9 for us to keep on file? (We are US-based, so “Epic Games, Inc.” particularly)
Do we need to do a notification to Epic before we do any alpha/beta/pre-release to end-users outside of our company (for example, if we use Apple’s external testing TestFlight)? Does the answer change if all the pre-releases are zero-revenue (no ad revenue, no game license/IAP revenue)?
If our alpha/beta/pre-releases are all free (no ad revenue, no end-user license/IAP revenue), do we need to thereafter repeatedly report a $0 revenue until full release?
When we do eventually release the production game to the public, is that a distinct Product to notify Epic of, or is the initial pre-release notification sufficient?
Thank you for the detailed responses @bdavis - apologies for the lengthy questions, we just want to make sure our accounting records will line up with Epic’s interpretations of the EULA, and my quick guess from Google is that you are an accountant for Epic.
Because my follow-up is too long for the forum, I’ve split into 2 parts.
Part 1 - Re: your responses:
On Qs #1, 2, and 5: Re: the interaction between the distributor’s financial reports, currency conversion and the 45-day deadline, to be specific: In determining which revenue falls in which calendar quarter for Epic royalty purposes, which date should we look to being within the quarter: (a) the customer sales end-date for the report, or (b) the date we actually have the final numbers including the currency conversion rates (which is usually the day of or before disbursement). (For example, the last 2 reports we have received, the final USD numbers were reported 32 days after the end-date.)
On Q#3: Yes, this looks like our interpretation. For a single Apple app ID or Google package ID, a single Product covers all of: the initial sale price of the app itself, the revenue we receive from ad placements shown within that app, and the purchases of in-app items within that app. Correct?
For app/in-app sales, Epic states “gross revenue” for the purposes of EULA royalties includes the commissions paid to the app platform/distributor.
(a) Does gross revenue also include VATs/GSTs/and similar taxes when included in the “customer price” as reported by the distributor to us, or may we exclude those?
(b) Are we allowed to exclude from gross revenue the returns/refunds? For example, if the customer pays $2.99 for an app, then refunds the app for -$2.99, does Epic count that as $0 gross revenue or still $2.99?
Let me give another detailed example of why (b) matters. Let’s say we have an app using Unreal (App 1), we have some other app not using Unreal (App 2), and a bundle that includes App 1 and App 2 (Bundle 3). From your definition of Product, it appears there are two Products we would report and owe royalty on, App 1 and Bundle 3.
When a user buys App 1 for $1.99, and then uses the App Store’s Complete my Bundle feature on Bundle 3 to for example get App 2 for say an extra dollar, we’d see accounting for:
(i) the original $1.99 sale of App 1;
(ii) a -$1.99 return/refund of App 1;
(iii) a bundle $2.99 sale of Bundle 3;
We’d believe in this case we’d report {App 1: $0 gross revenue; Bundle 3: $2.99 gross revenue} and not {App 1: $1.99 gross revenue; Bundle 3: $2.99 gross revenue}. Correct?
(to be clear, we aren’t asking for accounting advice for our own accounting/tax definitions of these terms, we just want to make sure we’re on the same page as Epic re: EULA definitions)
Thanks @bdavis - last follow-up for now. Due to Apple’s fiscal reporting months (and thus the customer sales end-dates) not lining up with calendar months, in 2017:
Jan 1-Mar 4 sales fall into Calendar Quarter 1, (ex. the sales of Mar 5-Mar 31 are reported in a monthly statement with an end-date after Mar 31)
Mar 5-June 3 sales fall into Calendar Quarter 2,
June 4-Sept 30 sales fall into Calendar Quarter 3 (and the rest is not public to us yet)
While this means the rough number of days reportable in each quarter varies, I don’t see another consistent way of reporting financial statements with end-dates on or before Mar 31, Jun 30, Sept 30, Dec 31, etc. Sounds good?
Actually @bdavis - Q1 2017 would not have included any of 2016 December, just Jan 1 2017 thru Mar 4 2017 as said above, b/c the monthly report for 2016 December ended exactly on Dec 31 2016. We’re at the mercy of whether Apple decides to make the fiscal months end on, before, or after calendar months/quarters, and looking at FY 2016 and FY 2017, they change their minds year to year. Regardless, all sales will be counted in some quarter, just each quarter may have different number of days as per the example in my comment above.
@bdavis I was looking for an information and came here and got a lot more information. I want to know few more things:
How gross revenue will be calculated on sale period, if I want to give discount for a specific period. For example,
a. Price for a product is $100. I’m giving a coupon of 50% off. So specific customers are buying that product with $50.
b. Same product, we are offering that 30% off to all customers during whole December.
How the gross revenue is calculated over these two scenario?
Assume I’ve submitted royalty reports and payment for Q1. Then I got gross revenue less than $3000 on Q2. But again got over $3000 in Q3. Here, if I don’t have to submit reports for Q2, but still submit lifetime reports with Q3 reports (I saw that epic needs to know life to date number of sales). So how epic will determine that developer was not eligible for revenue during Q2.
I’m still confused about pre orders. If pre orders are taken, should we pay royalties during pre order period or after releasing the product.
For crowd funding (not sale or pre order or game access or anything, without any benefits), will it be counted as revenue?
Thanks for your questions. I hope these answers help.
Gross revenue for royalty calculation would be calculated at the price you sell the product. So discount will be included for periods of sales. If you sold the game for $50 instead of $100, thats $50 in gross revenue for that sale.
When you report Q3, feel free to report for Q2 as well (even if its below $3000) using our submission forms here: Unreal Engine Royalty Form - Formstack You can also choose to mention Q2 was under the $3000 sale threshold when you report a later quarter.
If pre-orders are taken, please report royalties on them in the quarter in which they were earned/sold. This also means if your quarterly royalties/preorders are <$3000 you do not owe anything.
If crowd funding does not effectively count as a pre-order to access the game (i.e., no game code or access is provided for the reward tier) then they are not included for royalty calculation. If a crowdfunding tier partially includes game access, the portion of that tier relating to the game access will be used in royalty calculation. Typically one of the lower tiers in crowdfunding, which often rewards access, will suggest a price for the game we use for royalty calculations.
