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In the antitrust lawsuit between Epic Games and Apple, we were constantly reminded of the fundamental weakness of Epic’s case and the flaw in antitrust laws. Antitrust law is supposed to protect consumers from monopolistic company behavior, like cornering a market and raising prices. But the law doesn’t protect competitors from the practices of monopolists.
Enforcing the antitrust laws in the age of technology and game companies is even harder because of Moore’s Law, which predicts that prices will constantly fall and components will become more powerful thanks to growing tech efficiencies over time. Even monopolists, for the most part, don’t raise prices in this environment.
This week, Microsoft president Brad Smith said on CNBC that the company is adapting to changing tides of regulation, rather than fighting against it. He happens to be trying to win approval for the $68.7 billion acquisition of Activision Blizzard — a deal that will give Microsoft more than 30 game studios to Sony’s 18. But he has a shot at winning, as Sony is bigger than Microsoft in games, and Nintendo provides strong competition too.
Consumers face risk of real harm, however, if companies that acquire game studios decide to make their games exclusive to one or two platforms that they control. When Microsoft bought Bethesda for $7.5 billion, it signaled that, after it finishes obligations to other platforms, that Bethesda’s games will be exclusive to Microsoft. That will help build up its 25 million-strong Xbox Game Pass subscription service.
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But with Activision Blizzard, Microsoft knows it could run into huge antitrust opposition — enough to inspire Congress to change antitrust law — if it does the same with games like World of Warcraft, Overwatch, and Call of Duty. Microsoft signaled already that it would honor its contracts for multiple years to make Call of Duty for the PlayStation platform.
“To be clear, Microsoft will continue to make Call of Duty and other popular Activision Blizzard titles available on PlayStation through the term of any existing agreement with Activision,” Smith said. “And we have committed to Sony that we will also make them available on PlayStation beyond the existing agreement and into the future so that Sony fans can continue to enjoy the games they love.”
He added that Microsoft would also want to spread the Call of Duty franchise to Nintendo platforms. In that way, Microsoft is thinking of such properties as generating larger amounts of revenue across all platforms, like Minecraft, rather than making games exclusive to Microsoft platforms, like Halo.
Smith, perhaps sensing the antitrust opposition or benevolently trying to establish a new way of thinking about game properties, said that Microsoft would make Call of Duty available on other platforms beyond the period of time when the contracts expire.
“If there is one thing we have learned from 25 years of regulatory experience, it’s the right kind of mindset that we hope to bring to this,” he said. “Namely, we want to adapt to regulation, not fight against it.”
A big part of that is app store principles, he said.
Microsoft is also creating a new universal app store, which will let players download games and use them on any platform that they want, like mobile, consoles, and PCs. Right now, users have to go to a different app store for pretty much every device they use.
This means that Microsoft isn’t going to favor its own devices anymore, like the Windows PC or the Xbox Series X/S. This is quite different from the history of tech platforms, which usually try to hoard applications and games as exclusives for their platforms. It’s more open and less closed.
The company still wants to protect privacy, safety, security, and quality — and it’s not using those principles to stand in the way of consumer choice. Smith said he won’t preference Microsoft apps in competition with other apps. He said Microsoft will live up to this responsible behavior even if antitrust legislation never happens.
Smith’s conversion to this benevolence isn’t new just because Microsoft is facing the FTC. This behavior has been codified in the choices made by Microsoft Gaming CEO Phil Spencer over the years. Under Spencer, Microsoft has made numerous movements toward a more open strategy over the years.
Pressure on Apple
This will put pressure on companies such as Apple, Google, and others to match Microsoft’s moves.
The Epic vs. Apple lawsuit left Apple’s reputation bloody for taking a 30% cut of every game and game item sale for a dozen or so years. Epic argued that was like buying a car and having to pay a 30% fee to the car dealer every time you put gas in the car. But Epic still lost on nine out of 10 points. Evidently, however, Epic’s crusade has been taken up by Microsoft, which has lowered its royalty rates.
The federal judge in the Epic vs. Apple case, Yvonne Gonzalez Rogers, said in her it was worth examining the state of the market, and she noted that Apple is “near the precipice of substantial market power, or monopoly power, with its considerable market share.”
But she found that neither party presented evidence of market barriers that would justify court action. The case isn’t over yet, as 35 states filed suit against Apple to join Epic’s side, and the Electronic Frontier Foundation filed an amicus brief today in the appeal. So Apple’s long period of negative publicity isn’t going away soon.
The tides of antitrust are changing. The Biden administration is expected to be tougher on antitrust, and the Federal Trade Commission just stared Nvidia down by opposing its $80 billion acquisition of Arm, and Nvidia and Arm called off the deal.
And curbing the power of the big tech companies is popular with both Democrats and Republicans, so it’s possible that the U.S. will catch up with the European Union and, for the first time in a century, modify antitrust law to protect competition.
Mark Zuckerberg presaged some of Smith’s sentiments when he changed his company’s name to Meta and said it would focus on the metaverse. Zuckerberg said he believed that no single company would build a walled garden for the metaverse. He said the metaverse would be open and built by many different companies to make it interoperable for users.
So far, I like the face value of what Zuckerberg and Smith have said about a new era of openness. Actively changing policies to be less monopolistic or less anticompetitive demonstrates an enlightened self-interest. Rather than being dragged by the courts to comply with consumer-friendly and competition-friendly laws, they could avoid being dragged by developers into court in the first place.
“We’re all living in a world where we’re under scrutiny,” Smith said.
But those big tech companies are going to have to show us through their actions that they mean what they say. It’s going to take a lot of convincing to get devs on their side, given the long history of bad behavior in the industry.
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