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By Sarah E. Needleman 

The creator of "Fortnite" is challenging Google's policy of taking a cut of payments made for app-related purchases at a time when regulators have started scrutinizing those kind of arrangements between tech companies and their vendors.

Epic Games Inc. is asking Google to release in its app store a version of Fortnite with a built-in payment system that allows the developer to keep all in-game revenue. Google, a unit of Alphabet Inc., currently takes a 30% cut for the kind of in-game purchases players make on games downloaded via its app store.

Epic's move effectively puts Google in the uncomfortable position of having to either approve the game and forgo a lucrative revenue stream or potentially provide antitrust regulators with evidence it may be unduly pressuring smaller companies.

"We believe this form of tying of a mandatory payment service with a 30% fee is illegal in the case of a distribution platform with over 50% market share," Epic Chief Executive Tim Sweeney said in a statement. "Epic doesn't seek a special exception for ourselves; rather we expect to see a general change to smartphone industry practices in this regard."

"Fortnite" is free to play and sells virtual currency for real money that users can spend on in-game perks such as avatar costumes and dance moves.

The shooter game has been accessible on mobile devices running Google's Android operating system since last year, though only by downloading it from Epic's website. Now the game maker wants to distribute the free game also via Google's app store, called Google Play, which could help broaden its reach. That is where Google then takes a 30% cut on sales.

"Google Play has a business model and billing policy that allow us to invest in our platform and tools to help developers build successful businesses while keeping users safe," Google said in a statement. It said it expected companies that want to distribute their apps through its channel to "participate under the same terms as other developers," adding they can also distribute their game to Android users without going through Google's channel.

Google and Apple Inc., which also charges app developers to distribute their software, account for the overwhelming majority of sales generated from download fees and in-app purchases. Legislators are investigating whether the companies are stifling competition and making it too challenging for developers to profit off their apps.

Other companies have fought back or sought ways around Google and Apple's app-store fees. In March Spotify Technology SA filed an antitrust complaint against Apple in Europe, in which the streaming-music company accused Apple of abusing its app store to limit competition against its own Apple Music. Spotify claimed that Apple makes it difficult for rival subscription services to market themselves to users without using Apple's payment system.

Apple defended its practice of taking a 30% cut of sales through its App Store in response to Spotify's criticism. It has said it is entitled to take a share of app sales because it built the store and employs staff who review thousands of apps for compliance with rules around privacy and content.

The tension came as U.S. regulators have been stepping up their investigations of whether some of the biggest tech companies are abusing their market position.

Google's app store policy also is under scrutiny overseas. Disconnect Inc., another app developer, this year complained to European regulators that Google was abusing its market position. Google has called the complaint "baseless."

"Fortnite" also is available on Apple devices. Apple, which only allows distribution through its App Store, gets a 30% cut from Epic.

Apple has generated $15.3 billion in app store revenue this year, while Google has collected $8.3 billion, according to estimates from app-analytics firm Sensor Tower Inc.

Mr. Sweeney, in a June interview with the Journal, said that even through the revenue-sharing arrangement still leaves Epic with a decent profit margin, Google and Apple, with their 30% take, are "making more profit than most developers themselves make."

"Fortnite" has been one of the most popular games on the videogame market in the past two years. Epic, in March, said the game had 250 million players. Nielsen's SuperData in June said the game generated $3.9 billion in estimated lifetime revenue. "Fortnite" launched in mid-2017.

Epic formally submitted "Fortnite" to Google for release this week. Apps from developers that are new to Google Play, such as Epic, typically must wait up to seven days to get a signoff from Google.

Epic has sparred with Google before. When "Fortnite" came to Android devices last year, Google researchers found a security hole in the app developers software that left users' phones vulnerable to hackers. Google publicly disclosed the flaw even though Epic asked it to wait until the software had been patched.

Last year, Epic set up a rival game-download store. It collects just 12% of sales from developers, who also have the option of using their own payment system.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

December 12, 2019 16:11 ET (21:11 GMT)

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