[Shivansh is a student at NALSAR University of Law.]
The rise of the gaming industry across the globe has gone somewhat under the radar. Traditionally viewed as a mere hobby for children, gaming has become a gigantic industry which was worth USD 232.02 billion in 2022, and is predicted to cross the USD 500 billion mark by 2030. In India alone, it stands at USD 2.8 billion, and is expected to increase at a remarkable rate of 30%. The gaming industry has become a major economic sector as well as a crucial area for innovation. It is indeed the new "happening" place in the global market, with hordes of conglomerates and big names trying to enter the fold, seeking to benefit from the increasing potential of this market. It is also heavily linked to other sectors like artificial intelligence, metaverse and virtual reality. The arrival of big players in new industries is almost sure to ring competition alarm bells, and the gaming industry is no exception to the trend. It has thus become crucial to prevent undistorted competition in the relevant markets associated with this industry. This piece explores the growth of the gaming industry and argues for the need for active competition oversight in this new market.
The Need for Competition Oversight
The alarm bells for competition law
The gaming industry has become a battleground for the market behemoths—Microsoft and Sony. The two companies lead the gaming console market with their products, Xbox and PlayStation, respectively. Microsoft recently entered into a USD 68.7 billion agreement to acquire Activision Blizzard. The deal is expected to give Microsoft a significant market share in the cloud-gaming business and control over popular gaming titles like Call of Duty, giving it a massive advantage over its competitors, Sony and Nintendo. The concerned market regulators are split in regard to the matter, with the United Kingdom’s Competition and Markets Authority (CMA) being against the deal and the European Commission favouring it.
The principal concerns surrounding the agreement revolve around Microsoft’s dominant position in the realm of cloud gaming and the potential adverse effects on competition in the distribution of PC and console games, should the acquisition proceed. Furthermore, apprehensions have been raised about the potential dearth of innovation and limited options for gamers that could result from the deal. Microsoft’s competitor Sony also expressed fear that the deal will potentially allow Microsoft to increase the pricing of Call of Duty and confine its availability exclusively to its Xbox Game Pass subscription service. Moreover, there were concerns that Microsoft might diminish the quality and performance of Call of Duty on PlayStation, thereby eroding the gaming community’s trust in PlayStation as the preferred platform for playing the game. Microsoft was thus made to resort to behavioural remedies, including offering 10-year licensing agreements to ensure that European consumers can continue to play the future titles on a cloud-gaming service of their choice.
There have been other instances of competition concerns in the industry as well. Sony has been alleged to have abused its dominant position by charging excessive prices and imposing unfair terms and conditions on the use of its PlayStation store by charging a flat 30% from developers seeking to sell games on its store. Similarly, the European Commission fined Valve for geo-blocking practices after finding that the company had restricted cross-border sales of games based on the geographical location of its users. Another interesting case study is that of Epic v. Apple. Apple mandated app developers to use its payment service while selling their goods on the App Store, and charged a commission fee of up to 30%. The gaming industry thus stands vulnerable to conduct that tends to be anti-competitive, and this trend seems to be increasing with time.
Potential competition issues in the gaming industry
Since the gaming industry has largely escaped regulatory scrutiny, especially in terms of competition law, it has led to the prevalence of excessively priced video games, which can be considered exploitative to consumers. The gaming sector is also home to fierce races between competitors over acquiring licenses, many of which are exclusive in nature. Securing the license to employ widely recognized characters, franchises, teams or universes enables developers to make games that appeal to both current and potential players, providing a substantial competitive edge over its competitors. These races have thus resulted in the exit of franchises from the market and reduced competition. For instance, after the exit of Pro Evolution Soccer from the market, EA FIFA has become overwhelmingly dominant in the football video games sector. A monopolistic position is followed by the mistreatment of consumers and the dominant enterprise becoming unresponsive to consumer needs while continuing to enjoy high profits. This trend exists in multiple relevant markets of video games, ranging from basketball, Formula 1, and WWE games.
Gaming rivalries, i.e., competition between franchises, foster a responsive and innovative market, furthering the interests and desires of the public. The gaming industry is also subject to network effects wherein new consumers are more likely to enter the already dominant gaming community. Moreover, the delineation of relevant markets is such that the most popular game in a genre tends to become super-dominant. In the event of foreclosure of access to a particular gaming series or imposition of a discriminatory condition on platforms where the game can be purchased, the relevant market for the inquiry will have to be defined precisely because a football series cannot be substituted by a non-footballing game, especially since an entire community of gamers of a particular game exists for that particular genre and substitutes simply do not exist. Exclusionary conduct invariably results in high concentration and dominance levels of popular franchises, giving them a super-dominant position in their respective relevant market. There thus exist practices in the gaming industry that deserve a look from the Competition Commission of India (CCI) so as to have enhanced competition in the industry.
Protecting Indian Gaming Start-Ups
The gaming industry is an important contributor to the economy, and healthy, spirited competition can only benefit the market. India is focusing on promoting domestic gaming start-ups, and it is crucial to prevent them from potential anti-competitive impacts and practices. The Organisation for Economic Co-operation and Development has already asserted that competition law can be an effective tool to promote public policy objectives. To that end, an active competition law regime will facilitate market entry for small and independent developers in the gaming industry by preventing barriers to entry that may be imposed by dominant players, as was attempted by Microsoft and Sony in the aforementioned examples. These barriers could include restrictive licensing agreements, exclusive partnerships, or predatory pricing strategies. By eliminating such anti-competitive practices, competition law ensures that small developers have a fair opportunity to bring their games to the market and compete on the basis of their creativity and quality. CCI has the power to inquire into alleged anti-competitive practices on its own motion under Section 19(1) of the Competition Act 2002 (Act). A proactive use of this power shall not only foster a vibrant ecosystem where new and innovative ideas can flourish, but will also ensure that the interests of developers and gamers are protected by promoting a diverse range of gaming experiences.
CCI can examine agreements within the gaming industry under Section 3 of the Act. For instance, it can analyse vertical agreements between game development studios and console manufacturers using a rule of reason analysis. This enables CCI to evaluate the overall impact of such agreements, as mandated by Section 19(3) of the Act, taking into consideration both pro-competitive benefits and potential anti-competitive effects, to ascertain whether such agreements have an appreciable adverse effect on competition. CCI can also examine the activities of dominant players in the market should they be suspected of abusing their dominant position. Notably, Section 4 of the Act does not differentiate between exploitative and exclusionary conduct, thereby encompassing both types of actions if they can be traced back to a dominant enterprise. CCI thus possesses the authority to thoroughly examine cases where exclusionary behaviour or denial of market access, as illustrated in the earlier example of football games, or the imposition of excessive prices by Sony, occur. Additionally, CCI can scrutinise combinations in the gaming industry under Section 5, akin to the assessments carried out by the CMA and the European Commission in Microsoft’s acquisition of Activision Blizzard. The considerations taken into account by the CMA and the European Commission closely align with the analysis of combinations under Section 20(4) of the Act, indicating that any examination conducted by CCI in the gaming market is likely to adopt a similar approach.
Conclusion
The primary objective of this article is not to assert that all the aforementioned practices are inherently anti-competitive. Instead, it aims to highlight the inherent vulnerability of the rapidly expanding gaming industry to potentially anti-competitive practices. The article advocates for the implementation of active competition oversight in order to mitigate market barriers and protect consumers from exploitation. By recognising the remarkable growth and potential of the gaming sector, it becomes evident that proactive measures are necessary to safeguard against anti-competitive behaviour and ensure a fair and equitable market environment.