The Fortnite competition continues the game.
First, Epic Games, the publisher of the popular online video game, introduced a direct payment option for mobile players – defeating the Apple App Store and the Google Play Store payment methods, each of which reimbursed each of these tech giants a turnover cut .
Apple and Google then withdrew the mobile game from their stores. Answer from Epic Games? Suits filed against both companies describing each other’s app store as anti-competitive and monopolistic.
How the confrontation unfolds has massive implications for how – and who – consumers pay for apps like games and streaming entertainment. “This is a big deal,” Michael Pachter, an analyst with Wedbush Securities, said in a note to investors. “Epic is challenging the price of Apple (and Google’s) within their stores and offers an alternative for users to get the same thing at a lower price.”
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What is the argument?
Epic Games was founded in 1991 and is known as the publisher of games such as Unreal, Gears of War and Infinity Blade, as well as the Unreal Engine, which adds countless video games from Batman Arkham Asylum to Sea of Thieves.
The free-to-play game Fortnite, released in September 2017, has become a hit with 350 million players across multiple gaming platforms, including video game consoles, PCs, Android and iOS smartphones and tablets. The game generated an estimated $ 2.4 billion in revenue in 2018 and $ 1.8 billion in 2019, according to SuperData, a Nielsen company.
Fortnite is free to play, but you can buy in-game currency called V-Bucks, which is used to buy new weapons, custom outfits and dances, or emotions, for their in-game persona. When players spend on Apple and Android devices, Apple and Google get a 30% cut in those sales.
Ep Swedish CEO Tim Sweeney has claimed that the online marketplaces that sell games – Apple’s App Store, the Google Play Store and Valve’s PC game store Steam – are taking an unfair cut from game sales and in-game transactions.
The new mobile payment system for Fortnite players on Android and iOS devices gives players a discount compared to buying through the Apple and Google apps. Starting Thursday, players could choose to purchase 1,000 V-Bucks directly from Epic Games for $ 7.99 – the same price as on PCs and home video consoles. Through Apple’s App Store and Google Play, the same purchase costs $ 9.99.
It’s not Epic’s first move against what they consider to be higher than suitable charges. In December 2018, Epic opened its own online PC game download store, charging game makers 12% for sales, to compete with Steam, which also costs a 30% cut on sales.
“It’s about economic efficiency when you’ve sucked these stores a huge fraction of the profits from games,” Sweeney told The Verge in April 2019. “Valve, Apple and Google make more profit by renting store fees than the devs earn from their own games. ”
Are App Stores Anti-Competitive?
Not inherent. App stores serve as one-stop shopping for consumers for all types of applications, including games. And the device you use allows you to choose which brand to support.
Inside the app stores, companies like Apple and Google gather content and help game makers connect with consumers. “There’s value to it,” Pachter says. “Epic does not dispute the value, but thinks it is closer to 12% than to 30%.”
Dan Niles, founder of AlphaOne Capital Partners, told CNBC that Apple deserves payment for access to its App Store. “I mean, I have a lot of issues with Apple, but the costs they put in the App Store are not one of them,” he said. “I mean, at the end of the day, Epic Games chose to be on the platform; those were the terms. If they did not want to do that, they did not have to, and they get a lot of advantage from accessing Apple’s 1, 5 billion devices worldwide. “
Does this mean higher than lower prices?
That depends. If you are currently a Fortnite player on Android or iOS through the Epic payment method, you will get lower prices with that 20% discount. And Epic’s prices on consoles and PCs seem to be reasonable for the millions who pay for V-dollars on those platforms.
Developers like Epic, the company’s argument in its case against Apple, are being forced to raise higher prices “to pay Apple’s app tax.”
Apple’s stance by breaking distribution – and giving developers direct access to iPhones – would lead to lower prices, says Sandeep Vaheesan, legal director of Open Markets Institute. Binding arrangements, such as software for devices, require consumers to pay for a product that could be priced higher, simply because the party – in this case Apple – has certain power and levy in the market, he says.
“When companies like Apple dominate a market, they decide who participates and on what terms,” he said in a statement. “Epic’s lawsuit is a major step against Apple’s monopoly on the sale of iPhone apps. The federal judiciary must uphold existing anti-trust agreements, including the categorical ban on ties by companies with power, and open up the app market for iPhone apps. owners and app developers. “
But an open market could lead consumers to pay another way – with less secure and less reliable apps – argues tech consultant and business adviser Shelly Palmer in a blog post. Apple and Google create online malls and they ‘rent space to 3rd parties. The price is 30% of your sales. For that’ fee ‘you get access to millions of potential customers. There is no version of a mobile Fortnite without the app stores , “he said. “The app store’s guidelines provide, in principle, a level of quality control for end users.”
Alex Kantrowitz, founder of the Big Technology newsletter, told CNBC that Apple should return, and reduce Epic’s fees. “Rental sales are bad for their business in the long run. So you have to decide as a business, do you want to milk your money as your assets or do you want to innovate your money in the future? ‘
Ultimately, whether prices go up or down will depend on how this standoff is resolved. Still, Pachter is doubtful that developers will reduce prices.
What happens if Fortnite gets an update later this month and current players are unable to get the new content? Will her anger be directed at Apple and Google as Epic? And then, what will be the answer?
When will this be resolved?
If the disputes play out in the courts, they can last a long time. The parties were able to reach an agreement.
And the threat posed by Congress’ regulation of big tech – the CEOs of Amazon, Apple, Facebook and Google testified before a subcommittee of the House Court two weeks ago – could be enough to bring Apple in.
Apple has made deals in the past. It reduced how it cut from 30% to 15% after the first year of Spotify subscribers. But Spotify filed another anti-trust complaint against Apple in the European Union last year, imposing “Apple taxes” and other App Store measures, hindering its growth.
In the fourth quarter of April-June, Apple – now valued at nearly $ 2 trillion – reported revenue from Services, which includes the App Store, Apple Music, iTunes movie rental and iCloud online storage, from $ 13.1 billion, up from $ 11.4 billion a year ago.
Epic, which is private, is secured for battle. Earlier this month, it received $ 1.78 billion in investments, including $ 250 million from Sony to acquire a minority stake in Epic, and the company’s valuation at $ 17.3 billion.
The influx, Sweeney said in a funding announcement, “accelerates Epic’s efforts to build a new kind of digital ecosystem with real-time 3D technology, services that connect hundreds of millions of people, and a digital shopping framework that it offers a fair business model. “
Follow Mike Snider on Twitter: @MikeSnider.
