The digital sector has been high on the European Commission’s antitrust enforcement agenda recently, as evidenced by the legislative changes undertaken in recent years and expansive enforcement actions. Video games existed long before the regulation of digital companies was even considered. But the motivation of the authorities to cast the net as wide as possible in this industry seems to be strong. In this post we therefore take a look at recent developments and examine whether antitrust authorities are becoming the biggest threat to the video game industry after parents.
Video gaming in the spotlight
The Game-Dev industry has recently been in the spotlight of competition and consumer protection authorities in Europe and beyond. For instance, just recently the Netherlands Authority for Consumers and Markets imposed a bit more than EUR one million on game developer Epic Games International for using unfair commercial practices aimed at children. This decision will contribute to the discussion on suspected unfair commercial practices related to in-app purchases or so called “loot boxes”.
The gaming sector, including distribution, has also been scrutinized in the context of the recent Microsoft/Activision Blizzard merger. This transaction raised serious concerns with the European Commission, the Competition and Markets Authority and the Federal Trade Commission, largely relating to the distribution of console and PC video games.
Newest developments in Poland show that the Polish Competition Authority (PCA) is also willing to join the game and form its own view as to whether competition is not being thwarted in Poland. This closely ties in the PCA’s increased enforcement activity in the previous couple of years, including a more recent focus on digital markets.
The PCA launches explanatory proceedings in a changing gaming sector
It is clear that the gaming sector has undergone a major transformation in recent years, primarily in terms of distribution channels and monetization of gaming. The digital distribution market for games is successfully displacing traditional sales, with players more and more sourcing digital copies on online sales platforms. The monetization of games has also evolved – previously one paid to purchase a given title. Today games are often offered in a subscription model or in free-to-play models, in which revenue is often generated through in-app purchases.
The PCA has announced that it is looking closely at this change and its consequences. On 13 May it issued a press release informing the public of controls performed at three undertakings’ premises from the video game development and distribution sector and the initiation of explanatory proceedings in this sector. The PCA has noted in its announcement that the very change in the nature of the market and the potential for foreclosure or harm to consumers are the primary motivations of its actions.
It is worth noting that this is not the PCA’s first venture into the digital world. The PCA has previously investigated amongst others subscription renewals and modification clauses used in online streaming and gaming services.
What is the PCA looking into?
In the announcement, the PCA indicates that it has become concerned that restrictive practices could have been agreed and/or implemented by the major market players. The investigation concerns in particular the actions of platforms such as the PlayStation Store and Steam. For now, it is not clear from the press release what was the reason to initiate the proceedings – the PCA does not inform whether it acted in furtherance of a whistleblower’s notice, a complaint from market participants or of its own accord.
The PCA emphasizes that it investigates potential exclusions of competing platforms, exploitation of game developers and publishers, as well as higher prices for players. This wide casting of the enforcement net seems to depart slightly from its previous practice. The PCA usually conducts controls or searches in mind of a particular theory of anticompetitive conduct from the outset, which it seeks to confirm during proceedings. That this is apparently not the case at present could be indicative of the fact that the PCA is driven by a concern for the state of the market as a whole and is not acting reactively to a particular behavior.
What is interesting is that the PCA said that it performed a control at the premises of the undertakings, meaning it did not formally require a court order (court approval is required for a search and is issued when there is a justified suspicion of serious breach of competition law). This could support the view that the PCA is indeed trying to understand how the market operates, rather than work to confirm a particular anticompetitive behavior.
A detailed list of practices that the PCA will be investigating includes restrictions on the sale of games and ancillary content on competing platforms or online shops, interference with the pricing and discount policies of game developers and publishers, and restricting market access to competing platforms and other digital service providers.
This proceeding is an investigation of the case in general and not directed against particular companies. However, if the gathered evidence confirms its suspicions, then the PCA might initiate antitrust proceedings and press charges against specific undertakings. The potential fines for anti-competitive behavior are high and can be imposed on both the undertaking and its managers.
Conclusions
The upcoming weeks will show what practices the PCA has identified and whether further enforcement steps will be undertaken. If the PCA’s suspicions are confirmed and the PCA takes action, there could be major implications for the sector as a whole. Given the globalization of products and sales practices in the digital sphere, the investigation by the PCA could reverberate across the world.
So, time to take a seat to wait and see when and how the PCA deals with its newest quest.
Maciej Zelewski is a Senior Associate in the competition practice of Sołtysiński, Kawecki & Szlęzak in Poland.
Rafal Petruczuk is an Associate in the competition practice of Sołtysiński, Kawecki & Szlęzak in Poland.
Picture (for this post) by Possessed Photography on Unsplash
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