US Regulation Likely to Expand Mobile Gaming

Antitrust regulation in the US has gained momentum over the past few years. This summer, two key antitrust bills - the American Choice and Innovation Online Bill and the Open App Markets Bill - will face a Senate vote. With less than a month before the summer recess, this week we will be focusing on what these bills could mean (if passed) for innovation in gaming. Please note that we will not be covering the likelihood of this legislation passing, nor will we debate factors that may influence the outcome.

Understanding the Legislation

In October of 2020, the United States House Judiciary Subcommittee on Antitrust concluded their 15 month investigation on the dominance of the US’s largest tech firms (Protocol). The investigation sought to observe and draw conclusions on the practices of who they viewed as monopolists of the time - Facebook, Google, Amazon, and Apple.

In addition to recommendations on actions specific to these companies, they also proposed a set of 5 bills, all having varying degrees of progress in Congress (Center Forward):

1. Merger Fee Modernization Bill: This Bill would increase the Federal Trade Commission and Department of Justice budgets by almost 30% and change the merger filing fee structure to fall more heavily on larger deals.
2. Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Bill: This Bill would require the targeted companies to make all services interoperable with competitors and third parties as well as permit users to transfer data to competitors.
3. Platform Competition and Opportunity Bill: This Bill aims to limit all mergers and acquisitions (exceptions for acquisitions under $50m) by platform companies.
4. American Choice and Innovation Online Bill: This Bill prohibits online platforms from:
5. Giving preference to their own products on the platform (including in search, ranking, install/uninstall functionality) and unfairly limiting the availability on the platform of competing products
6. Impeding a user of a competing business from accessing its platform, operating system, or hardware or software features
7. Utilizing nonpublic data and restricting data access on users to competitors
8. Ending Platform Monopolies Bill: This Bill goes further than the American Choice and Innovation Online Bill by banning dominant platforms from offering their own products or services at all in a marketplace that it controls. It also proposes banning ownership of any line of business that presents a conflict of interest that could give the platform an advantage over its competitors.

The Bill in this list with the most momentum is the American Choice and Innovation Online Bill, which was approved in March, 2022 to be placed on the Senate calendar to be voted on. The Open App Markets Bill was introduced in August, 2021 - one month before Epic v Apple ruling which determined that Apple was not unfairly monopolizing the mobile app space with iOS or its in-app purchasing system, but still forced Apple to remove policies banning developers from informing users about alternatives to its in-app purchase system. The Open App Markets Bill is an extension of these results and prohibits companies (Apple, Google) from requiring app developers to pay app store commissions when their users make in-app purchases.

What this Means for Mobile Gaming

In short, the biggest implication of the American Choice and Innovation Online Bill and Open App Markets Bill, if made into law, is that any app store will be forced to become an open market. More specifically, this opens the door for third-parties to offer their services to the entire mobile phone user base of Apple and Android (a disruptive change). Some examples include:

• Gaming-specific marketplaces: Gaming apps account for approximately 70% of all Apple App Store revenue which is generated by less than 10% of all App Store users (Source). However, the App Store and Google Play Store are designed for the generic iPhone/Android user. The lion’s share of mobile revenue could be better served by a gamer-specific mobile marketplace; consider the value an Epic Games Store or Steam provides gamers versus the generic Microsoft Store on PC. Existing game marketplaces on PC/console have created aggregated platforms that already have users and are well positioned for mobile expansion. However, strong mobile-only players (Zynga, Scopely, Jam City, Supercell) are even better positioned to target mobile gamers. Since mobile games lack the same exclusivity and access limitations that we have historically seen in PC/console, there is also an opportunity for new marketplace offerings to compete.
• Creative marketplace monetization tools: These new marketplaces can offer new methods of monetization outside of the simple ads we see today. For example, games could be demoed in return for loyalty points redeemable on the marketplace.
• New financial solutions: Traditional payment processors charge a take rate of 3-5% (PayPal, Stripe, Xsolla, Venmo). Considering Apple or Google’s 30% take-rate, there would be an opportunity for new mobile payment solutions to emerge across the entire stack (for example, peer-to-company, peer-to-peer, peer-to-vendor transactions). From an economics perspective, large publishers and marketplace operators are incentivized to establish their own financial solutions within their ecosystems versus leveraging Apple or Google. For gamers, this could lead to not just cheaper gameplay, but more open player-to-player economies in-game and in-marketplace.
• Advertising and marketing tools that better understand gamers: New marketplaces that responsibly share user data (or even publisher owned marketplaces) will help studios and publishers create better games for their end users. Tools that can analyze this data and understand players across games will make this all the more powerful.
• More “premium” mobile games with complex in-game economies: Mobile developers not subject to 30% fees will have more resources to build better games with stronger content, deeper economies, more compelling mechanics, and potentially new creative in-app player monetization.

Our perspective: If the American Choice and Innovation Online Bill and Open App Markets Bill pass into law, we anticipate rapid expansion of gaming-specific mobile tools, platforms, and infrastructure verticals. Subject to lower fees, we believe developers will use the increased capital to further innovate on their products and potentially lower the price of gameplay for players. If further scrutiny of monopolistic practices of tech platforms continues and given our prediction of further consolidation in the industry, we expect a burst of rapid acquisition of smaller companies building the tools and infrastructure needed to operate industry-specific marketplaces.

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