An Epic Court Battle: Video Games Industry Memo, 09/11/2023
Epic Games takes on Google in a second round of non-lethal developer vs gatekeeper combat
Epic Games and Google go toe-to-toe in court over the ‘Google Tax’
Grand Theft Auto VI trailer to be unveiled next month
I pretend that Football Manager 2024 is a bigger release than COD
Mothra vs Godzilla. Alien vs Predator. Luton Town vs Watford. These are the names that spring to my mind when I think of epic combat between broadly unlovable or controversial characters.
But this week, a different Epic battle has been taking place. And I promise the capital letter there is grammatically correct.
The big read - An Epic Court Battle
Epic Games is back in court as part of its ongoing crusade against some of the biggest mobile storefronts in the global games industry.
The company is suing Google, after it removed Fortnite from the Play store in 2020 for using a third party payment service to skirt the store’s 30% revenue share.
Epic claims that Google has created a monopoly over Android app stores, preventing the use of alternative app stores, sideloaded content and other payment systems that could provide better value and choice for consumers and developers.
Google, meanwhile, claims the 30% charge is a fair fee to access the market and that restrictions on other app stores and sideloading are intended to protect consumers from harm of downloading unmoderated apps.
It is hard to know who will emerge victorious in this heavy-weight legal clash. But what I can say is that the case is symbolically representative of how developers have increasingly fallen out of love with the app stores and their fees.
And whether Epic wins its case or not, its argument for a more open app ecosystem looks like it is being steadily won across the world.
One stop shop
To understand why app stores are under pressure now, it’s important to know why they were so positively received when they first emerged in the late 2000s.
And the reason they were so well received was simple: it was really bloody hard to sell mobile games or content to consumers before then.
In the late 1990s and early 2000s, distributing a mobile game was an expensive and tricky endeavour that was weighted heavily in the favour of the distributor.
Games made in the very early days of the mobile industry were generally flogged either online at a snail’s pace by low-speed mobile internet or by installing them directly onto handsets before they were shipped out to market.
And while there was some money to be made from making mobile games, it was a high-friction activity.
Games were usually sold in a patchwork manner from country to country through a network of carriers and handset manufacturers, who would often seek head-spinning revenue shares of upwards of 70-80% to account for the complexity (and, y’know, because they could.)
The arrival of the Apple App Store and Google Play in 2008 was so important because it significantly improved both the process of selling mobile games and gave much needed power back to the creators.
Instead of engaging in a lengthy and complicated commercial process to sell games through an intermediary, developers were able to upload their content to a store directly, localise and sell games to users around the world without friction and receive payment pretty much seamlessly.
As smartphone adoption rocketed and developers creating games through the stores began to generate impressive revenues from millions of players, the app stores turned the sale of mobile games from a challenging niche into a smooth and inclusive process which helped the industry to explode in size.
And given that developers were well aware of stingy revenue share offers elsewhere, Apple and Google’s 30% cut was seen as cheap and reasonable by an industry that was being carried upwards upon their backs.
Platformers
However, over the course of the past decade that perception of value has steadily changed. Increasingly, mobile game developers have become resistant to the scale of the charge and wider platform policies for three main reasons.
First, the dominance of free-to-play games over the mobile sector has removed much of the economic argument for Apple and Google to maintain a higher cut of revenue.
In the early days of the app stores, free-to-play developers such as King and Supercell benefitted from the scale and reach of the new distribution channels; landing on the devices of a wider range of players across the world.
But as the leading free-to-play mobile games titles became long-lived ever present services, the ongoing costs of maintaining an experience for players by providing new content, technical maintenance and wider commercial services (e.g. community management) fell on the developer rather than the store.
As the value in the ecosystem moved away from delivering the install to providing service to the user, developers increasingly began to ask why a 30% cut was fair for the store given the diminished role it was beginning to play in the process.
Second, and closely related to the first point, store policies that blocked the use of alternative payment processes or app stores have increasingly been perceived as deliberate attempts to sure up the store’s position in this new economic environment.
Despite the fact that third party processing services were becoming increasingly secure and trusted across the wider digital economy, the major app stores imposed restrictive terms and conditions on their use within the ecosystem as an early user safety measure and never changed course.
This has helped create the conditions where developers believe that that the revenue share from the storefront is less a meaningful dialogue over fair value and more of an ongoing non-negotiable tax to access the multi-billion mobile ecosystem: increasing resentment towards it.
Finally, the rise of platforms within the mobile games ecosystem has led to the emergence of businesses who have both a good reason (and deep enough pockets) to turn dissent into direct challenge.
Games such as Roblox, Minecraft and Fortnite evolved into spaces that exist beyond the confine of a single platform, where individual creators have been empowered to both create what they want and begin the process of making money off it.
But to enable this down-stream economic activity, platforms have had to become storefronts in their own rights - implementing technical infrastructure within their games or services that is necessary to their business but runs counter to Apple and Google’s closed market philosophy.
This set the scene for an eventual collision between developers and stores over both the revenue share and the platform policy, which eventually played out in Epic’s public falling out with both store fronts.
Google played?
So, will Epic Games win its case against Google? Honestly, I don’t know. Smarter minds than mine suggest it is tough to call, despite the Fortnite creator being comprehensively bested in court by Apple on a similar basis to this case.
What I do think is that the outcome in the US courts is broadly immaterial. Ever since Epic decided to sue both parties, it’s strategy has been as much about exerting public pressure on the storefronts to achieve its ends as it is about achieving legal redress.
And it is arguable that its public work - ranging from attention grabbing #FreeFortnite campaigns to running a loss leading PC games store on a lower rev share to make its point - has led to a bigger change in store policy.
While neither storefront is likely to suddenly cut a large hole in their near $100bn a year app store revenues, both have made at least partial fee concessions to attempt to assuage concerns.
Both gate-keepers cut the rev share for games listed via subscription services from 30% to 15% (with some strings attached), as well as applying a similar cut to developers earning less than a million per year following antitrust pressure.
The storefronts have also allowed developers to quietly eat at the edges of the platform cut, with limited scale external shops such as the Supercell Store steadily rolling out across the industry.
Regulators gunning for big tech have made in-roads into the storefronts that have further loosened up the ecosystem in a way that Epic will be broadly supportive of.
Authorities in Korea, India and the Netherlands have, to differing extents, empowered developers to use alternative payment systems and allow them to pay reduced platform fee of roughly 25-27% depending on the jurisdiction.
And while Epic’s attempt to brute force alternative stores into the American market via the courts may fall flat, Bloomberg reported last year that the EU’s Digital Markets Act is likely to lead to Apple allowing for the sideloading of content by the end of this year: easing the path for wider adoption around the world through public pressure, legal wins or regulatory creep.
This pressure won’t spell the imminent end of the 30% cut or stop developers paying it. Even amidst the concerns, the value of distributing mobile games via a store and the headaches of calculating more complicated fees by building custom routes to market will lead many to sticking with what they know.
But as referenced at the start, this isn’t really about the smaller developers: it’s about the Pacific Rim sized players battling for supremacy at the top of the sector.
And for them, the outcome of this Epic fight is likely to be steadily increasing freedom (and steadily decreasing platform fees) within the mobile ecosystem - irrespective of whether the app stores like it or not.
News in brief
GTA’s trailer parked: The first trailer for Grand Theft Auto VI is set to be unveiled in early December. Will I win a tenner off a mate after betting earlier this year that they’d reveal the new game just prior to The Game Awards - rather than at the show itself - on the 7th December? Stay tuned to find out…
Epic Battle (part 2): In further Epic news, Fortnite’s OG update, which returned the game to its original map, smashed records with more than 44m players diving back into it over the weekend. That’s presumably great news for the 16% of Epic Games staff laid off last month on the basis of the company underperforming, I’m sure.
Legendary Entertainment: Nintendo has confirmed that a live action film based on The Legend of Zelda is in the works. Few details have been revealed so far but I can confirm that I will be doing an exclusive VGIM subscriber field trip to the cinema to watch it when it is ready.
X gone, give it up ya: Sony is ditching direct sharing of clips to social network X via its consoles, seven months after Xbox did the same for PC and console players. It reinforces the ongoing decline of X as one of the major routes to engage players, as well as a space for the games industry itself.
The Generative AI Game: Hot on the heels of a recent VGIM prediction from Tommy Thompson that companies would seek ways to use generative AI tech in house is the news that Xbox has partnered with Inworld AI to “build narrative and dialogue tools at scale”. Intriguing.
Ins and outs - jobs special
Gram Games is eyeing up a new Creative Director…NaturalMotion is hoping the force is strong with an Executive Producer for its Star Wars game…Delany&Co is hiring a Junior Policy Advisor…Nintendo is looking for a Product Regulatory Compliance Advisor…oh and a little company called Tencent is recruiting for a Global Games Publishing Lead.
Events and conferences
Golden Joysticks, London - 10th November
Unite, Amsterdam - 15th-16th November
The Game Awards, Los Angeles - 7th December
Pocket Gamer Connects, London - 22nd-23rd January
Games of the week
Football Manager 2024: The management sim with a vampiric hold on my free time returns to drain more of my ever-dwindling life supply.
Call of Duty: Modern Warfare III: Latest entry in Activision’s FPS series asks what virtual war is good for (aside from money making, naturally).
Spirittea: How much selling do I have to do for a game pitched as Stardew Valley but with ghosts and bathhouses? Answer: none.
Like a Dragon Gaiden: The Man Who Erased His Name: Indecisively named Yakuza action game is now available across platforms.
Before you go…
Game of the year season is upon us.
And while I will be sharing some thoughts on the games I loved this year, I also thought it’d be a bit of a waste if I didn’t tap into the expertise, insight and mad writing skillz of my excellent subscriber base.
That’s why I’m running the first ever Video Games Industry Memo Game of the Year Readers’ Round-Up (VGIMGOTYRR, for short) next month and I want you to join in.
Send me 150-200 words on your favourite game released this year here with the subject VGIMGOTYRR by Monday 4th December.
The best will then be selected for publication on Thursday 14th December, after which I will be buggering off on holiday until 2024.
So, what are you waiting for?
WRITE. WRITE AS IF YOUR LIFE DEPENDED ON IT.
Got a tip for our ins and outs, events and conferences or games to watch sections? Or want to chat about Work Stuff? Drop me an email here.