Litigation Royale – It’s on!

I’ve been all kinds of lawyer over the last 23 years, and while gaming is my first love; lawyering pays the bills. There is nothing a lawyer likes more than a finely balanced dispute that will inevitably to go to court. Firstly that means that the legal fees are going to be very juicy once your client has committed to court with no option to turn back as the stakes are too high to back out. Secondly the litigation will run and run whatever this first round of litigation throws up, district, federal, supreme court rounds, then 100s of regulators and legislators around the world will scent blood and start a new round of expensive scrutiny of Apple and Google’s business app store business models.

With regards to Epic vs. Apple and Google, for a backseat lawyer this litigation Champions League, Super Bowl and NBA Finals all wrapped into one. Epic, we need to remember, is effectively the gaming arm of Tencent (who own 40% of Epic), and significant owners including Sony as well as Fidelity and Blackrock’s private equity teams. So while it is smaller, it has has the financial muscles and the strategic backers necessary to take on even the might of Google and Apple combined. Especially as the payoff could divert enormous profits to Epic not just from Fortnite but for all games it sponsors through the Unreal Engine development platform it provides for a large portion of the the mobile gaming industry.

Ok, so to start with what is this about? (Skip this if you’ve heard this before) Well….. Epic (developer of Fortnite duh) are suing Apple and Google over the restrictions they place on app developers taking payment other than through the Apple and Googles stores. The contractual restrictions for all apps mean that everything you buy through a game or service you access on your phone – for example in-game upgrades, skins, access to new levels and bonuses – have to be made through Apple and Google’s stores, and which thereby gives Apple and Google a commission (around 30%). Some subscription services like Netflix, HBO, get charged “only” 15%. In short Epic and everyone else except Apple and Google think this is monopolistic and unfair.

You may have noticed this in practice in many ways when using apps, sometimes a service can only be bought from a company’s home page but not through the app. Google does this for the Play Movies app on Apple devices. You can browse and watch movies on the Google Play iPhone and iPad apps, but you can only buy or rent them from Google’s home page and not via the app. If Google allowed you to rent the movie from inside the app they would have to pay Apple 30% of everything they charge for renting a film. The effect of this is that a lot of customers go elsewhere for a easier rental experience, for example to Apples own iTunes service to rent a movie, where the cost is the same as Google but the process is simpler on only one account is needed. Here it is clear that Apple’s dominant position puts competitors at a disadvantage.

What does that mean in financial terms? According to data from Sensor Tower – in 30 days, Epic Games’ title had generated $43.4 million in sales via consumer spending on the iOS storefront worldwide. Just through Apple’s App Store alone, Fortnite hit 133.2 million installs and had generated $1.2 billion in revenue, of which 30% goes to Apple. https://www.pocketgamer.biz/news/74193/fortnite-mobile-data-pre-removal/

Meanwhile, in the short time that the Fortnite was on Google Play (four months) it reached 11 million downloads and around $10 million through worldwide spending. Moreover, on the Goolge Play in the last 30 days, the game had attracted two million players and made $3.3 million via consumer spending.

If you look at these figures for monthly revenue from Fornite and double it for all the other Unreal Engine games that would be affected by this then we are talking over US 1 billion of revenue annually just for the Epic related games. The downside for Apple and Google is much higher as this could disrupt the business model that represents

Okay and now for a legal analysis. I’ve read Epic’s complaint to the Northern California District court, and its a document that is meant to play to the gallery, hardly a legal document at all. It continuously disingenuously talks about “Apple’s “taxes” on the developers products, trying to steal a libertarian, right wing sympathy vote from the court. It is very light on competition law and heavy on “we are the upstarts fighting the monopolistic giants of Apple and Google”. That is nothing that will wash in court, especially at appeals and supreme court level. So if it is a childish document what do they hope to achieve?

It’s tempting to to assume that this is just a temper tantrum from Epic’s owner (Tim Sweeney) . He owns over 50% of the stock and can spend what he wants on playing to the fanboy gallery. The risk being here is that it will become his Jarndyce v. Jarndyce. However I don’t like assuming that people are stupid, its rarely true although sometimes it is comforting to believe it. The alternative is that this is a significant move that, if timed right, can end up diverting large amounts of revenue to game developers and away from Apple and Google. Maybe the time is right for this to happen. Developers can’t complain about the amazing new markets Apple and subsequently Google have opened up to game developers but they might be right that it is time for an evolution of app store business models and the only way to do this is to put the question out there for the Supreme Court and the world’s regulators to consider.

I’ve got plenty more to say on this and who will win (spoiler alert: the company name begins with a M and ends in icrosoft) and will expand on this and the numbers in a coming post, but thank you for reading so far and let me know what you think!