Legal Challenges in the Games Industry in 2020

At the very beginning of 2019, we made predictions as to what we would see growing and changing in the video games industry from a legal perspective. Here’s our predictions for 2020 and looking back at where we were right (and wrong) last year.

Subscription services will be the business shift of 2020

This is our biggest prediction from a legal perspective for the games industry in the upcoming year. There is a lot more activity from Apple (with Apple Arcade), Google (with Google Stadia), and many others to feature video games as software as a service/subscription (SaaS) in their legal documents.

Games as a service are here to stay. Think Xbox Live. PSN Live. Nintendo Switch Online. And predecessors to this space who have made it more available, like OnLive (RIP).  The two big legal implications are that publisher agreements and contracts going forward will have to address. Looking backward at prior publishing agreements, they may be disputed if there’s ambiguity. For example, is streaming including in “platforms”, “sales” or whatever the appropriate defined term is?

Odin prediction: The thing game developers and people in the space will need to remember is to read these contracts carefully and be wary of exclusivity deals. Developers will need to incorporate this change in their economic models – how will this affect upfront cash or backend cash? It’ll vary from platform to platform.

We’re going back to transmedia

Here we go again. Per the point above on subscription services and games as a service, we’re going to see more game IP enter more media.

Odin prediction: Game–>movie/tv deals and movie/TV– >game deals will become more and more common. We’ve already seen this with the Witcher games as more people are playing the game than ever before with the recent release of the Netflix series.

Loot boxes regulatory conversation

In 2019, we predicted that “loot boxes will still be a game mechanic but they’re going to be folded into bigger conversations with regulators and lawmakers on how to monitor and oversee gambling and betting within the games industry.”

Odin prediction: Loot boxes will still be a hot button item but as more developers opt out of using this mechanic, the conversation will lessen.

Esports more formalized

We predicted in 2019 that “there will be more regulatory activity in this space and more M&A overall as the market consolidates.” This has absolutely been the case. Per Venturebeat’s overview in the middle of 2019, “Combining games M&As and IPOs for total exits shows the market has been at or near record levels for the last three years, but dropped back towards 2010 levels in 2019. The largest pools of recently unrealized capital (i.e. last 18 months’ games investment compared to games M&A in the first half of 2019) are in esports at 292 times, games tech/other (games engines, games streaming etc.) at 31 times, mobile games at 29 times and MMO/MOBA games at 20 times.”

Odin prediction: We’re going to plateau here eventually, as an industry, but that won’t happen this year. This trend will continue in 2020.

California compliance issues

CCPA is now in effect as of the beginning of 2020. Combined with California’s AB5 labor bill, California is causing many ripple effects throughout several industries and the video game industry is no exception. Especially as San Francisco, Los Angeles, San Diego and Irvine are home to many video game headquarters – and pretty much any game published in the US will be subject to the laws affecting residents in California.

This was not so much an issue last year so this is a new one to the list.

Odin prediction: As CCPA and AB5 enforcement ramp up midyear, companies who have not already addressed these will begin to scramble.

Big developers will keep getting bigger

Last year, we predicted that “the game industry should bounce back but there will be fewer studios overall and more pressure on developers to see financial results from their games. We’ll see consolidation at the top.”

This is still largely true, especially as certain major studios have been on acquisition sprees. Northern European investment in the games market and Chinese investment continues, and dollars earned domestically are reinvested in the U.S. to avoid the cost of repatriation.

Odin prediction: Consolidation is still a thing and it may get more severe if we enter an economic downturn.

Unionization and violent video game pushback

It’s hard to admit when you’re wrong but we’re okay with not being perfect. The U.S. did not push forward with unions for the games industry in 2019, however, we’re seeing progress now with CODE. We’re not sure how successful they’ll be in the indie and AA space but at least there’s visible action in early 2020.

There also weren’t very many more violent video game taxes proposed in 2019. Legislators certainly tried to throw video games under the bus but it was mostly talk, minimal action.

Odin prediction: Violent video games aren’t going anywhere this year. There’s going to be too much focus this year on elections. Unionization, however, will have more serious groups scrutinizing the video games industry (like CODE). This is more likely to affect AAA developers rather than indie devs in the short-term.

Reputation management

We were spot-on with reputation management and more influencer marketing regulation. Just a few months ago, the FTC released a revised version of their overview on disclosure rules for influencers. Our prediction was “we might not see crack-down on Twitch quite yet, but we’ll see the FTC get more involved with YouTube and Instagram influencers.” And our crystal ball was entirely accurate there.

Odin prediction: Marketing departments will have to go through more hoops to get approval as a result of challenges this year.

Brandon J. Huffman

Brandon is the founder of Odin Law and Media. His law practice focuses on transactions and video games, digital media, entertainment and internet related issues. He serves as general counsel to the International Game Developers Association and is an active member of many bar associations and community organizations. He can be reached at brandon at odin law dot com.

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