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Protocol Gaming
Your essential guide to the business of gaming.

How Epic Games v. Apple could forever change mobile software distribution

How Epic Games v. Apple could forever change mobile software distribution

This week in Protocol Gaming, your weekly guide to the business of video games: what's at stake in the Epic Games v. Apple lawsuit going to trial next week, a leaked Electronic Arts document details its controversial loot box systems and a Blizzard veteran is departing Overwatch.

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Hello world!

Hi there, this is Nick Statt, Protocol's new video game reporter. I've been writing about the gaming industry for close to 10 years and have been playing games since the moment I learned how to use my thumbs. And while I enjoy poring over patch notes and dissecting Nintendo Direct presentations like the most devoted of fans, I've found myself more fascinated in recent years by the ways games are distributed on various platforms, how they make money and how that, in turn, affects what becomes the next ultra-lucrative cultural phenomenon.

So let's get started!

The Big story

Apple and Epic's Fortnite lawsuit goes to trial

No game embodies the idea of being a cultural phenomenon better than Epic Games's Fortnite. What started as a collaborative survival game is now a "Ready Player One"-style transmedia extravaganza featuring characters from across the spectrum of pop culture. It's also wildly successful: The game has made more than $5 billion since its launch in 2017 and now counts more than 350 million players worldwide. Up until last year, the game was available on virtually every screen imaginable.

Fortnite has become a real-world battlefield, too, with the future of Apple's App Store on the front lines. Epic is suing Apple for alleged antitrust violations over the removal of Fortnite from the iOS platform last August, and the case is set to go to trial on Monday. It's slated to be one of the most consequential tech antitrust and video game lawsuits in recent history.

  • At the heart of the suit is an argument over whether Apple can dictate how app developers like Epic monetize their iOS applications, and at a higher level whether Apple can and should be permitted to keep tight control over how app makers reach customers on the iPhone and iPad.
  • Apple is facing increasing antitrust pressure from regulators both domestic and overseas, and developers large and small have voiced criticism of Apple's stewardship of the App Store and the iOS platform as a whole. For years, many developers have decried the 30% "Apple tax" the company collects on all digital goods and services, though Apple has lowered its commission for small developers in recent months.
  • The fight is an existential one for both Epic's business and the future of the App Store. But it has and will continue to have substantial economic fallout. Prior to its removal from the App Store, analytics firm Sensor Tower estimated Fortnite's mobile apps had earned more than $1 billion in lifetime revenue (a lion's share of that on iOS) in just two years.

Here are the broad strokes of the case, starting back in August 2020:

  • On Aug. 13, Epic implemented an alternative in-app payment system for Fortnite on iOS and Android to bypass Apple's 30% cut. Both versions were promptly removed by Apple and Google, and Epic countered immediately with prepared antitrust lawsuits against both companies.
  • Apple then fired back by attempting to strip Epic of both its iOS developer access and the developer license it uses to distribute its Unreal Engine on the macOS platform.
  • Judge Yvonne Gonzalez Rogers, in a series of pre-trial hearings, ruled that Apple could in fact keep Fortnite off the App Store and prevent Epic from publishing new iOS versions for the duration of the trial, but Apple is barred from voiding Epic's developer agreement for the Unreal Engine.

Since last fall, we've seen a fair amount of new details emerge in the lead-up to trial thanks to discovery and document filing, some of which have shed light on both the gaming industry and Apple's business.

  • We've learned some of the more intricate details of Epic's PC business, including just how much money it has lost (more than $300 million) in its quest to grab market share from Valve's dominant Steam marketplace.
  • A series of documents described Apple's decision to purposefully keep iMessage off Android, out of fear it could disrupt ecosystem lock-in.
  • Earlier this month, both companies also published massive troves of documents that laid out more clearly how they intend to argue their respective sides. Epic's core argument mirrors that of the case against Microsoft in the 1990s, with Epic's lawyers arguing that while Apple may not have a monopoly with iOS, it does illegally monopolize iOS app distribution and payment processing. Apple has countered by saying its tight control over iOS and the App Store is a package deal that it cannot forfeit out of concern for security and privacy.

Epic's goals are nothing short of a complete paradigm shift in mobile software distribution, and it has an uphill battle in that regard. Apple's security justification — and the fact that iOS is far from the most dominant mobile operating system — give it a longstanding defense that has protected the iPhone from countless attacks in the past. Why should Apple, which makes the iPhone and iOS and controls the App Store, be forced to do business differently? That's what Epic has to answer starting next week. And the outcome could change the app industry forever.

A MESSAGE FROM HEWLETT PACKARD ENTERPRISE

As the world becomes increasingly digital, we look to a future that's bright with possibilities. But we must first address a stark reality: Unless we radically rethink how we make decisions and who benefits from the outcomes, we risk reducing the chances of participation in the digital economy for billions of people.

Learn more

Overheard

  • "Glad to see Apple embracing the 'one app, many games' model in Roblox. Why not xCloud, GeForce Now, Stadia, and alternative iOS storefronts?" —Epic Games CEO Tim Sweeney took a swipe at Apple on Twitter, criticizing it for allowing Roblox to do what it bars Epic, Google, Microsoft and others from doing on iOS.
  • "Everything started cascading into lunacy … I felt like I'd uncovered some big secret." —Localization Director Andy Johnson revealed how everything began falling apart at baseball star Curt Schilling's 38 Studios in an excerpt from Bloomberg journalist Jason Schreier's upcoming book, "Press Reset," due out May 11.
  • "It's getting harder and harder to defend what is very obviously unregulated gambling." — An Electronic Arts insider talked candidly to CBC about the company's controversial monetization strategies for FIFA Ultimate Team, which are detailed in a leaked 54-page document.

Lootbox

  • Game developer Huuuge is eyeing as many as five acquisitions in the mobile space. The studio, which specializes in mobile casino games, raised roughly $100 million in a Warsaw IPO earlier this year with plans to spend it on scooping up both promising Poland developers and foreign firms, according to Reuters.
  • Departing GameStop CEO George Sherman is getting a golden parachute. The executive and three others are exiting the gaming retailer later with vested stock awards worth close to $300 million, The Wall Street Journal reported, due to the rollercoaster ride GME shares have taken since last fall.
  • Jeff Kaplan is leaving Blizzard Entertainment after nearly two decades. Kaplan, the game director of Overwatch and a beloved industry figure, is leaving amid development for Overwatch 2, though he's not said what he plans to do yet.
  • On Protocol: The video game industry took home its first ever Oscar on Sunday, when Respawn Entertainment and Oculus VR's 25-minute film "Collette" won the Academy Award for Best Document (Short Subject).
  • Apex Legends is the latest battle royale hit to target the mobile market. Publisher EA announced last week it would start testing an Android version in India and the Philippines, following in the footsteps of series like Call of Duty, Fortnite and PUBG.
  • Discord isn't up for sale after all. The gaming chat app and community platform has ended talks with Microsoft and other suitors, opting to focus instead on a potential initial public offering, according to a report from The Wall Street Journal.
  • On Protocol: Epic Games has opened up its PC game store to more app makers, including competing game marketplace itch.io. In yet another subtle dig at Apple, Epic said it won't take a cut of any sales so long as a third-party developer uses its own payment processor.
  • Call of Duty has a new general manager in the form of esports commissioner Johanna Faries. The Activision Blizzard exec has been promoted to the top spot at one of the world's most successful game franchises, making her responsible for the multi-billion-dollar business and its various subsidiaries.

Look out for

VR in the Olympics (sort of)

The International Olympic Committee last week announced the Olympic Virtual Series, a first-ever Olympic licensed event for esports. It will focus not on video games per se, but on virtual reality competitions in baseball, cycling, rowing, sailing and motorsports organized by partnered game publishers and international sports federations. The event will kick off on May 13 and last until June 23.

Thanks for reading. Tell your friends and colleagues to subscribe here, and send tips, feedback and ideas to nstatt@protocol.com. See you next week.

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