We certainly have no problem getting caught up in the fun of playing games, but the people who create them have their pocketbooks to worry about, too. In this column, finance expert and GameSpy contributor Chris Morris guides you through the tricky corridors the gaming industry's financial side, touching on big-time business decisions and how they matter to the common gamer.
It's Not Over Yet
After being subjected to political and legal attacks for years, the gaming industry got one hell of a shield last month as the U.S. Supreme Court definitively stated "Video games qualify for First Amendment protection." It was cause for celebration -- for investors, for developers, and for gamers. But it hardly meant that the attacks were over... or less dangerous. For several publishers, a new fight is already looming.
"I don't think this puts an end to it, " says Dan Offner, a partner with law firm Loeb & Loeb, who specializes in the video game industry. "It may put a pin in it for a short period of time, but I see the regulation of mature content with respect to minors as a hot-button issue for the Federal Trade Commission and the various state governments. It's the end of round one, but round two is about to start [and] I don't see the industry getting a big breather."
To fully grasp that threat, let's step back a little. In May, Disney-owned Playdom paid $3 million to settle charges it had violated the Children's Online Privacy Protection Act. The company was accused of illegally collecting and disclosing personal information from hundreds of thousands of children under age 13 without their parents' prior consent.
As gaming companies continue to expand their footprint and engage in digital distribution methods -- including social networking games and mobile titles -- privacy will be one of the key areas where game industry opponents turn their attention.
That's going to put not only Disney and EA (which has been steadily increasing its footprint in the social gaming space) in the spotlight; it's really going to be a factor for one of Wall Street's most-anticipated IPOs: Zynga. The company acknowledged this in its S-1 filing with the Securities and Exchange Commission.
"The regulatory framework for privacy issues worldwide is currently in flux, and is likely to remain so for the foreseeable future," the filing said. "The U.S. government, including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation for the collection of information concerning consumer behavior on the Internet. ... In addition, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with users in Europe."
It's ironic, really, that in an age where we post the most private details of our lives for the world to see on social networks, privacy could be a hot-button issue for games. But keep in mind that industry opponents see themselves as advocates for children, which opens the door for this sort of maneuvering. And the high-profile theft of personal information from Sony and several other publishers over the past couple of months has certainly not helped matters.
"I think the next big thing on the horizon is privacy and security," says Greg Boyd, an associate specializing in entertainment, media, and publishing with law firm Davis & Gilbert. "I think you can take a look at what's recently happened in the game industry with the hack attacks, and we're going to have to pay a lot more attention to that moving forward. ... This is the very same thing that happened with Playdom. Children are our most sensitive area."
The good news, of course, is that a privacy fight won't affect the content of games. Developers are still free to tell whatever story they want in whatever manner they want. But when it comes to how they monetize that (especially for online games), things get a little stickier.
"It's less about the content in the online environment as it is in fair warning and fees," adds Michael Zolandz, a partner at SNR Denton. "I think that's the big issue in the Commission's context. It's not so much what children are able to access; it's hidden fees or circumstances where it's a free download that then smacks you with hundreds of dollars in add-ons."
That might be why video game stocks, for the most part, haven't really held any short-term pop that came with the Supreme Court ruling. Activision is up 4%, but given the buildup to the release of Call of Duty: Modern Warfare 3 and the announcement of the Call of Duty XP event, that's not unusual. Take-Two and THQ, on the other hand, are flat.
Only EA has seen any noticeable climb; its stock is up 11% since the ruling. But that's not due to the encouraging words of Justice Scalia -- it's from stock speculators who expect the company's shares to ride the coattails of Zynga when trading starts for that company in what's expected to be three to four months.
Hopefully, those coattails won't take it into troublesome territory as well.
Chris Morris has covered the video game industry since 1996, offering analysis of news and trends, and breaking several major stories, including the existence of the Game Boy Advance and the first details on Half-Life 2.