9 avril 2024

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Auteurs

Oz Watson

Collaborateur senior

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Jo Joyce

Of counsel

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Debbie Heywood

Senior Counsel – Knowledge

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Laura Craig

Collaborateur

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Shireen Shaikh

Senior Counsel – Knowledge

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Auteurs

Oz Watson

Collaborateur senior

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Jo Joyce

Of counsel

Read More

Debbie Heywood

Senior Counsel – Knowledge

Read More

Laura Craig

Collaborateur

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Shireen Shaikh

Senior Counsel – Knowledge

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We analyse some key recent developments in the video game and gambling sectors.

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2024

Q1

A tale of two extremes in the game industry: prolific growth and massive cuts 

Shireen Shaikh looks at the implications of industry layoffs.

A recent report by Game Developers Conference (GDC) 2024 surveyed 3,000 developers and found that 35% had been affected by layoffs in the previous 12 months and 56% were worried about future layoffs. In February 2024, Electronic Arts announced the cancellation of its upcoming Star Wars Games, with an estimated 670 employees to be made redundant globally. Meanwhile, Microsoft recently announced plans to make 1,900 redundancies in the gaming division and Sony decided to close its London studio, with 900 staff likely to lose their jobs globally.

News of mass layoffs always sends shockwaves through a sector. This is particularly marked where, as in the gaming industry, this was preceded by a massive growth spurt such as occurred during the pandemic. The news is particularly hard to swallow in an industry characterised by creativity, optimism and community.

Some of the factors causing the job cuts are over-expansion during lockdown (or the transient nature of the increased demand), general economic uncertainty and paucity of funding to start new games studios. Consolidation and a desire to increase profitability, ever-present in any business model, also explain current trends.

Swathes of cuts leave a scar and change the morale and expectations of the workforce for some time. This can give rise to a greater awareness of employment rights and a demand for trade union representation in future. It is no accident that the membership of the gaming division of the Independent Workers of Great Britain Union grew exponentially in 2023, when the job cuts started to proliferate. The branch describes itself as a worker-led democratic union advocating for workers' rights, including an end to unpaid overtime, transparency of pay and better records on diversity and inclusion. It has been resisting calls for return to the office where employers have insisted on this.

It is always challenging for an employer to manage a collective redundancy exercise well, particularly across jurisdictions. Employee or trade union representatives must be informed and consulted with (also elected if there are none to begin with) on a range of prescribed matters set out in the Trade Union and Labour Relations (Consolidation) Act 1992. The messaging to staff must strike the right tone and there may be individual consultation points raised alongside those raised by employee representatives. What makes it even more challenging is when workers are also starting to organise in new ways.

With the second big concern highlighted by developers in the GDC report being the use of AI, it is fair to predict that workers in the game industry are likely to want to organise more collectively in future. This is not just the case in the UK – 150 workers at Sega of America recently became the first US game workers to ratify a union contract in the USA. The innovative nature of such individuals may mean that we see novel forms of collective action emerging, or even creative partnerships we have not yet thought about.


Microsoft to make four exclusive Xbox titles multi-platform

Debbie Heywood looks at Microsoft's plans to make four Xbox titles available on rival platforms.

In February 2024, Microsoft announced it would make four previously exclusive Xbox games available for use on rival platforms. Microsoft insists it continues to invest in developing new consoles, but Microsoft's Phil Spencer also said: "I have a fundamental belief that in the next five to ten years, exclusive games which are exclusive to one piece of hardware are going to be a smaller and smaller part of the games industry".

Microsoft sold 'only' 7.6 million Xbox consoles of the 46.5 million consoles sold in 2023, so its announcement is widely seen as part of a shift to focus more on cloud and mobile gaming (with stated ambitions to build a gaming app store on mobile).


Apple's plans for DMA compliance prove controversial with larger apps

Debbie Heywood looks at Epic Games's response to Apple's DMA compliance strategy.

Apple has announced, as part of its compliance with the EU's Digital Markets Act (DMA), that it will allow EU customers to download apps outside its App Store, will allow the use of alternative payment systems to ApplePay, and will allow iPhone users to select from a number of different browsers as their default. 

Apple was fined EUR1.8 billion by the European Commission in February 2024, for abusive app store rules which were found to prevent music streaming app developers including Spotify, from telling iPhone users about cheaper payment alternatives outside the App Store. Apple is reportedly planning to appeal the decision, however, many of the activities in question are now unlawful under the DMA for in-scope services. 

Apple's DMA compliance strategy has, however, led larger app developers to express concern about Apple's new charging model which accompanies the changes. It will charge a "core technology fee" for each app installation and update where the developer makes the app available other than through Apple's App Store. The first 1 million first annual installs will be free, and reinstallations and updates within the first twelve months of installation will be exempt. Apple claims this means the installation fee will only apply to less than 1% of developers. Epic Games, likely to be caught by the new charge, is among those to strongly criticise the plans, accusing Apple of "malicious compliance" with the DMA and of introducing measures which would affectively allow it to block competitor game stores and new entrants on the App Store. 

Apple removed Epic's Fortnite game from the App Store in 2020 after Epic breached the App Store's in-app payment rules. However, in early March, Apple agreed to re-instate Epic's developer account two days after blocking Epic from launching an online marketplace on Apple operating systems.

Apple claimed it had taken the step to block Epic as a result of concerns that it would not comply with its new rules, introduced as part of Apple's DMA compliance plans. It said it had reversed its decision following assurances from Epic, which is now free to bring the Epic game store and Fortnite back to iOS in the EU.


Germany and Ireland among those looking to take a stricter approach on loot boxes

Oz Watson, Jo Joyce and ECIJA's Xavi Muňoz-Bellvehí look at the evolving approach to regulation of loot boxes in the EU.

The use of in-game purchases is a popular monetisation model. It involves the sale of gameplay extras like cosmetic items and emotes using in-game currency which can be bought for real money to add an additional revenue stream. 

In-game purchases have come under scrutiny due to the risk of player confusion about whether they provide a competitive advantage during gameplay and, in some cases, due to a potential overlap with gambling regulation.

The UK Gambling Commission (the Commission) has identified loot boxes as a potential risk to children - some jurisdictions such as the Netherlands and Belgium have already regulated their use and China has recently announced new rules which include banning loot boxes for children (see here for more). 

Germany now looks as though it may take a stricter approach in this area, aligning itself with the Netherlands and Belgium. The Bremen state governing coalition (made up of the Social Democrats, the Greens and Die Linke) is pushing for a ban on in-game loot boxes and the state parliament has asked the state senate to push for reform at a federal, nationwide, level. So, while the proposals have no practical effect yet, there is strong sentiment among some political parties in Germany to regulate loot boxes. The current position is similar to the UK in that titles containing them must declare this on the box and the inclusion of loot boxes will be factored into the age rating given to the game.

Ireland's draft Gambling Regulation Bill (discussed in more detail here) also, on the face of it at least, looks likely to bring loot boxes within scope of tighter regulation in Ireland. In the current GRB draft, “game” means a game— (a) of skill or chance, or partly of skill and partly of chance, and (b) where a participant in the game may, having made a payment, win a prize of money or money’s worth; “gaming” means providing a game or participating in a game and falls within the definition of betting. By this definition it seems likely that loot boxes will be caught. 

Spain also recognises the operational mechanics of loot boxes as conceptually similar to certain gambling activities, such as slot machines, making them potentially fall under the gambling laws. Consequently, the Spanish Ministry of Consumer Affairs has initiated a draft regulation targeting a specific type of loot box, referred to as "random reward mechanisms." These require a monetary transaction from the player to activate the random reward mechanism, offering economically valuable rewards that can be exchanged among game participants or converted into real money or other virtual items, for example aesthetic improvements or competitive advantages.  Currently, when game reward mechanisms fulfil these specific criteria, they are designated as gambling activities. The Spanish Gambling Authority has clarified that, without explicit regulation, these practices are effectively banned.  Also, under this regulatory proposal, access to loot boxes would be restricted for minors through age verification mechanisms.  

It will be interesting to see how these initiatives develop and whether we are going to start to see a wave of increased regulation of loot boxes across Europe. And even if the UK is not currently proposing regulation, its Advertising Standards Authority has recently upheld a number of complaints around adverts which failed to alert gamers to the fact their games contained loot boxes, causing some to call the UK's self-regulatory approach into question.


Slow but definite progress on the UK Gambling Review

Debbie Heywood looks at Gambling Commission consultations.

The government announced a Gambling Review on 8 December 2020 eventually publishing a White Paper on 27 April 2023 alongside Gambling Commission advice. The first set of consultations to implement proposals was launched in August 2023 with a second launched in November 2023 and closing in February 2024.

In December 2023, the Gambling Commission announced a consultation on financial penalties and financial key event reporting as part of its work to ensure effective regulation. The Commission is looking to bring greater clarity and transparency to the way financial penalties are calculated, and is proposing amendments to rules on financial key event reporting to take account of the increased complexity of mergers and acquisitions and globalisation in the sector. This consultation closed on 15 March 2024.

The Gambling Commission is now analysing responses and plans to publish one or more responses in 2024.

In the meantime, on 23 February, the government published its response to its 2023 consultation on maximum stake limits for online slot games. It confirms the plans to introduce a statutory maximum stake limit of GBP5 per spin for adults aged 25 and over, and GBP2 for young adults aged 18-24.

Work on reforming and updating the UK's gambling regime is clearly continuing and gathering pace since publication of the much-delayed White Paper. This suggests that by the end of this year, there should be greater clarity around the changes to be made to the UK's gambling regime.


Turmoil in China's gaming market following proposal on new online gaming restrictions

Laura Craig looks at the impact of China's latest proposals for the gaming industry.

December saw China's National Press and Publication Administration issue new draft regulations targeted at the gaming sector - the Measures for the Administration of Online Games. The proposed rules seek to introduce spending limits for online games, ban rewards for daily player logins, and prohibit minors from being offered 'lucky draw' loot box prizes. The announced regulations therefore impacted several core monetisation and gameplay mechanisms featured in live service games, which make up a large portion of China's gaming sector. 

If passed, these restrictions would not be the first to impact the interactive entertainment industry in China. In 2021, limits were imposed on playtime for minors and approvals for new video game releases were paused due to concerns around addiction, which resulted in revenues for the gaming sector shrinking in 2021 and 2022. 2023 saw renewed growth as games began to be approved for release again, but the proposed restrictions highlight that concerns remain. Following the proposals, Tencent lost USD43 billion in market value and Netease shares fell by a quarter. With further significant losses reported by other major tech and gaming companies, Chinese authorities subsequently reported that the draft rules may be revised and a government official involved with the regulation of press and publications has reportedly been removed from office.


The luck of the Irish – will long awaited betting regulation hit digital gaming?

Jo Joyce looks at Ireland's Gambling Regulation Bill.

Coverage of proposed changes in gambling regulation in Ireland have been focused on the impact on horse racing and casinos but once established, the new regulator, the Gambling Regulatory Authority of Ireland (GRAI), will have powers to regulate digital advertising, websites, and apps. The proposed changes set out in the Gambling Regulation Bill (GRB) are set to significantly change and modernise the digital and remote gambling market in Ireland and the broad scope may bring a range of digital activities and promotions within the scope of gambling laws for the first time. 

As the GRB slowly makes its way through the legislative process, gaming companies need to start considering now whether their activities could bring them within scope of the proposed law and what that might mean if they are caught.

The blurred line between gaming and gambling

A big focus of the GRB is child protection. The Institute of Public Health, called for in-game transactions to be subject to regulatory scrutiny owing to potential links between loot boxes and experiences of problem gambling, particularly among children. When debating regulatory change there was discussion in the Oireachtas (Irish Parliament) on how and whether to bring features such as loot boxes within the scope of regulation (loot boxes are bundles of virtual items related to a video game that can be won by a gamer as a reward or can be purchased with real money).

The gaming industry worldwide has generally resisted the treatment of loot boxes as gambling but the definitions of the GRB would, on the face of them at least, bring loot boxes within scope of tighter regulation in Ireland. In the current GRB draft, “game” means a game— (a) of skill or chance, or partly of skill and partly of chance, and (b) where a participant in the game may, having made a payment, win a prize of money or money’s worth; “gaming” means providing a game or participating in a game and falls within the definition of betting. By this definition it seems likely that loot boxes will be caught. 

Gambling with credit cards will also be prohibited under the GRB. If loot boxes and other in-game transactions fall within the scope of gambling restrictions, then gaming companies will need to ensure that they are not accepting payment for them by credit card – though this may be the least of their challenges. 

Advertising and promotion

A significant effect of the GRB will be a restriction of advertising and promotion of gambling activities. Under the current GRB draft, “advertise” means any form of communication, whether to the public or otherwise, intended to publicise or otherwise market a gambling activity including by electronic means including by telephone and on the internet. 

Restrictions will be particularly tight on social media where advertising of gambling services will be prohibited. All online gambling promotion will become opt-in only, though the acceptable mechanisms for managing opt-in are not yet clear. 

Significant limits will also be imposed on advertising and sponsorship – clubs with members under 18 will not be able to take gambling sponsorship, and gambling advertising will be prohibited between the hours of 5:30 and 21:00 on television, radio and on-demand streaming services accessed in Ireland. 

Penalties

The GRB details significant penalties (up to EUR20 million or 10% of turnover) for companies that breach the law. The Bill defines turnover as total income from gambling less the total amount paid out in winnings. While the Bill does not expressly state that turnover means worldwide turnover, it does not restrict it to turnover derived from Irish consumers. In the case of the most serious breaches, including failure to protect children from gambling, custodial sentences of up to eight years may be handed down which, in theory, could be given to company directors with sufficient personal responsibility for the conduct of illegal activities.

The GRAI will have the power to proactively tackle problem sites and operations run from outside Ireland by making an application to the High Court to require internet service providers to geoblock offending websites, preventing access in Ireland.

New remote licences will include a requirement on the licensee to maintain a register of account holders and to take steps to ensure responsible gambling including the provision of age gating and parental restrictions. 

Giving with one hand and taking with the other?

While much of the GRB may seem to be bad news for the gambling and game industries, there is a corresponding hope that by modernising gambling law in Ireland and providing certainty and clarity for the digital age, the industry can view Ireland as a well-regulated and safe place to do business. Such ambitions for a successful digital gambling industry in Ireland are mirrored by the hopes for the gaming sector, with significant incentives offered by the Digital Gaming Tax Credit introduced in 2022. Unless the scope of gaming activities and the inclusion or exclusion of in-game transactions in the GRB is clarified in the draft Bill however, these ambitions may be hard to meet and game developers may be forced to adopt a cautious approach in Ireland to balance opportunity with operational certainty.

The fifth edition of our guide to the video game industry

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