CMA investigation into cloud gaming marks the start of increased antitrust investigation in gaming | Opinion

The UK Competition and Markets Authority (CMA) announced on June 10 that it plans to launch a market research on mobile browsers and cloud gaming

This is big news because CMA market studies can reshape entire industries. For example, CMA interventions have resulted in the splitting of the three main London airports, all owned by the same company, so that the various London airports are now competing with each other.

With regard to cloud gaming, the CMA found that Apple does not allow cloud gaming services such as Nvidia’s GeForce Now or Microsoft’s Xbox Game Pass Ultimate to develop apps that allow users to access each service’s cloud gaming catalog. Instead, Apple requires each game to be individually submitted to the App Store for Apple approval. It also means that each game has to be downloaded separately to the user’s device and users cannot stream multiple games from one app.

This is big news as CMA market studies can reshape entire industries

Cloud gaming has many advantages. It is no longer necessary for game developers to develop different versions of their games on different operating systems. Developers only need to code a game once and have it available on all platforms. It also enables them to design a seamless experience of their games on different operating systems and reach a wider range of users without transferring to multiple operating systems.

For gamers, cloud gaming makes it possible to take advantage of a cloud gaming service at home, continue playing seamlessly on their mobile device on the go, and resume playing when they get home.

Apple’s restrictions make this impossible for iPhone users unless they’re using a web-based app. However, those apps have drawbacks that give gamers a lower quality service. Of course, some of those drawbacks come from Apple itself — Apple’s WebKit browser engine, which all web browsers on iOS must use, for example, severely limits the functionality of web apps.

Apple claims its cloud gaming policies are justified on the grounds of security and privacy, as well as user experience and expectations. However, the CMA is not convinced that this is a compelling justification for its restrictions on cloud gaming apps. It labels Apple’s arguments on these issues as “exaggerated” and says some of its security measures are “unnecessary.”

It is likely that the intervention of the CMA will have an impact in this area. The CMA has lobbied the UK government for a specific set of rules to address market failures in digital markets, similar to the Digital Markets Act (DMA) in Europe. However, the government has delayed the implementation of these rules, which has baffled the CMA. The CMA has spoken out on its plans to intervene vigorously in digital markets to make up for the government’s slowdown. It is in this context that this research into cloud gaming should be seen.

If the CMA’s concerns about Apple’s restrictions are confirmed, it can be expected to impose strict remedies on Apple, which could even apply globally

If the CMA’s concerns about Apple’s restrictions are confirmed, it can be expected to impose strict measures on Apple, which may even apply globally. That would be a positive development for the games industry and for cloud gaming in particular, as it would ensure that cloud games can be played as intended on all devices.

The market research should be seen in the broader context in which the games industry comes under the spotlight of competition law (also known as antitrust law).

There are of course already some developments in this area, including the Epic Games lawsuit against Apple, including Apple banning Fortnite from the App Store. That case, however, is very much part of the cluster of cases that focuses on Apple’s and Google’s dominance over each of their own app stores, which are not limited to games.

Perhaps more interesting is the case against Valve in the US, and the antitrust investigations into Microsoft’s acquisition of Activisionbecause — unlike the Epic case where Epic complains about practices that affect developers outside the game industry — these cases are specifically about business models that are common in the game industry. The Activision acquisition also revolves around the importance of gaming to the broader strategies of major platforms.

In the Valve case, a US district court recently refused to dismiss claims from Wolfire Games stating that Valve imposes so-called “wide most favored nation” (MFN) clauses on game publishers in its popular PC game store, Steam, and charges game developers with excessive commission fees charged to the Steam store.

Increased focus on gaming brings both benefits and risks for game companies

Interestingly, that commission is at the same level (30%) as the commission charged by Apple for in-app purchases in games, which Epic Games is challenging in its lawsuit against Apple (and multiple authorities have ongoing antitrust investigations into these practices).

Wolfire Games stated that Valve is able to generate approximately $2 billion annually from Steam commissions purely because of its intermediary position between game publishers and gamers. According to the lawsuit, the broad MFN clauses prevent game publishers from offering lower prices to rival retailers, further strengthening Steam’s market position.

Competition agencies are no strangers to broad MFN clauses, which have been enforced against them in cases involving hotel booking sites such as Expedia and price comparison sites such as Comparethemarket.com. When a platform insists on the use of broad MFNs, it means that suppliers of the product or service sold on the platform (whether that be hotel rooms or games) cannot charge a lower price for their product or service when it is on a other platform is sold. This reduces competition as it hinders retailers from lowering prices.

Where the platform also charges a high commission rate like Valve does, a broad MFN can also mean that other platforms cannot compete with the most popular platform by charging lower commission rates, as the suppliers using the competing platform cannot pass on those lower commissions. commission rates for consumers. The competing platform will therefore not look particularly attractive to consumers, as the prices will be comparable to those of the incumbent platform. This reduces the room for competition to lower commission rates.

Microsoft, meanwhile, is gearing up for an all-powerful battle to convince regulators in 17 different countries to approve its $70 billion acquisition of Activision.

As antitrust watchdogs turn their attention to gaming, it is more important than ever to recognize these risks and opportunities

Microsoft and Activision are not currently direct competitors. Why would regulators still scrutinize this takeover? The response is known to competitors as a “vertical theory of harm,” that is, a concern that after the acquisition of Activision, Microsoft will have the ability and incentive to allow other game platforms to access the Activision game library (and in particular the Call of Duty games) ).

Microsoft has struggled to explain that this is not its strategy and that Activision games, for example, will continue to be available on PlayStation. Whether competition authorities will trust or want legally binding commitments from Microsoft remains to be seen.

Increased focus on gaming brings both benefits and risks for game companies. It has the potential to open up platforms and lift restrictions. However, there are also risks, especially for the more powerful games companies.

Whether those companies have market power needs to be assessed with regard to gamers, but also with regard to other levels of the value chain. For example, as the cases regarding Apple’s App Store have shown, there can also be market power between a platform and the developers who depend on that platform to get their games to players.

As antitrust watchdogs turn their attention to gaming, it is more important than ever to recognize these risks and opportunities. Companies whose innovations are hampered by platforms may see an opportunity to lift those restrictions. Larger companies and platforms, on the other hand, need to make sure they fully understand how competition authorities will view their relationships with other players in the value chain to avoid falling on the wrong side of the line.

Meanwhile, exciting times lie ahead for gamers, with more competition and investment that will hopefully improve the gaming experience in general.

Interested parties can respond to the consultation of the CMA until July 22, 2022.

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