Ready for a scrap

Epic Games, the con­sole game devel­oper, is tak­ing on both Ap­ple and Google in the fight of its life

The Daily Telegraph - Business - - Front Page - James Tit­comb

In May, a nine-minute video cap­tured the at­ten­tion of the com­puter games world. In it, a Lara Croft-es­que hero­ine scales caves and cliff faces be­fore en­ter­ing a shad­owy tem­ple filled with ter­ra­cotta soldiers and passes through a shim­mer­ing por­tal. So far, so stan­dard video games fare. What was dif­fer­ent was the game’s ap­pear­ance. Light real­is­ti­cally bounced off the cave’s rock faces, and dozens of bee­tles dis­persed when the ad­ven­tur­ous pro­tag­o­nist en­tered the tem­ple. It was not only more ad­vanced than any video game to date, it seemed al­most photo-re­al­is­tic.

The video was not dis­play­ing a new game. In­stead, it was de­signed to il­lus­trate the ca­pa­bil­i­ties of the “en­gine” used to cre­ate it. Game en­gines are the scaf­fold­ing of the in­dus­try: the set of soft­ware tools and physics mod­els used to cre­ate the ex­pan­sive 3D worlds that hun­dreds of mil­lions of peo­ple dive into on evenings and week­ends.

The jaw-drop­ping demo in May was the com­ing out party for the lat­est ver­sion of Epic Games’ Un­real En­gine, one of the most widely used en­gines. But it is also key to a hos­tile dis­pute that in­volves two of the world’s big­gest com­pa­nies, one of the big­gest video games and hun­dreds of mil­lions of dol­lars.

Ear­lier this month, Epic, also the owner of the pop­u­lar on­line game

Fort­nite, sued Ap­ple and Google. Fort­nite had been booted off both com­pa­nies’ smart­phone app stores for cir­cum­vent­ing the payment sys­tem and 30pc com­mis­sion re­quired by Ap­ple and Google. This was a clear vi­o­la­tion of the app stores’ rules, and Epic knew it. Its chief ex­ec­u­tive, Tim Sweeney, has crit­i­cised the “app tax” with mount­ing reg­u­lar­ity.

Epic’s dual law­suits claim that Ap­ple and Google are mo­nop­oly gate­keep­ers that un­fairly ex­tract rent from con­sumers and app mak­ers. Epic is not the first to grum­ble, but few de­vel­op­ers have as much skin in the game as the com­pany, which some an­a­lysts see as a po­ten­tial tech gi­ant as in­flu­en­tial as the com­pa­nies it is su­ing. Its bat­tle with Ap­ple and Google is the lat­est step in a grand plan that could de­fine the fu­ture of not just games but the way we in­ter­act with tech­nol­ogy.

Epic bears lit­tle re­sem­blance to most other tech leviathans. Its North Carolina head­quar­ters are dis­tinct in both ge­og­ra­phy and cul­ture to coastal Sil­i­con Val­ley and Seat­tle. Sweeney, who founded the com­pany in his par­ents’ base­ment in 1991, is worth an es­ti­mated $9bn (£7bn) and is the com­pany’s con­trol­ling share­holder, but his largest ex­trav­a­gance is buy­ing thou­sands of acres of for­est for con­ser­va­tion ef­forts.

Dur­ing the Nineties and 2000s, Epic was a mid-sized game devel­oper. Its first hit, a shoot­ing game called Un­real, led to the first gen­er­a­tion of the en­gine of the same name, which was a mod­er­ate but not enor­mous success.

Gears of War, a ti­tle for Mi­crosoft’s Xbox 360 re­leased in 2006, then be­came its big­gest earner. But it was not un­til the next decade that the com­pany

started to take to­day’s shape.

In 2012, Epic re­ceived a ma­jor in­vest­ment from China’s Ten­cent, which had helped pi­o­neer a new

model of gam­ing in which play­ers did not pay up front for a game,

but pur­chased up­grades as they played.

In 2017, this led to Fort­nite. The bright, colour­ful shoot­ing game en­joyed near-in­stant success thanks to its wide­spread dis­tri­bu­tion. The ti­tle is free to play, with gamers only pay­ing for cos­metic up­grades such as cloth­ing and dance moves, and it is avail­able al­most ev­ery­where. While it was once rare for games to be re­leased on more than one con­sole, Fort­nite is avail­able on the three ma­jor units – Nin­tendo’s

Switch, Sony’s PlayS­ta­tion and Mi­crosoft’s Xbox – PCs and, cru­cially, tablets and phones. Ear­lier this year, Epic said Fort­nite had 350m play­ers. The com­pany has not dis­closed rev­enues from pur­chases of add-ons, but they are be­lieved to be in the bil­lions.

How­ever, while a success in its own right, Fort­nite has also up­ended the wider in­dus­try. When the game was re­leased, play­ers were un­able to play with friends who had other con­soles. In 2018, as it took off, Sweeney pres­sured Sony, Mi­crosoft and others to al­low gamers who were us­ing dif­fer­ent hard­ware to con­nect with one an­other.

This turned the game’s splin­tered tribes into part of one on­line uni­verse, sim­i­lar to a so­cial net­work like Face­book. Groups of friends meet up

and could hang out in Fort­nite af­ter school as they once would in the park, a trend that has only been ac­cel­er­ated by coro­n­avirus. Mil­lions have turned up to watch vir­tual concerts from ma­jor artists. Some of the world’s other big­gest games, in­clud­ing Minecraft and chil­dren’s ti­tle

Roblox, have fol­lowed suit in al­low­ing play across mul­ti­ple plat­forms.

The trend to­wards so-called “cross-plat­form” play has ac­cel­er­ated de­mand for Epic’s Un­real En­gine, for which the com­pany charges 5pc of other game mak­ers’ rev­enues. As games have be­come more pow­er­ful and gamers de­mand to play them on sev­eral dif­fer­ent con­soles, the com­plex­ity of build­ing vir­tual worlds has grown, mak­ing it more ef­fi­cient to use an­other com­pany’s en­gine than de­sign one from scratch. Hun­dreds of ti­tles have now been built on it, and the en­gine is in­creas­ingly used in TV pro­duc­tion, ar­chi­tec­tural de­sign and even by the US mil­i­tary for sim­u­la­tions.

The Un­real En­gine po­si­tions Epic as an in­fra­struc­ture layer for dig­i­tal worlds. The fu­ture that some tech­nol­o­gists en­vi­sion, in which we are plugged into vir­tual real­ity head­sets and trans­ported into par­al­lel re­al­i­ties, would prob­a­bly be built on Epic’s tech­nol­ogy. Even if that comes across as un­re­al­is­ti­cally dystopian, there is no doubt that dig­i­tal worlds will be­come more im­por­tant rather than less. Last year, Epic’s cre­ative di­rec­tor, Don­ald Mus­tard, said Epic’s goal was a “meta­verse … where all kinds of ex­pe­ri­ences can hap­pen”.

Joseph Evans, of Enders Anal­y­sis, says: “The games in­dus­try is grow­ing faster than any other me­dia in­dus­try. A business [like Epic] that pro­vides a lot of the plumb­ing and tools that games real­tors use could be very size­able.”

In­vestors back the vi­sion. Ear­lier this month, Epic raised $1.8bn, valu­ing the com­pany at $17.3bn.

There is just one prob­lem. As Sweeney sees it, the keys to the meta­verse are held by a hand­ful of com­pa­nies de­ter­mined to charge for ac­cess. He has been a vo­cal critic of Face­book and Google, and mounted a cam­paign against Steam, the pri­mary way PC gamers down­load ti­tles.

Epic’s law­suits against Ap­ple and Google, how­ever, take this to a new level. The com­pa­nies’ 30pc fees earn them tens of bil­lions of dol­lars, and pay for run­ning their re­spec­tive stores. Epic ar­gues that they in­hibit de­vel­op­ers’ in­cen­tives to cre­ate, shrink­ing the en­tire dig­i­tal in­dus­try (which Epic it­self could take a slice of).

Sweeney has given no sign that Epic will back down, even af­ter Ap­ple blocked the com­pany’s devel­oper ac­count, which threat­ens to re­strict the Un­real En­gine that dozens of other mo­bile de­vel­op­ers use. Google and Ap­ple are for­mi­da­ble foes but Epic has won such fights be­fore. When it launched a ri­val to Steam’s PC games store that un­der­cut its rates, Steam was forced to lower its own com­mis­sion.

And un­like many de­vel­op­ers un­happy with Ap­ple’s fees, Epic can sur­vive the bat­tle. “Al­most ev­ery app maker, con­tent com­pany and ser­vice is un­happy with Ap­ple’s rates and poli­cies but Epic is in a unique po­si­tion, says Matthew Ball from the tech in­vestor Epyl­lion In­dus­tries. He points out that

Fort­nite is not re­liant on smart­phones for rev­enues, and it is al­ready prof­itable. “Fort­nite is for leisure, not crit­i­cal pro­duc­tiv­ity work and can thus go on pause and, un­like al­most all other large com­pa­nies, Epic is pri­vate and ma­jor­ity con­trolled by one per­son,” he says.

Fight­ing two le­gal bat­tles against two of the world’s big­gest com­pa­nies might be harder than any video game but Sweeney has been pre­par­ing for years.

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