Online Piracy ‘Escalating Threat’ for Game Industry, ESA Chief Says

Gallagher indicated to us after his presentation that he was unfazed by the third straight Apple event that was scheduled head-to-head against a major game industry event, in this case the Apple news briefing Wednesday morning at the same time as the Game Developers Conference (GDC) across the street in San Francisco. (See the separate report in this issue.) Apple scheduled a news briefing at about the same time as a Nintendo keynote at GDC last year and the Steve Jobs keynote at Apple’s annual developers conference in June was at the same time as a Microsoft news briefing at E3, albeit in different cities. “I don’t think it’s a coincidence” that Apple scheduled its events at the same time as the game industry events, Gallagher said. But he said Apple “did not win” in June because E3 media impressions “doubled” from what was seen in 2010, which he called a “significant” sign of the “strength of our industry.”

There was, however, little chance for Apple’s Wednesday news briefing to not overshadow GDC because there was only a new “Flash Forward” session at the same time at GDC that featured several conference speakers providing a taste of what they planned to discuss in their separate sessions. There was also no keynote from any game hardware makers at GDC this week.

The game industry’s main piracy problem had initially been in packaged games, but online piracy now “radically dwarfs” it, Gallagher said. Most of the online game piracy is in countries outside the U.S., he said. Countries with the worst online piracy include Italy, Brazil and China, he said. Links to infringing files grew 20 percent in 2011 from 2010, while host site URLs offering such content soared 65 percent, he said.

Proposed exemptions to the Digital Millennium Copyright Act “would weaken important safeguards” that prohibit the circumvention of security measures protecting copyrighted works, Gallagher said. “The entire ecosystem” of the game industry “is at risk” if such exemptions are allowed, he said.

Members of the game industry are also being bombarded with privacy and data security proposals that could impact them, he said. He said three such proposals were recently made on the same day that President Obama proposed a Consumer Privacy Bill of Rights with ambitious implementation plans; that the White House also brokered a deal with browser makers and the Digital Advertising Alliance to add a Do Not Track mechanism to browsers; and that the California Attorney General reached an agreement with major app distribution platforms to ensure that mobile apps contain privacy policies.

Several legislative efforts related to accessibility could also challenge online games, Gallagher said, pointing to the 21st Century Communications and Video Accessibility Act of 2010. The law covers “advanced communications services,” which he said could have implications for in-game messaging. ESA expects to file petitions soon requesting a waiver for games, he said.

Many states are also seeking to impose notice and disclosure requirements for auto-renewal contracts via bills that Gallagher said would impact subscription-based massively multiplayer online games and online game services. There’s a “risk of patchwork” state legislation, and ESA is seeking to educate lawmakers on the value of favorable laws in California, Illinois and Louisiana, he said. States are also “starved for revenue” and looking to tax online commerce, which would impact game micro-transactions and subscriptions, he said.

Even federal food marketing regulation could have an impact on the game industry, Gallagher said. The Preliminary Proposed Nutrition Principles to Guide Industry Self-Regulatory Efforts could impact product placement of food in games, and the ESA, therefore, has significant concerns about the impact on free speech, he said.

The game industry also faces challenges from attempts by countries outside the U.S. to restrict access to online games, Gallagher said. He pointed to two laws in South Korea: the amended Juvenile Protection Act that prohibits game publishers from providing online game services to kids under 16 between midnight and 6 a.m., and the amended Game Industry Promotion Act, which requires online game operators to implement measures to prevent excessive game use. The latter law requires game operators to obtain consent from legal guardians before providing services to users under 18, to limit a minor’s access to a game upon the request of a guardian, and to display the amount of time a user has been playing and provide warnings to prevent excessive game use, Gallagher said. But he conceded there was little that the ESA could do about such laws by other countries.

ESA also disagrees with sports players’ unions on right of publicity, Gallagher said, pointing to the unions pressing legislatures to treat videogames differently from other expressive works. The U.S. Supreme Court’s June ruling in favor of the game industry in Brown v. the Entertainment Merchants Association and ESA (CED June 28 p1) restricts disparate treatment of videogames compared to other expressive works, he said. He told the conference he preferred the old name of the case, Schwarzenegger v. EMA/ESA, because it was ex-California Governor Arnold Schwarzenegger’s “misjudgment” that led to the ESA’s victory, not current California Governor Jerry Brown.

Before the Supreme Court’s decision, ESA had a 13-0 success rate in challenging videogame content restrictions after court victories -- including multiple wins in some venues -- in California, Washington, Minnesota, Oklahoma, Illinois, Michigan, Louisiana, St. Louis County and Indianapolis, and a win against the Chicago Transit Authority, Gallagher said. ESA has collected more than $3.1 million in legal fees as a result of those victories, including $1.3 million from California alone “at a time when the state can hardly afford it,” he said. The $1.3 million included $900,000 from the U.S. Supreme Court arguments alone, he said. ESA plans to take $150,000 of that money and donate it to charity benefitting kids in Oakland and Sacramento, he said.

Despite ESA adding three new members to boost its membership to 36 early this week (CED March 6 p10), Activision Blizzard remained a major holdout. Gallagher said ESA and the game publisher remained on good terms and Activision Blizzard will again be exhibiting at E3 in June despite not being a member anymore.

Video Games and Digital Media Conference Notebook

Mobile publisher Moonshark’s CEO, Matt Koslov, questioned whether the PS Vita “will be a viable product” due to the growing popularity of Apple’s iOS devices. Sony Computer Entertainment said last week that more than 1.2 million Vitas had been sold globally, including about 300,000 in North and Latin America combined (CED Feb 29 p8). The U.S. launch should be stronger than the one in Japan due to reasons that included a slate of launch games that was more targeted at western gamers and the continuing popularity of the PSP in Japan, Shuhei Yoshida, president of SCE Worldwide Studios, told us last month (CED Feb 13 p1). But week one U.S. sales were apparently slightly weaker than week one sales of the device in Japan, where about 324,900 Vitas were sold in its first two days (CED Dec 23 p7).