Disney-Epic Games alliance has important past and current connections with Apple, Google app store fights

Only at first glance, the two companies couldn’t be further apart in terms of their Apple relationships:

• Epic has been at war with Apple (and Google) since the kickoff of its Project Liberty (which gave rise to the U.S. antitrust lawsuits mentioned in the Context section of the fray⁴ summary).
• Disney has historically had a rather special relationship with Apple, going back to Steve Jobs and his Pixar company that Disney acquired. Large corporations are never eternal friends or enemies but simply have interests. However, Apple has made itself a lot of strategic enemies with its heavy-handed exploitation of its market (and especially aftermarket) power, and has hardly any friends except smaller entities it pays or controls. If there’s any large corporation that one might consider to be on almost friendly terms with Apple, some would say that is Disney. But it’s not that simple.

Business Insider wrote in December 2023 that Disney CEO Bob Iger’s end game would likely be to sell Disney to Apple. In the current regulatory environment, games fray does not believe that deal has realistic chances of going through. There would at least be a multi-year legal fight. Even if Apple could ultimately close the deal (which would be highly uncertain), the political costs would outweigh any benefits.

Epic’s Apple and Google cases revealed essentially that Google has never been consistent (including deals under which they paid game makers so they wouldn’t have any more economically justifiable basis for launching their own or supporting third-party Android app stores) while Apple has applied its rules more rigidly. That said, even Apple has been careful about finding solutions with the likes of Amazon, Netflix, to a limited degree even with Meta, and with Disney. The difference is that Google would just give someone free or discounted cloud computing resources, ads (including on YouTube) and other benefits, while Apple would gerrymander its rules so that a Netflix can live with them while an Epic could not. Apple’s rules are clearly designed to avoid conflicts with companies like Disney where they can be avoided without materially impacting Apple’s ability to impose taxes and restrict essential freedoms of app makers in fields where Apple primarily wants to make money and exercise control in other ways (disallowing features and marketing methods etc.).

But the situation with the gatekeepers isn’t great for Disney. Of course, Disney would also benefit from open app markets, and the business segments in which that is the case are going to be ever more important going forward.

Past Spotify-related connection between Disney and Epic

In December 2021, Disney announced the hiring of a new chief lawyer: Horacio Gutierrez (press release). Mr. Gutierrez joined from Spotify, where he was one of the thought leaders and most important voices of the movement pushing back against Apple’s (and Google’s) app store tyranny. In fact, the two key voices of that movement between the summer of 2020 (when Epic kicked off its Project Liberty) and that time were Epic CEO Tim Sweeney and then-Spotify general counsel Horacio Gutierrez. The first letter by an app maker to Apple calling certain App Store terms unlawful that the press obtained was, in fact, a letter by Mr. Gutierrez to Apple’s then-general counsel. And in the spring of 2021, Mr. Gutierrez was the most forceful witness (of several very persuasive ones) to criticize the app store situation at a subcommittee hearing in the United States Senate. He stressed that whatever successes by Spotify that Apple pointed to as an excuse were achieved despite those app store rules.

Prior to joining Spotify, Mr. Gutierrez was one of Microsoft’s top lawyers, and while Microsoft is approaching the subject differently, it is also on the record as a critic of Apple’s rules (January 30, 2024 games fray article).

In 2020, Messrs. Sweeney and Gutierrez founded, together with Match Group, the Coalition for App Fairness (CAF), a lobbying entity active in different jurisdictions, pushing for app store legislation and regulation.

When Mr. Gutierrez left Spotify for Disney, it was a major loss for the app freedom movement. He did acknowledge (when asked) that Disney’s relationship with Apple is obviously special, but he said something that amounted to not ruling out that the future could create situations in which Disney would start to share some of those concerns.

It’s hard to imagine that the past connection between two people who used to be key allies in the app freedom movement for well over a year played no role when Disney and Epic negotiated the deal. That is not to say at all that Mr. Gutierrez’ past role in the app store fights suggests the deal has an app store-related aspect. It’s just that negotiations benefit when key figures on both sides used to be brothers-in-arms (and not so long ago). Messrs. Sweeney and Gutierrez now have a new partnership between each other’s companies, giving them potentially more opportunities to talk. And it’s obvious that Mr. Gutierrez understands those app store issues inside out, and if his current employer made the determination that the time has come to throw down the gauntlet to Apple, he knows exactly what to do and how.

Mercado Libre’s Latin American antitrust complaints against Apple involve Disney as third party

As mentioned in a recent games fray article (which was primarily about something else), Disney plays a major role in Apple investigations in Brazil, Mexico and potentially other Latin American jurisdictions going forward.

The short version is that Disney is not a complainant itself, but it is a victim of Apple’s app rules that often just use privacy and security for a pretext and in reality are just about maximizing Apple’s control and simplifying the enforcement of its 30% app tax. That is so because Mercado Libre partnered with Disney to match Amazon Prime’s offering. Amazon Prime gives subscribers shopping-related benefits (fast delivery etc.) on the one hand and access to media content on the other hand. Amazon as one of the world’s largest corporations can do all of that alone. Mercado Libre is far smaller than Amazon, though it is the market leader in Latin America. For Mercado Libre, it’s really key to be able to compete with Amazon, but Apple makes it harder (while Mercado Libre found a workable solution with Google).

The problem with Apple ‘s rules in that case is not merely the 30% tax but the way Apple limits app makers’ rights to design their products. Apple will practically always argue that what they do is within their rights to design their own products, but what Apple has absolutely no regard for is what options and opportunities app makers have. Apple views them as serfs it seeks to exploit to the extent lawmakers, regulators and courts let them get away with it. Tim Cook’s testimony in the Epic trial showed Apple doesn’t give a damn about whether app developers feel they are treated fairly, though limited app developer enthusiasm for the Apple Vision Pro has now been attribute, in part and only by some commentators, to Apple’s attitude toward app makers.

So there is a rule that allows Amazon to do what it does with Prime, but doesn’t work for Mercado Libre and its partner Disney. Amazon does every kind of thing and owns every kind of thing, so Amazon can just give its Prime subscribers a mix of shopping and content in the same app. Mercado Libre would like to offer its customers an alternative where they get shopping benefits on Mercado Libre but content from Disney.

If this was about websites or PC (including Mac) software, it would not be an issue. A deal with Disney is all that Mercado Libre would need. Not so on iOS:

Apple doesn’t allow Mercado Libre to just give its customers (online shoppers) access to Disney content that they have to view in Disney’s app then.

Again, Disney is not a formal complainant in that case. It is unknown what Disney has told Latin American regulators in response to questionnaires or in interviews requested by them. There is neither an indication nor a resaonable basis for speculation that Disney reached out to those regulators itself. The only plausible operating assumption is that Mercado Libre brought the complaints (and may bring more complaints), the regulators then asked and keep asking questions, and Disney answered and keeps answering.

There is an interesting parallel here with the new Disney-Epic situation. Disney is, of course, free to tell Apple that the investment in Epic is all about a technology-content type of “marriage made in heaven” and the app store fights are just an Epic legacy that Disney won’t be involved with (and won’t be able to influence either way, as it doesn’t have enough voting rights for that). And if Apple asked (which it may or may not have done) Disney what its role in those Latin American complaints was, Disney could say that Mercado Libre did it, Disney didn’t in any way encourage Mercado Libre to do it and the contract between Disney and Mercado Libre doesn’t give Disney a veto right against those complaints. When regulators ask, Disney has a legal obligation to answer, but they’re asking because of Mercado Libre’s independent complains.

It is not known how Disney has so far anwered the regulators’ questions. It could do the bare legal minimum. Disney could go beyond the minimum and help regulators understand the problem without making itself a de facto co-complainant. Or its answer could go beyond, but games fray believes Disney has probably steered clear, at least so far, of coming across as a de facto co-complainant.

The Mercado Libre complaint raises some interesting questions, including that Apple favors concentration even at the highest level when its rules give an Amazon an advantage over a Mercado Libre-Disney partnership. What would the ultimate result have to be? Both Mercado Libre and Disney compete with Amazon. Should they merge just because Apple doesn’t allow Mercado Libre’s customers to get an access code that enables them to view Disney movies in a Disney app?

Cupertino must be concerned

Apple is so powerful and arrogant, and the legal system (including the DMA in the EU, which is good but not good enough) enables Apple to maintain its death grip on the iOS app ecosystem at least for years to come. But there comes a point where Apple’s problem is no longer just one with companies like Epic, Spotify and Match Group (the three key players in the Coalition for App Fairness, which also has dozens of other members). Apple is interestingly backtracking in the EU on access to its NFC chip and also with a view to cloud gaming and mobile browsers. In those contexts, Google’s rules are more permissive, making it even harder for Apple to defend its behavior.

Apple’s real risk is that now it may come under more pressure from companies playing in a higher league. Companies like Microsoft, Meta and Disney. Of those companies, Meta was rumored to have an Apple antitrust complaint ready to be filed anytime (over App Tracking Transparency, though it appears Meta is again performing very well despite that one), and Apple accused Microsoft (in court filings) of using Epic for a stalking horse. And there’s the situation between Apple and Disney, which just got a lot more interesting.

In all likelihood, Disney will avoid any public statement that suggests they’re potentially preparing a closer involvement in the app store regulatory debate. For the avoidance of doubt, there is no question that the investment is all about what the announcement says: it’s a partnering opportunity with Disney having great assets of one kind and Epic having tremendous assets of another kind. Not one cent here can be viewed as having been motivated by Disney’s interest in supporting Epic’s app store fights. But Apple must watch out, especially with the situation in the EU as well as Epic’s enforcement of its U.S. injunction. And other jurisdictions, particularly the UK and Japan, are soon going to have laws with special gatekeeper rules that affect Apple’s App Store.

Having said the foregoing, it’s simply a fact that Disney is a partner of two companies fighting very hard against Apple’s App Store rules from different angles and in different parts of the world. Plus, there’s Mr. Gutierrez.