Experts clash over gamer market in Apple antitrust trial

Epic Games' landmark antitrust challenge against Apple over policies that govern the App Store delved Thursday into clashing interpretations from expert witnesses about the market at issue in the case.

Lorin Hitt, professor of operations, information and decisions at the University of Pennsylvania Wharton School of Business, said the market is the entirety of digital game transactions, including those taking place on gaming consoles such as Microsoft's Xbox, Sony's PlayStation and Nintendo's Switch.

Michael Cragg, chairman of international economic consulting firm Brattle Group, offered an entirely different definition of the market, insisting that it's not apps but rather the stores through which those apps are distributed.

The experts sparred during the second week of a federal trial before U.S. District Judge Yvonne Gonzalez Rogers over Apple's 30% commission on in-app purchases and payment processing restrictions. The ninth day of the court battle featured economic and antitrust terminology like "friction," "substitution" and "switching."

Expert testimony has focused on the boundaries of the market, which consists of all products that buyers view as close substitutes. Fortnite creator Epic has argued users of Apple's iOS operating system largely do not have access to apps on the App Store on other platforms and that, when they are, they are not substitutable for each other. Epic Games v. Apple Inc., 20-cv-05640 (N.D. Cal., filed Aug. 13, 2020).

But during his direct testimony, Hitt said Epic is able to reach users on numerous other platforms. Most of the gameplay on Fortnite, he said, is not on iOS devices.

Between March 2018 and July 2020, 10% of Fortnite gameplay was on an iOS device, according to an analysis from Hitt. Of those who played on such a device, they only accounted for 13.2% of game revenue, which he said shows "a lot of people purchase on other platforms," where Epic is not subject to Apple's 30% commission.

Following Fortnite's removal from the App Store, Epic retained 81% to 88% across all iOS users because they went to other platforms to buy virtual currency for the game.

"Consumers are willing and able to move across platforms when they have reason to do so," he said.

Whether users switch between platforms, Hitt testified, relies upon how much "friction" they experience. He said developers control this because they can offer sign-in options to facilitate app use across different platforms.

Dating app Tinder, for example, can be used on the app or on a web browser, Hitt noted. He said "Developers can make it relatively easy to do transactions in a variety of places."

Of the Top 25 gaming apps on the App Store, Hitt said most are offered on multiple platforms.

But on cross examination, Epic attorney Yonatan Even, a partner at Cravath, Swaine & Moore LLP, aimed to undermine Hitt's testimony by showing that multiple gaming apps Hitt listed as being available on a web browser are actually not.

Even showed that "Words Story," a game Hitt said was available on both platforms, is actually only available as an app.

When asked if he checked that the games were from the same developer when he compiled the data, Hitt responded that his team did the research on the analysis.

"Sir, this is your testimony, not your research team's," Even responded.

There were similar inaccuracies for other games listed in Hitt's analysis of apps on multiple platforms.

During his direct testimony, Cragg rebutted testimony from Hitt and other expert witnesses for Apple.

"The Apple experts' market definition is both too broad and too narrow at the same time," he said. "I concluded that Apple has significant market power."

When asked about the function of games on smartphones versus those on consoles, Cragg testified they are not substitutes for each other. He likened games on consoles to "blockbuster movies" whereas games on mobile devices cost considerably less to make. He also said the experience of gameplay on smartphones is "more limited because of the size of the screen."

Cragg noted that Fortnite players spend drastically more time playing on their consoles than on their iOS devices.

"Console players are more engaged in their play with Fortnite, and they spend more," he said. "So it corresponds to the idea that the play on these devices is being done in a way that doesn't support them being substitutes for each other."

Cragg concluded that Fortnite players "play on a single platform for the most part."

An unnamed witness for Apple will be unavailable to testify as scheduled. Apple did not respond to a request for comment on whether the testimony from the witness will be rescheduled or if he will no longer testify.

The trial will continue Friday with testimony from Epic's expert economist, David Evans, chairman of the Global Economics Group and University College London professor.