Background Information
Elon Musk is the world renowned entrepreneur and businessman who founded Tesla and SpaceX. He is one of the world’s richest people, and is a passionate supporter of emerging technologies and their potential applications. As such, speculation has arisen as to whether Musk has interest in purchasing the popular videogame Fortnite.
Fortnite is the immensely popular free-to-play videogame developed by Epic Games. It is estimated that the game has generated roughly $9 billion in revenues so far, with an average of 250 million players each month. The game was initially released in 2018, and has enjoyed very successful commercial success since then.
The videogame industry has seen Goldman Sachs report that it was the most profitable sector in the entertainment industry in 2020. This, along with the success of Fortnite and the expanding e-sports industry, makes the prospect of Elon Musk purchasing Fortnite an intriguing one.
Relevant Data
Goldman Sachs’ report from March 2021, reported that the videogame industry had surpassed film at the box office, music and streaming all becoming more profitable sectors within the Entertainment industry. This combined with the 150% increase in total consumer spending for videogames in 2020, with the majority of this spending coming from digital downloads, and in-game microtransactions, demonstrates the industries immense potential for making money.
The coronavirus pandemic saw an increase in Fortnite players from 125 Million in February 2020 to over 350 Million in February 2021, and has seen the game become one of the leading gaming households, with over $2 million spent on Fortnite microtransactions daily, as of October 2020.
Epic games are estimated to have made over $2 billion in profits in 2018, $3 billion in 2019 and an estimated $5 billion in 2020. This shows just how successful Fortnite has been and the potential it has to continue generation billions in the future.
Expert Perspectives
There have been varying opinions from experts on whether Elon Musk should purchase Fortnite. In a report by CNBC, analyst Mitch Steves said: “Given Musk’s track record in gaming, I think this would make a lot of sense” indicating to the potential synergy between Musk and Fortnite. Steves has also stated that should Musk decide to purchase Fortnite it could generate billions in profits for Musk and Tesla.
However, in a report from Business Insider, expert investment journalist Lianna Brinded has noted that purchasing Fortnite would be expensive, with the possibility of it being over the $7 billion for which it was estimated by analysts in 2018. Brinded has stated that companies like Microsoft, Activision and Electronic Arts “are not going to let Elon Musk purchase the biggest game in the world on the cheap.”
Despite the expense it might involve, diversity advocate and marketeer Gerri French stated to the BBC that “It would be a great business opportunity for Elon Musk and it would benefit the videogame industry in the long term. It would allow for more investment in the industry, better competitive gaming and new innovations.”.
Analysis & Insights
It seems that the videogame industry is one of the most profitable in the entertainment sector, with Fortnite gaining immense success and profits in the last 3 years. Due to its popularity, it is evident that numerous companies such as Microsoft have already expressed an interest in purchasing the game.
Elon Musk has a long history in the videogame industry, and his knowledge and vision have already helped to launch successful gaming platforms. In this case, his immense wealth and reputation would be beneficial to purchasing Fortnite and capitalizing on its success.
Despite this, his decision to purchase Fortnite would involve a significant financial risk given the cost of buying the game and the possibility of competition from other companies who may outbid Musk. As such, whether the potential rewards would be worth the potential risks, is a difficult decision Musk would need to make.
Legal Aspects
As with any purchase of this kind, there are numerous legal aspects that need to be considered, such as the contracts and agreements between Epic Games and potential buyers, as well as potential liabilities that may arise from owning a game of the scale of Fortnite. The legal costs to purchase and own Fortnite may be a significant factor in the ability of Elon Musk to purchase the game.
The duty of care thatcomes with owning a game like Fortnite, in terms of data protection, privacy laws and copyright, is something that any company or individual who purchases the game would need to pay close attention to, in order to ensure legal compliance. This may be a significant financial burden in itself and could be a deciding factor to many potential buyers.
Furthermore, Poorna Shankar of Neowin has highlighted the potential impact of US government agencies on the potential purchase of Fortnite, due to their potential antitrust regulation prevent the merger of large companies that would reduce competition. This could be a potential hindrance in terms of Elon Musk, or any company for that matter, buying Fortnite.
Economic Factors
As with any business decision, the economic factors of purchasing Fortnite, such as cost delivery, price of the product, customer demand, are all highly important points that Elon Musk and potential buyers would consider prior to any purchase. As customer buying behaviour on videogames is largely determined by cost, customer demand could be a significant risk to the purchase, as customer demand could decrease due to increased prices.
In terms of cost delivery, Fortnite is free-to-play, and as such, much of the money generated by the game comes from microtransactions, which means that as long as customer demand is upheld, then a potential buyer could maintain a similar economic model and see rewards.
In addition, Fortnite already has an established customer demand, which means that any profitability of the game is dependent on this customer base. As such, Elon Musk, or any potential buyer, would need to carefully analyse customer behaviour and the potential customer base for their decision making to be successful.
Finance & Tax
Financially, purchasing Fortnite could be a significant drain on the finances of Elon Musk, as Microsoft and other potential buyers may outbid him for the game. Furthermore, finance and tax considerations would need to be taken into account, such as the tax liabilities that would be present for an international company like Musk’s versus a domestic company such as Microsoft.
This could have a significant impact on the economics of the purchase, as any domestic company would have a much easier time dealing with the legal costs associated with such a purchase. Likewise, any additional costs imposed by taxation would need to be weighed up carefully by any potential purchasing party.
Additionally, given the risk of the purchase, financing the purchase of Fortnite could also be tricky, as any bank or investor may be wary of investing money in such a high-risk venture, which could lead to difficulties in getting money to purchase Fortnite.
Public Perception
Finally, public perception of the potential purchase is also something that would need to be taken into account. Elon Musk is a very public figure and the public view of him could be damaged should the potential purchase fail. Likewise, the public perception of Fortnite could also take a hit if the purchase were to go wrong. This could have a large impact on the ability of any future purchasers, or the ability of Elon Musk and Epic Games to work together in the future.
Likewise, public perception could be a significant factor in terms of customer demand, as any negative public reception could mean fewer players for the game, which would inevitably lead to decreased profits.
Ultimately, purchasing Fortnite would be a major financial decision for Elon Musk, and one that would involve a huge degree of risk. As such, the decision to purchase Fortnite would need to be carefully considered in terms of cost delivery, customer demand, potential legal liabilities, potential financial risks, public perception and taxation.
