You don’t have to be a hardcore gamer to be familiar with Fortnite. As of May 2020, the game has amassed a global player base of over 350 million players and counts Drake, Travis Scott, and Zlatan Ibrahimović as regular passengers on the in-game battle bus. However, last week it made headlines for a different type of conflict altogether, after filing a lawsuit against Apple for allegedly anti-competitive practices on the company’s App store. The coming confrontation has the potential to decide the future of not only mobile gaming, but the mobile entertainment industry as a whole.
The Story So Far
The disagreement between Apple and Epic Games stems from a longstanding Apple App store rule that states that most apps must offer billing through Apple and pay the company 30% of any revenue earned from in-app purchases. On Thursday morning last week, Epic began offering Fornite players a discount by circumventing Apple’s fees and offering consumers the option to purchase items directly from the app. It was pulled from the store hours later.
The story may have ended here. However, what makes this interesting is that it seems that Epic had planned for this reaction all along, and when Apple removed them from their App store, the company got a big surprise. Fortnite filed a 60-page lawsuit set to file in a District Court in California, complete with a slickly edited video parodying the company’s 1984 advert for the Macintosh and a #FreeFortnite campaign. The original ad portrayed IBM as an Orwellian villain that extracted profits simply because of a lack of competition in the market. Nowadays, as the 4th highest earning smartphone manufacturer in the world, as well as a recently minted 2 trillion-dollar company, Apple seems to have lived long enough to become the villain in its own story.
Epic also filed a lawsuit against Google after being kicked off the Play store for the same reason, although judging from the above-mentioned parody video and a social media campaign, Apple is the developers focus. So, what exactly is Epic Games’ objective in filing this lawsuit? To understand this, you must first grasp why App stores have become so popular, and what competition issues this success now raises.
Back in the day, if you wanted to play a game or use a piece of software you had to go to a store and buy a physical version of it. That store was probably charging a retail markup, and physical copies also had to be manufactured and distributed as well. This meant that developers’ actual profits used to be very small. This effectively changed when Apple unveiled the App Store, making it easier and cheaper for developers to distribute their content. In return, developers pay Apple a sort of tax of 30% of revenue for hosting their content on the store. Apple sees this as a fair price to pay for the benefit that developers are getting from the market it provides, with Tim Cook testifying as much to the House Judiciary Antitrust Committee last month. However, Epic Games disagrees.
Their lawsuit accuses Apple of breaching the Sherman Act, which is the piece of legislation that governs competition law in America. This is because Apple controls the platform necessary for the distribution of software on every IOS device, so if you want to sell your software to an Apple device, you must pay Apple its 30% cut. In comparison, Android allows its users to sideload applications or use other app stores to download software onto their devices. Epic alleges that this still disadvantages third-party developers to an unfair extent, but not to the same level that Apple’s policy does. Additionally, Epic does not believe Tim Cook’s explanation that its maintenance of the App Store entitles it to the commission. To put it into perspective, high street stores like GAME must pay rent and employees wages to maintain its physical premises, while Apple’s costs essentially boil down to occasional server maintenance and repair. Last year there were just over $50 billion worth of sales on the App store, meaning that Apple was able to make $15 billion just from operating as a middleman between developer and consumer. Lastly, Apple seems to give certain apps preferential treatment over others. Amazon, for example, is exempt from paying fees on purchases made on the Amazon Prime Video App on iPhone. In a statement to The Verge, Apple explained its exemption agreement is an “established program for premium subscription video entertainment”, but it doesn’t take Sherlock levels of deduction to conclude that the real reason for the deal is Amazon’s sheer size and power.
Why is this important?
Epic Games is not seeking any financial damages from the lawsuit. Instead, the developer requests that the court “enjoin Apple from continuing to impose its anti-competitive restrictions on the IOS ecosystem”. This essentially is an appeal for the court to stop Apple from preventing iPhone users from utilising other avenues to purchase IOS software. Their interest essentially lies in their ability to retain as much of their in-app revenues as possible, which cannot be done while continuing to pay Apple its 30%.
Several other developers have also shown solidarity with Epic Games in its dispute with Apple. Spotify, which filed an antitrust complaint with the European Union in 2019 against Apple on similar grounds, tweeted out a statement in support of Epic Games, saying the dispute “shed further light on Apple’s abuse of its dominant position.”. Facebook has also thrown its weight behind Epic Games, as well as a handful of other smaller developers.
With the recent rise of Big Tech in all aspects of our digital lives, Epic Games’ decision to take this issue into their own hands may affect already ongoing competition investigations and regulatory development in the US and Europe. Their decision to attack Apple using its player base also signifies the strength of the modern-day consumer in these issues, something that has already been highlighted by recent changes brought about by this year’s Climate action boycotts and BLM movement. Apple will have to weigh any future move to protect its commission against the potential bad press it may garner among its user base. Recent reports from Bloomberg that Apple is threatening to deny developers access to updates to apps made using Epic Games’ Unreal Engine platform suggest that this is a cost Apple is willing to pay.
It is still too early to call a winner in the Battle Royale being waged between these two companies. Popular opinion is in favour of breaking up Big Tech monopolies, but the courts have sided with these businesses in the past. What is clear is that Epic Games is no longer content to hide in the bush while the storm closes in. This lawsuit is a deliberate opening salvo against Apple’s App Store tax, and more than a few small developers are sure to be caught in the crossfire before the dust finally settles and a victor is crowned.