At any major sporting event, one could easily recognize the playful Fortnite dance moves performed and displayed on the jumbo screen “dance cam.” With more than 250 million registered players worldwide, Fortnite has become one of the most popular video games in recent history.
Video games, and the attendant industries that have emerged from them (esports, livestreaming, gambling) are exploding at a rate so fast that esports have been likened to the “new social media.” Indeed, video game livestreaming apps like Twitch are also teeming with users, and deals are being struck everywhere to capitalize on the popularity of gaming and esports.
This explosive growth, however, has caught the discerning attention of policymakers who have begun to spot issues where the gaming industry has potentially harmed consumers and children. The gaming companies should take note: the regulators and policymakers who have homed in on social media giants, may very well fixate in a similar way on the gaming industry.
Loot boxes, addiction, and gambling
Recently, for example, U.S. Senators Josh Hawley (R-MO), Richard Blumenthal (D-CT), and Ed Markey (D-MA) introduced bipartisan legislation that would ban the sale of “loot boxes” within video games to children. Loot boxes are locked virtual items within a video game that can be purchased or won by a user.
The policy rationale behind the legislation is that loot boxes create an “addiction economy” much like a casino, and therefore, when used by kids, they are exploitative. These arguments are not new.
In fact, momentum for this kind of crackdown on loot boxes had been building even before the Senate bill. In November 2018, in a Senate Commerce Committee hearing with the Federal Trade Commission’s (FTC) five commissioners, Senator Maggie Hassan (D-NH) highlighted the potential dangers of loot boxes and sought assurances from FTC commissioners that it would investigate them. This congressional inquiry then initiated a full-on FTC regulatory investigation into loot boxes.
Policymakers around the world have also been debating whether loot box systems amount to a form of gambling. In the European Union, for example, Belgium has already banned certain types of loot boxes in video games. And just recently, the World Health Organization classified video game addiction as a mental health condition similar to gambling addiction.
What are takeaways from this?
The example of congressional inquiries leading to regulatory investigations, leading to proposed legislation, is a harbinger of the ways in which Washington (or any state or local government) is likely to disrupt the gaming industry. And, it’s not difficult to envision other substantive areas of concern:
- Cybercriminals using video game currency, along with social media scams, to launder money;
- Increased availability of encrypted communication applications, including those having features modeled after social media (e.g. chat groups, channels, and media-sharing), used by bad actors;
- Persistence of toxic behavior and cyberbullying, including stalking, harassment, and “swatting;” and
- Advertisers and developers tapping into individuals’ gameplay to possibly risk compromising data privacy among children .
Each of these subjects possess an extraordinarily complex political, regulatory, and enforcement environment. It is therefore imperative that companies first develop a sophisticated understanding of this environment – including the who, where, what, how, and why – to adequately game-plan a strategy for addressing the areas of concern under scrutiny.
So, for example, game companies and developers should be familiar with — and understand — “who” and where the relevant government agencies having regulatory jurisdiction over issues are situated. The Department of Justice (DOJ), the Federal Trade Commission, State Attorneys General, the Consumer Financial Protection Bureau (CFPB), each have unique missions and distinctive priorities for example, but they also share overlapping jurisdiction (such as consumer protection). Hundreds of federal agencies can be described in a similar way.
A similar kind of jurisdictional turf issue also applies to Congressional committees and the members that make them up. While committees each have jurisdiction over particular issues, they also possess overlapping issue areas, which can complicate how to deal with them. And that doesn’t even account for the multitude of outside stakeholders who play a significant role in influencing regulatory, policy and enforcement considerations.
What the industry can do
Understanding the “who” helps companies gain a clearer picture of “what” animates concerns about certain issues, and “how” and “why” government entities will likely act to address them. Take, for example, money laundering. Are concerns driven by national security concerns? Opioid addiction? Child safety concerns? Financial markets concerns? Probably all of the above. But understanding the “who” will naturally lead to the “what, how, and why” on a particular issue, which will bring into sharper focus the policy or enforcement actions that companies can anticipate.
Information gathering alone is not enough. It is important for gaming companies to develop Risk Assessment Guidelines and Protocols. Specifically, using whatever information that can be gathered, companies should conduct internal reviews among all departments (not just developers) to assess risk, review compliance protocols, and plan accordingly. This type of diagnostic check-in may help to identify risk areas, and thus lead to a treatment plan.
For example, a company may learn they have to develop better internal and consumer-facing policies to adapt to a particular regulatory environment. A company may also want to proactively meet and talk to regulators and/or policymakers to foster a clearer understanding of expectations, and to perhaps educate policymakers on the consequences (positive or not) about certain anticipated decisions. A company might also want to develop a contingency plan – including insurance coverage – to mitigate risk.
The point of all of this is that the video game industry must be clear-eyed and strategically prepared to address issues from regulators and policymakers before they become a hornet’s nest of problems. The warning signs are too prominent to ignore them.
Peter S. Hyun, a partner with Wiley Rein LLP, represents individuals and entities in government enforcement actions, congressional investigations and State Attorneys General investigations
