Antitrust is turning its eye to gaming

Last week, I spoke at the Video Games Bar Association’s annual summit which took place at devcom in Cologne, Germany. The event confirmed to me that gaming is where the innovative technologies of the future are in many ways already a reality today.

It was my contention at the conference that competition law is turning its eye to gaming. Why?

Why gaming is moving into the spotlight

First, many of the most eye-catching recent cases have centred around Big Tech. We have seen competition cases, including billion Euro penalties, involving Google, Amazon, Apple and Meta recently. As we have discussed in previous blog posts, these have covered widely diverging practices, from the App Store and Play Store rules to how Google self-preferences in Search, and from Amazon giving itself a better deal than independent sellers to Meta’s use of data. Some mergers have seen deeper scrutiny and some deals have been blocked.

When a sector comes under such intense scrutiny, competition authorities and policy makers acquire a deeper understanding of the companies involved. With respect to gaming, the idea has taken hold – not completely unjustified – that gaming is both a major revenue generator and an important area for innovation for these Big Tech firms.

For example, Apple App Store derives most of its revenues from gaming. In the UK alone, Apple earned a net revenue of £400-600 million from digital content App Store billings in 2021. Gaming represents over half of Apple’s in-app purchasing revenue (see the CMA’s Final Report in its Mobile ecosystems market study, paragraph 6.240). But more “traditional” gaming companies like Electronic Arts (EA) have also almost doubled their annual revenues between 2011 and 2022. For a company like EA, which develops games, the majority of its revenues now comes from live services (e.g., in-game purchases of loot boxes and card packs in games like Apex Legends and FIFA), not game sales.

In terms of innovation, technologies like the metaverse and VR are primarily pioneered in gaming. Fortnite, Minecraft and Roblox are effectively proto-Metaverses already, as author Matthew Ball has pointed out in his recent book. Meta is honing its VR technology with its Meta Quest VR headsets, a technology that will have many applications outside of gaming once it is more fully developed.  

Having gained a better understanding of big tech firms, competition authorities are now asking themselves, who are the companies that make the creative content and technological innovation that underpins these developments?

Second, the arena of private damages actions has seen cases being brought against these tech companies. A key line of cases are the private actions in the UK, the Netherlands and Portugal against Apple and Google in relation to consumer harm from its App Store practices (the Dutch cases only involve Apple). Since the majority of Apple’s App Store revenues derive from mobile gaming, the majority of these damages have been suffered by gamers.

Actions have also been brought specifically against gaming companies, with Sony recently defeating an antitrust class action brought on behalf of PlayStation users in the US, but facing a new £5 billion claim in the UK for excessive pricing.

Third, the DMA has been passed and will likely become effective in early 2023. While gaming companies are likely to benefit from this, as – the odd exception aside – they are unlikely to be “gatekeepers” themselves, it also means that national competition authorities will be looking for something else to do. As ACM-Chair Martijn Snoep said in the FT: “The DMA will incentivise the national competition authorities to enforce against companies not considered gatekeepers under the DMA but who have a dominant position”.

As we discuss below, four important antitrust cases already revolve around gaming and give us a glimpse of what can be expected.

Four case studies

The Epic v Apple case needs no introduction and has been discussed previously on the blog. I won’t go into too much detail here. The case is all about the rules Apple imposes on developers that distribute their apps through the App Store. There are many of them, including that it charges a 30% commission on digital goods or services sold through apps and does not allow payments to be made through alternative payment systems than Apple’s own. Apple also does not allow alternative app stores to be downloaded and installed and prohibits sideloading.

Epic started to direct users to buy Fortnite credits through Epic’s own system, in contravention of Apple’s App Store Guidelines. Those credits were a lot cheaper when bought outside of the App Store, because they did not include the 30% commission. Apple retaliated by removing Fortnite from the App Store. Epic sued Apple, and Apple filed a counterclaim. The judgment followed last September.

That judgment was “a bit of a mixed bag”. The judge adopted her own market, “mobile gaming transactions” and found that Apple was not a monopolist on it. Apple’s anti-steering provisions were found to be anticompetitive, and Apple was ordered to remove them. But Apple had the right to exclude Fortnite from the App Store for breach of contract. Epic also had to pay Apple for lost commission on sales it made by selling Fortnite credits to iOS users. Unsurprisingly, each party appealed.

But even if Epic lost the first round on some points and even if the appeal is still pending, the broader point is that Epic may have lost the first battle but won the war. This case brought up many arguments and data points that have been used in other jurisdictions where aspects of Apple’s conduct have been found to be unlawful. Many of the issues raised by Epic now feature in the DMA, including a prohibition on anti-steering provisions and a requirement on gatekeepers to allow other app stores to be installed. The DMA also requires access to app stores run by gatekeepers to be given on fair, reasonable and non-discriminatory terms, which may call an end to Apple’s 30% charge.

These issues, first aired in open court in Epic v Apple will set important standards and the Epic trial played a major role in addressing them.

The Wolfire v Valve case is important for different reasons. Here we are not talking about mobile app stores, but the distribution of games on PCs and the role Valve’s Steam Store plays in that distribution. According to Wolfire, Valve holds 75% of the market and uses MFN clauses, that essentially say that if developers sell games elsewhere for lower prices, Valve will remove them from the Steam Store. MFN clauses are a common issue in competition cases, with competition authorities having looked at these clauses as operated by hotel booking sites like Expedia, and by Amazon.

Wolfire also says that it is suffering harm from the 30% commission fee that Valve charges game publishers when they sell games through Valve’s platform. According to Valve, however, 30% is actually the industry standard: see Apple’s 30% commission.

Clearly, some of the issues that have featured with respect to other tech platforms, like MFNs and the 30% commission, are being raised with respect to a gaming platform like the Steam Store. In this sense, Valve’s Steam Store will become an interesting test case. While these issues may not be fully dealt with in the US action, the Steam Store is also an important distribution platform in Europe. Should European regulators see Valve as an interesting challenger to Apple App Store, because it can offer an alternative app store for games on iOS? Or should they see it itself as a platform with market power that should be restrained?

The case demonstrates the difficult place some gaming companies may find themselves in where they can both benefit from how regulation and antitrust actions are opening up markets, but are also coming under increased scrutiny themselves. A clear demonstration of how dynamic this space is at the moment, and we are not even discussing the European Commission’s decision that Valve and a number of game developers engaged in geoblocking, published yesterday (the link refers to the decision adopted against Capcom; other decisions have been adopted against the other developers under their respective case numbers).

The UK cloud gaming market investigation was also discussed previously on the blog, as were the restrictions Apple placed on cloud gaming apps (see also my joint opinion piece with Tom Smith on Gamesindustry.biz).

Market investigations give the CMA the power to impose far reaching remedies including breaking up companies, without finding any infringement of the law, if the CMA finds that there are features of the market that are restricting competition. It may seem odd then for the CMA to pick cloud gaming, an exciting new area, as a topic for such an investigation. This is because the investigation is in fact about Apple’s restrictions on cloud gaming services from having native apps offering a catalogue of games, as identified in the CMA’s market study on mobile ecosystems. And it seems the CMA is out to remove these restrictions.

Why does this matter? The CMA is concerned that Apple has imposed the restrictions to protect its revenues from the sale of devices (i.e. new iPhones and iPads). 80% of Apple’s revenues come from the sale of devices, and having the best hardware is important for people who want to play high quality games on their smartphone. Cloud gaming can make the quality of the device much less important, because the game is streamed from a remote server rather than downloaded and processed locally. In addition, the CMA is concerned that Apple wants to protect the monopoly of the App Store on iOS. Cloud gaming services are a threat to this, as they give access to many games without needing to go through installing different apps for each game.

A final development is the Microsoft/Activision merger. The decisions of the various competition authorities reviewing this deal will likely be influential for the application of the competition rules to the gaming sectors. Today, the CMA decided to refer the deal to a Phase 2 investigation unless Microsoft offers suitable undertakings.

Looking ahead

The above developments show that gaming is likely to move into the spotlight for regulators and competition authorities. What will the main issues be?

The impact of the DMA of course tops the list. This will be the first time that dominant digital platforms will face market regulation across the EU, and the obligations that will apply to big tech platforms will provide major opportunities for gaming companies to unshackle themselves from restrictions imposed by those platforms.

At the same time, national competition authorities who played a big role in tackling conduct by Apple, Google, Meta and Amazon will be looking for a role and will be keen to address harm caused by dominant firms that are not regulated by the DMA. This will no doubt create an interesting dynamic, especially since the DMA will also set “precedents” around principles and rules that may find wider application when they are used in the context of Article 102 (the prohibition on abuse of a dominant position that applies to all dominant companies).

Damages actions will also play a big role, as the recent action against Sony PlayStation shows. Game developers and consumers can claim back damages (including lost sales or overpaid commission rates) from infringements committed by dominant firms. Funding may be available from litigation funders. We can expect innovative and sometimes speculative cases to be brought which may blur the boundaries between competition law, data protection law and consumer law. Some gaming companies may be targets of these cases.

Deal scrutiny is likely to go up, and this will not just involve the big tech companies. Sony made six acquisitions in 2022 so far, five of which related to gaming or esports. Other high-profile acquisitions this year have included the USD 13 billion acquisition by Take-Two of Zynga. Further concentration may be expected, and competition authorities are bound to take an interest.  

But most importantly, as gaming takes centre stage these issues will all be interconnected, as we have already seen in the case of Valve, which could be described as both a challenger and a dominant platform at the same time.  

For gaming companies, this new focus brings risk and opportunity:

• Risk, because it is becoming much more likely that practices will come under scrutiny by competition authorities. Companies active in gaming will need to build an awareness of competition law into their business decisions.
• Opportunity, because the DMA will make a big difference in breaking open digital markets, and competition authorities are more likely to take complaints seriously.

Most importantly, while there may be turbulence in the short run, consumers will ultimately benefit from this increased focus.

Stijn Huijts is a partner at Geradin Partners. Photo by shark ovski on Unsplash.