Will the EU's new law change the digital landscape?...

Will the EU’s new law change the digital landscape? | Opinion

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Following years of negotiation, the European Union’s Digital Markets Act has now cleared the European Parliament — pretty much the final major legislative hurdle it faced ahead of being adopted into law, which is now scheduled to happen towards the end of this year, meaning that legal obligations under the Act will come into force in spring of 2023.

The Act is a pretty big deal in terms of the regulation of tech giants, being arguably the most ambitious attempt yet by any major government or international organisation to control the way that huge companies run platforms that are vital to the success and functioning of many other businesses.

No matter which side of the issue the EU fell on, it was always going to be controversial, and now that the text of the Act is locked down, it is being widely scrutinised to try to understand what the real-world impact of its provisions will be.

There’s some clarity about that already, not least because quite a few of the Act’s provisions are relatively straightforward — but the devil, as ever, is in the details, and the specifics of how the Act is interpreted, implemented and enforced will not really start to shake out until next year.

On paper, though, this is a hugely consequential piece of legislation for the games business, especially in Europe but also perhaps in other parts of the world. It fundamentally changes some underlying rules about how major tech platforms are regulated, and while its provisions will only apply within the borders of the EU, the sheer scale of that market will likely see the knock-on effects of the regulations spilling out into other regions as well.

What makes the DMA so significant for games is that it more or less grants Epic Games the victory [it was] denied by the US courts in lawsuits against Apple and Google

In a nutshell, what makes the DMA so significant for video games is that it more or less grants Epic Games and its supporters the victory they were denied by the US courts in their lawsuits against Apple and Google.

It’s not quite so clean-cut once you dig into the details, but the headline changes are striking: the act demands that any operator of a platform (like an app store) big enough to be classified as a “gatekeeper” must allow the side-loading of software, must not give preferential treatment or access to its own apps, and must allow developers to use alternative and off-platform payment processors. It even creates an obligation for third-party app stores to be allowed onto these devices — a demand which even many of Epic’s supporters in the US court cases felt might be pushing things too far.

These new obligations for platform holders open the door to a lot of possibilities — though not all of them are necessarily great for consumers, as anyone who has experienced the mess of different app stores that exists in the Chinese market can attest. The question of where exactly the responsibility for consumers’ security and privacy is going to lie if platform holders are forced to give up oversight of software distribution is also likely to become contentious in the coming years.

Some of the possibilities, however, are downright tantalising from a consumer standpoint. For gamers, in particular, this opens up the possibility of operators like Valve and Epic extending their storefronts onto mobile platforms.

Moreover, it will potentially bring to an end Apple’s ridiculous demand that game streaming services have to create individual iOS apps for every game they make available, finally allowing streaming providers to effectively put their own Netflix-style apps up in the guise of being third-party app stores.

It’s important to note that the definitions of what qualifies as a “gatekeeper” are quite tight, and will restrict the impact of these laws to only a handful of the biggest tech platform companies. I’ve seen a little speculation online about whether these rules could end up catching console platforms in their net, but they are quite explicitly crafted to avoid applying to relatively minor closed platforms like consoles, smart home devices, or cars.

“Gatekeeper” status will apply only to companies whose digital markets are so huge and successful that their storefront rules have a significant impact on digital trade in Europe as a whole.

It’s both interesting and important to note that monopoly status isn’t part of the criteria, which is a pretty major difference in how the EU is thinking about these issues compared to most discussions to date in the United States — gatekeeper status is based entirely on the economic influence and power of a platform, regardless of whether there is effective competition in the market or not.

Some of the possibilities are tantalising from a consumer standpoint, [opening] up the possibility of operators like Valve and Epic extending their storefronts onto mobile

Beyond the question of what exactly the rules will do and how they will be implemented, however, the really big questions are how the companies will respond to the rules — and how consumers will respond in turn.

To the former, we should say that companies don’t really have a lot of choice about whether they comply or not. Their only real alternative is to exit the EU market (as Meta is presently muttering darkly about doing over regulations governing data transfers from the EU to the US). There’ll be some inevitable sabre-rattling about that, but it’s vanishingly unlikely that any company will be willing to go through with their threats and drop out of Europe entirely.

The EU is simply too large and too lucrative a market for any platform holder to give up — and even if a company doesn’t want to change its global policies because of these new EU rules, it’s a big enough market to make it worthwhile to create entirely separate versions of their platforms for Europe. This would mean that even after Europe’s rules take effect, iOS and Android in markets outside the EU would continue to function as they do now — though in the long term that may be a difficult position to sustain.

If Apple, in particular, is able to operate its garden with rather lower walls in Europe without major issues, it will blow a hole in the arguments it makes regarding security and consumer protection in other markets as well. 

We can, however, expect to see a certain degree of malicious compliance in how companies respond to those rules, and it’ll likely take a few court cases before the specifics of how, exactly, things like side-loading, third-party payment processors or alternative app stores must be implemented.

We should say that companies don’t really have a lot of choice about whether they comply or not. Their only real alternative is to exit the EU market

It’s also worth noting a couple of things the Act explicitly does not do: it does not, for example, legislate on the question of what revenue share a company may take for transactions on their storefront, which was a key bone of contention in Epic’s legal struggles with Apple and Google. Permitting the use of third-party payment processors does not necessarily mean that game and app developers will be able to sidestep platform fees.

In all likelihood there will be various reporting and audit procedures put in place as part of businesses’ contracts with the platform holders in order to ensure that the revenue share is still paid, which is another area where malicious compliance may come into play.

Revenue shares are handled automatically when you go through the first-party payment processor, but the reporting and auditing requirements for third-party processors may end up being quite onerous. Nonetheless, the ability to install third-party app stores should ultimately result in increased competition and pressure to bring down platform holders’ revenue shares — it just won’t happen immediately.

The question of how consumers respond to these new rules — and the new possibilities they create — is an even bigger unknown. If we do end up in a China-style situation — where certain popular apps are only available through specific app stores, meaning people need to install multiple app stores just to get all the apps they use on a regular basis — it’s likely to cause a significant degree of frustration and annoyance, but in the gaming space in particular, I can definitely see how the ability to install Steam or an Xbox Game Pass streaming app would be a hit with a sizeable segment of consumers.

The question of how consumers respond to these new rules — and the new possibilities they create — is an even bigger unknown

Equally, though, there’s a potential future in which this legislation is a bit of a damp squib, creating new opportunities and options but failing to bring consumers around to the notion of actually using them. You can lead a horse to water but you can’t make him drink; a future where there are alternatives available but most consumers stick with the defaults on their phones and are happy not to fiddle around with different app stores, payment processors, or side-loading options is eminently likely.

We’ve been here before, in fact — this is more or less the problem that was created by Internet Explorer being preinstalled on Windows all those years ago, since the availability of other options didn’t change IE being the path of least resistance for the huge majority of consumers.

In that scenario, these new rules will have an impact only for the biggest and most powerful of companies — because while Epic may be able to leverage the popularity of Fortnite to convince lots of people to install a new app store and sign up for a new payment processor, very few companies or developers have the kind of leverage that Fortnite provides.

The legislation should still open things up gradually by introducing the possibility of competition on previously closed platforms, though and in broader terms it’s an important step towards better regulation of digital platforms and business models in general. There will no doubt be a broad range of views among readers about the value and necessity of this kind of top-down regulation in general, but we should at least all agree that if we’re going to have regulation, it should be properly designed with a view to how business is actually being conducted by modern companies and on modern platforms.

One major upside of the DMA is that it tacitly recognises that much business innovation in the 21st century has been about selling access to huge groups of locked-in consumers to businesses, rather than actually selling products or services to the consumers themselves; in acknowledging this reality, the EU opens the door to more effective and useful regulation for that sphere.

Don’t expect too much to change overnight, though — especially for smaller companies who lack the profile and leverage to push consumers away from pre-installed options and paths of least resistance.

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