As we explained in December, the CMA’s interim report on mobile ecosystems was a great piece of work which takes a holistic view of mobile ecosystems and the competition problems associated with these ecosystems. One concern raised in the interim report was not previously seen in the multiple reports and decisions issued by competition authorities in relation to ‘Big Tech’, namely the CMA’s interim conclusion that “Apple has blocked the emergence of cloud gaming on iOS”. Below, we discuss the emergence of cloud gaming and Apple’s restrictions as identified by the CMA.
Apple’s restrictions on cloud gaming
Cloud gaming uses the processing capabilities of the Cloud to offer games in a way that is ‘platform-agnostic’. Compare it to the user experience on Netflix, but then for gaming: the user has access to a catalogue of games for a monthly subscription fee and can start a game on their console at home, then continue playing it on their mobile phone on their commute and pick it back up when returning home later.
Several companies have invested significantly into cloud gaming, including Microsoft, Google, Amazon and Nvidia. Taking Microsoft as an example, users can subscribe to its ‘Game Pass’, which gives them access to a catalogue of games, including new releases, that they can play without having to buy them individually. The gamer can then access these on multiple platforms. Game developers are paid for their games upfront, in the same way as Netflix pays for its content, and not on a “pay-per-play royalties” basis as happens on Spotify.
When it comes to gaming on mobile devices, the great advantage of cloud gaming is that it can far exceed the technological capabilities of even the newest model smartphone, because the storage and processing occurs mostly in the Cloud. As a result, cloud gaming removes the restrictions of a phone’s storage and processing capabilities and therefore expands the range of games available on mobile devices. It therefore becomes less important for consumers who enjoy mobile gaming to have a top-end mobile device to be able to play the best games on a mobile device.
However, Apple’s App Store Review Guidelines include various policies that restrict how cloud gaming apps can function as native apps from the App Store. For example, an app offering access to a catalogue of games (like Nvidia GeForce Now, Game Pass or Amazon Luna) is not permitted on the App Store. Instead, Apple requires that each game is submitted individually to the App Store, meaning that games must be individually downloaded to the user’s device and that multiple games cannot be streamed from one app. In addition, game streaming services are obliged to use Apple’s IAP system and they are not exempted from it like other types of streaming such as video and music are (as announced in September 2021). According to the CMA’s interim report, Apple’s internal documents show that it had “some awareness” that its policies presented significant challenges to cloud gaming services accessing the App Store.
This does not mean that cloud gaming platforms are completely invisible on Apple devices. Despite not being able to offer their own apps on the App Store, cloud gaming service providers can offer their services through ‘web apps’ on iOS. All major cloud gaming providers have done so, which had the interesting consequence that Nvidia was able to bring back the popular Fortnite game to iOS by including it on its GeForce Now platform web app, after the Fortnite native app had been blocked by Apple (which led to the Epic litigation in the US District Court for the Northern District of California).
Impact on cloud gaming service providers
However, the forced reliance on web apps rather than being able to offer native apps on iOS is having a detrimental impact on cloud gaming. In particular, the CMA highlights that web apps are not listed or discoverable on the App Store. Users can only find them by navigating to the web app via a browser, they are not automatically added to the user’s home screen, and cannot send push notifications to re-engage users. Providers complained that it was difficult to ‘educate’ consumers on how to engage with web apps, because this is not how they are used to engaging with apps.
The CMA also had indications that a range of features and functionalities of cloud gaming services were hindered by using a web app over a native app. A key reason for this is another restriction by Apple: that all browsers on iOS must use Apple’s WebKit. WebKit lags behind other browser engines in functionality, in particular when it comes to support for web apps. According to submissions to the CMA, this had a number of consequences for cloud gaming service providers, including (among others) the inability to offer full-screen mode (rather key for some games), the lack of support for push notifications, and the inability to access hardware-accelerated graphics rendering.
There were also benefits from the use of web apps over native apps, in particular that users would not need to download an app before being able to play games on the service, the possibility to offer a consistent user experience, and the fact that building web apps may be less costly and time-intensive than creating native apps.
Potential harm to competition
To determine the potential harm to competition from Apple’s decision to restrict cloud gaming, the CMA assessed what Apple’s incentives might be for these restrictions, looking at Apple’s own hardware, Apple’s control over how apps are discovered and accessed on iOS devices, and Apple Arcade, Apple’s own subscription service giving access to a catalogue of games.
For consumers who value the ability to play high-end games on their mobile device, cloud gaming can reduce the importance of premium hardware, and reduce switching costs between devices (users do not face an opportunity cost of losing access to certain games when switching between operating systems). While there is also an inherent cost to Apple in blocking a high-quality service like cloud gaming, the CMA considers that overall, the threat posed to Apple’s device revenue by cloud gaming services may outweigh these costs. Currently cloud gaming services are in a nascent stage of development – if, by blocking them from the App Store, Apple can hinder their development more broadly, it would be able better to defend the status quo, where users who want to play high-quality games need high-quality devices to do so, and so help protect its market position.
In relation to app distribution in iOS, the CMA focusses on the fact that apps with a catalogue of games will themselves act like a distribution mechanism, which may reduce reliance of iOS users on the App Store for the discovery of and access to games. This is of course already the case for video and music, which are now mostly streamed via providers like Spotify and Netflix, rather than downloaded onto the mobile device. Cloud gaming could have a similar impact in gaming. If users start using cloud gaming services to find new games rather than the App Store, this could pose a significant threat to an important revenue stream for Apple.
Finally, the CMA assessed whether Apple might have an incentive to restrict cloud gaming to promote its own Apple Arcade subscription service. However, overall the CMA considers that Apple Arcade and cloud gaming platforms like Game Pass and Amazon Luna are not particularly close competitors. According to the CMA it is more likely that any incentive to hinder the development of cloud gaming is driven by the desire to protect Apple’s hardware revenues and market power in app distribution.
Apple’s stated rationale for blocking cloud gaming
Apple submitted that its cloud gaming policies were justified inter alia on grounds of security and privacy. Although other apps on the App Store allow users to access a variety of content, games are different because they are software applications that contain code which dictates the features, functionality, and content accessible within them. Users interact with the game by buying items, submitting personal information to create an account or granting consent for location information. This is not the case for traditional media like music and film. According to Apple, this means that each game must be reviewed under the App Review Guidelines, whereas this is not required for traditional media content. For apps that allow creator content like YouTube, Snapchat or Minecraft, Apple said that users and creators are not creating new software applications but rather making content within the bounds of the software provided by the app developer.
The CMA’s provisional view is that these reasons do not provide a compelling justification for Apple’s restrictions. The CMA considers it plausible that the privacy and security offered through the App Store could be replicated for games within cloud gaming catalogues, for example by a mixture of Apple applying the protections to the cloud gaming app as a whole, and the cloud gaming service provider applying equivalent protections within the app.
Apple also submitted that users expect to be able to find and access individual streaming games in the same way as they currently find downloadable game apps within the App Store. However, the CMA found no evidence to support this submission, and notes that user expectations may change over time as a result of innovation. For example, users would have expected to download music in the past, whereas they are now more than willing to stream songs.
The CMA also notes that Apple’s treatment of other apps that provide a wide range of content including user-generated “creator content” (such as Roblox) provides a model for how it might allow cloud gaming apps on the App Store, while still offering privacy protection. For example, the Netflix and Disney+ apps present age ratings for individual pieces of content within their apps and allow parents to set parental controls. In addition, Google allows cloud gaming apps on the Play Store, without any indication that this has compromised user safety. According to the CMA this is a further indication that cloud gaming services can be offered in a way that is compatible with privacy and security considerations.
Another example of the benefits of the UK’s markets regime
One of the great benefits of the UK’s market investigation regime is that there is no in-built incentive for the authority to narrow the scope of its work. Indeed, in antitrust investigations this incentive is strong, as a narrow scope reduces the areas where an appeal can be brought, and it distils a case down to authority’s strongest arguments. Thus, the Commission’s App Store case is now only about music streaming, and the recent Dutch competition authority’s App Store decision was only about dating apps, whereas both cases initially had a wider scope.
This drive to narrowly scoped cases is understandable and may even be necessary for enforcement to remain timely. However, it can also mean that market-wide abuses are not properly addressed and that newly emerging concerns are missed. Apple’s restrictions on cloud gaming are such a new concern, and it is a credit to the CMA team and the UK rules that it was picked up and that provisional views were provided, for stakeholders to review and comment on.
Grounds for further antitrust cases against Apple?
That said, a UK market study is of course not the only way to deal with competition concerns. It will be interesting to see to what extent Apple’s restrictions on cloud gaming will lead to complaints to competition authorities or ex officio launches of investigations.
In this respect, it is interesting that the CMA identified three possible rationales for Apple’s conduct, the two most plausible ones (in the CMA’s view) being aimed at protecting Apple’s position as hardware supplier and as distributor of apps through the App Store. As for the first, there is an interesting tension between on one hand the need for cloud gaming providers to be able to grow through their availability on Apple devices, and on the other hand the idea that cloud gaming may mean that users will feel less inclined to buy those devices, as they do not need a premium device to be able to access the best games. However, this is not an inconsistency, as the two developments are obviously not envisaged to occur at the same time. Cloud gaming on mobile devices would first emerge as a popular activity (something the CMA is concerned may be nipped in the bud by Apple), and this may in turn threaten Apple’s business model which is focussed on selling premium devices.
Allowing a customer only to access a platform like the iPhone on unfair conditions can be an abuse of a dominant position even when such access is not “indispensable” to the customer, as the Slovak Telekom case has shown. The conduct must still however lead to at least potential anti-competitive effects to infringe Article 102 (or the UK equivalent of that provision). If the restrictions imposed on cloud gaming are indeed found to be unfair, then such anti-competitive effects could range from hampering competition from other device manufacturers to protecting Apple’s dominant position as the operator of the App Store. It would be for the competition authority (or claimant in a private action) to prove that such anti-competitive effects are likely.
Government inaction may force the CMA’s hand
The CMA has decided not to refer Apple and Google’s mobile ecosystems to a full-blown market investigation, choosing instead to rely on the prospective digital markets regulation which will create a regulator in the form of the Digital Markets Unit, and suggesting potential resolutions to the competition concerns it identified which this regulator could then adopt.
However, the Government’s webpage on the Digital Markets Unit was last updated in July 2021 even though its consultation closed in October 2021, and there appears to be a marked difference between the sense of urgency with which the European Digital Markets Act is progressing, and the slow progress in the UK. The results of the consultation need to be digested and the statutory rules need to be drafted, but even when those steps are taken, the rules will only progress “as soon as parliamentary time allows” according to the Government.
In its response to the App Store case in the Netherlands, Apple has demonstrated that it is willing to limit changes to its App Store policies to the country-specific App Store. There should therefore be no assumption that the UK will benefit from any changes Apple makes following the adoption of the DMA in the EU. Swift legislative action in the UK remains the best way to ensure fair competition in digital markets in the country.
But how long can the CMA wait? Having put its eggs in the basket of Government regulation rather than adopting remedies itself (which the CMA could do if it finds adverse effects on competition), the CMA may need to re-consider its options if there is further delay at Government level. The longer the delay, the greater the risk that entrenched positions only get more entrenched.