Apple vs Epic Games: Will we see a game revolution this summer

BY COLIN CAMPBELL, JOURNALIST AND WRITER

This summer could herald a game industry revolution. The United States Congress is ready to vote on potential bills that could severely limit Apple and Google’s current mobile gaming digital stores practices, which are widely viewed by game publishers and developers as unfair. Meanwhile, the European Union is legislating to limit the power of big tech platform holders.

Game-makers are paying an extortionate royalty of 30% on all in-app purchases to Apple and Google. They are also barred from pretty much any in-app marketing activities that steer customers to alternative retail destinations.

Developers and publishers are seeking a better deal, and less centralization from Apple and Google. They must be encouraged by the European Union’s recent approval of the Digital Markets Act, which seeks to deliver real change to the industry.

The Digital Markets Act means that digital gatekeepers in the EU will be obliged to allow developers and publishers to direct users to alternative retail outlets rather than the official platform stores. Developers will be able to use third-party retail hubs to “sideload” their apps, bypassing the restrictions and high costs of first-party hubs. It’s early days yet – legal challenges and delaying tactics are all but certain – but it’s a move in the right direction.

Earlier this year, we saw the Senate Judiciary Committee bipartisan approval of the Open App Markets Act, which would curb the power of the two platform holders, which own more than 95% of the smartphone gaming market in the U.S and Europe. Now we await Senate Majority Leader Chuck Schumer and House Majority Leader Nancy Pelosi who need to get their acts together to table a hearing before the summer recess.

Alternatives blocked

Anyone who wants to sell games to people who own Android or iOS phones must agree to a ream of policies that favor the retailer, and that restrict the freedom of the game developer to seek out alternatives.

You’ll probably recall the hullabaloo from last year, when Epic Games tackled Apple in a U.S. court. The creator of Fortnite accused Apple of monopolistic policies and outright greed.

Following a long and intensely followed hearing, Judge Yvonne Gonzalez Rogers mostly ruled in favor of Apple. But although she said that the law prohibited her from forcing Apple to change its policies, she criticized the company in practice and in spirit. She did rule that Apple had to cease its ban on app-makers “steering” customers to alternative locations to buy in-game items, although legal blocks have yet to be cleared before even this concession can be enacted.

Meanwhile, both Apple and Epic Games, for differing reasons, have appealed the ruling. In May 2022, Epic Games filed a new appeal claiming that Apple’s lawyers had misled the court, and that the judge had “committed multiple legal errors in rejecting Epic’s Sherman Act claims.”

The Sherman Act is a gilded era law that seeks to limit companies from creating artificial monopolies, although it also states that market dominance attained through honest means is perfectly legal. The space between willful corporate conspiracy, and successful business practices has been the battleground for many anti-trust lawsuits over the past century or more, including one in 2012, filed against Apple, and alleging that it used its power to collude with major book publishers to artificially elevate the price of ebooks. Apple lost that case.

Apple and Google argue that their 30% cut is justified by the quality of their retail environments, and by the costs of maintaining online storefronts and digital delivery. Game developers, almost universally, view the royalty as excessive, pointing to the extravagant profits earned by both Apple and Google from their respective app stores. Even Judge Rogers called the commission levels into question, while stating that she could not address the issue because she had nothing with which to compare it. This is the irony of Apple and Google’s duopoly – there are literally no other choices.

A Fair deal for game developers

Epic Games CEO Tim Sweeney, who brought the action against Apple and Google, has long been a critic of online retailers who use their power to extract grotesque profits from gaming developers. In 2018, Epic launched the Epic Games Store as a PC gaming alternative to Valve’s Steam. Epic Games launched with a royalty of 12% against Steam’s baseline fee of 30%, and although the store’s launch costs have been high, leaked documents suggest it will begin to turn a profit by 2025.

Of course, the PC market is different from the smartphone games market in many ways, but the essential cost of delivering digital content is demonstrably not 30% of revenues in either case.

Restrictions on vendors selling in-game items direct to consumers are justified by Apple and Google as being about maintaining security and privacy for users. But as Epic Games points out, this argument is undercut by Apple’s own policies for its range of Mac computers, which are subject to a far more open ecosystem.

Senate Majority Leader Chuck Schumer says he wants to put the Open App Markets Act up for a vote before the summer recess in August. But the window of opportunity is closing fast, and the Act is likely to die once Congress reconvenes in the autumn, when the midterm elections will dominate all proceedings.

The Open App Markets Act is popular among both Democrats and Republicans. The former generally believe that Apple and Google’s practices are unfair, while the latter despise big tech companies, accusing them of liberal bias and censorship. In a Congressional Hearing in July 2021, company leaders from Apple and Google, as well as Facebook (now Meta) and Amazon were roasted by senators from both sides, who expressed anger at the power wielded by those companies.

If Schumer and Pelosi bring the Act up for a vote in the Senate and House, it has a decent chance of passing, and ending up on President Joe Biden’s desk, where he would certainly sign it into law. Few, outside Apple, Google, and its apologists, are rooting for any other outcome. Whether Schumer and Pelosi have the will to bring about this major change to gaming, remains to be seen.

For the game industry, the destruction of Apple and Google’s walled environments would have profound effects. Decentralization of the mobile market would immediately create significantly greater profit margins for both developers and publishers as well as new revenue opportunities through alternative retail outlets. This extra income could be used to invest in new development projects and greater employment opportunities.

Greater freedom from Apple and Google content policies would also help to circumvent genuine censorship firewalls placed by authoritarian regimes around the world, which stop consumers in those countries from experiencing the full range of gaming content. Developers would be free to investigate creative outlets that are currently risky, due to the retail hubs’ opaque and seemingly arbitrary content policies.

Little wonder that so many in the game industry are carefully watching Congress this summer – as well as the practical changes brought by the EU’s new ruling – hoping for a sign of change.

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