The Economist explains
EPIC GAMES, the video-game developer behind the runaway success “Fortnite”, faces Apple in a blockbuster antitrust trial in America this week. The terms to which developers must agree in order to sell their wares in the App Store on Apple’s iOS devices are a constant source of gripes. On April 30th the European Commission took the preliminary view that Apple was in breach of competition rules, after Spotify, a music-streaming service, complained about the cut that Apple takes from purchases on its devices and its tight control over the App Store. Epic now hopes American judges will loosen Apple’s iron grip on how apps are distributed on iPhones. Why exactly are the two companies fighting?
In August 2020, Epic enabled “Fortnite” players on iPhones to make cheaper in-game purchases (such as V-Bucks, the game’s internal currency) if they paid directly instead of through Apple’s App Store, which takes a 30% cut. In return, Apple booted “Fortnite” off the store. But Epic had already made plans for a fight. The company immediately pulled the trigger on an antitrust suit in California and released a cheeky PR campaign calling on the public to #FreeFortnite.
The money at stake explains Epic’s willingness to do battle. “Fortnite” players have spent more than $1.2bn in the App Store in the two years since it launched. And Apple has loosened its grip for other companies. Amazon does not pay the 30% commission on in-app purchases for its Prime Video streaming app, for example. And last year when events companies, forced by the covid-19 pandemic to go virtual, put on virtual events through Facebook’s iPhone app, Apple waived its fee by allowing users to pay via their own payment methods—outside the App Store. Since Fortnite was kicked off the App Store, Apple has offered what many see as a half-hearted concession. In November, it reduced its commission to 15% for developers who make less than $1m a year. But that does little to help big developers such as Epic, which generate almost all the App Store revenue.
Epic hopes judges will agree that Apple’s rules for developers stifle competition and raise prices. Many developers would appreciate having the option to distribute their apps to iPhone users by means other than Apple’s App Store. Users of Apple’s Mac computers, for example, can download apps through Apple or directly from developers. Epic claims that if two new stores came in to rival Apple’s, commission fees could fall to 15.6% and the average price of an app could dip by 6.5%. It cites its own PC and Mac games store, which charges 12% commission, as an example. After Epic introduced it in 2018, Steam, the dominant store, dropped its cut from 30% to 20% for top-selling games.
Apple says its strict rules for developers ensure a good user experience and protect users’ privacy; those who dislike it can go elsewhere. “Fortnite” is also available on PCs, games consoles and phones that run on Android, Google’s operating system. It also claims 30% commission is a fair price for the billions of dollars Apple has poured into its iOS infrastructure. And Apple hopes to curry some favour by showing that Epic was playing dirty. In Apple’s eyes, the update that led to Fortnite’s removal was planned with the intent of starting a war.
The case will hinge on how the court defines the relevant market. Apple sees itself as one of many players in the games-distribution market. Epic takes a narrower view, arguing that the App Store has a monopoly on selling iPhone apps. In 2018, in its judgment that Google breached European antitrust rules, the European Commission said that Android and iOS were not part of the same market. Epic, and plenty of other developers who feel they have been short-changed, will hope the judges in California come to a similar conclusion.