Gaming series #1: Games companies face digital regulation across the globe

The growing popularity of video gaming and the vast potential of the industry has caught the attention of regulators as well as investors.  In this first post in our series of Tech Insights on gaming, we highlight some of the key legal issues games companies and investors are facing as they pursue opportunities across the globe.  

Growing popularity and potential

Gaming has become the world’s biggest entertainment industry and it is evolving rapidly with increasing consumer demand and intensifying competition. Technology developments are bringing growth in areas such as cloud gaming, esports, and virtual reality. More immersive experiences and virtual worlds in the metaverse are enabling social gaming, entertainment experiences and virtual events.   

This is fuelling new monetisation models and the sector is adopting new forms of digital assets and payments offerings leveraging blockchain models and new forms of payment systems. 

Strategic investments

Gaming has become an area of strategic investment for tech and media companies, and the industry has attracted substantial investment in recent years. 

Yet as games companies and investors pursue M&A or other investments, they need to take account of increased scrutiny from merger control and foreign investment control regimes, as well as antitrust regulation and broader digital regulation. Merger enforcers on both sides of the Atlantic have sought to challenge transactions combining different aspects of the games and interactive entertainment ecosystem, and the new wave of digital regulation could restrict certain business models and strategies in a manner that could be material to valuations.

A global wave of digital regulation

More broadly, games companies are facing a wave of digital regulation across the globe. With increasingly assertive regulatory enforcement and increasing litigation (including class actions), games companies are facing a climate of heightened risk in their operations.

The games industry is in the spotlight as regulators (and consumers) take action to:

• protect the privacy and online safety of consumers (particularly, children);
• address perceived risks with technology advances such as artificial intelligence, digital assets and the metaverse; and
• enable a fair and competitive digital economy.

The approach of major economies to addressing the issues has similarities and differences, and this presents compliance challenges for multinationals.

European Union takes the initiative

The EU is pursuing a series of legislative initiatives intended to shape Europe’s digital future: from ensuring well-functioning competition in digital markets to safeguarding users from online harms, establishing a framework for the regulation of AI, regulating crypto assets and improving operational resilience against a growing cyber threat. 

The EU’s digital package is potentially a source of inspiration for regulation across the globe, as the General Data Protection Regulation has been.  In 2022, the GDPR inspired the launch of new laws such as those introduced by China, Thailand and Indonesia, and amendments to existing legislation in Singapore, Japan, and Australia.  There is an ever-expanding global framework of regulation for data, with gaming companies facing increasingly assertive enforcement, substantial fines and litigation.

The European Parliament has also recently called upon the European Commission to develop a long term EU video game strategy and address a series of issues affecting the games industry and players in general. These include loot boxes, online gambling, and protection of minors.

The UK diverging

The UK is progressing its own initiatives that in part replicate some of the EU’s digital package such as the UK’s Online Safety Bill which contains similar content regulation obligations to those in the EU Digital Services Act. 

Following the EU’s Digital Markets Act which entered into force in 2022, in April 2023 the UK Government introduced the long-awaited Digital Markets, Competition & Consumers (DMCC) Bill, implementing reforms to competition and consumer protection laws and introducing an entirely new regime for regulating the largest tech companies. The UK Competition and Market Authority’s decision in April to block Microsoft’s acquisition of Activision, shows the reach of its regulatory impact on the games industry beyond the UK.  

In some other areas such as AI, the UK is taking a different approach from the EU and is placing greater reliance on policy initiatives and existing legislation rather than AI-specific legislation.  As such, over time, the UK is diverging from the EU regime. 

China going further and faster

China’s regulation of the digital economy has gone further and faster than the EU in the last two years as China seeks to ensure the digital economy is stable and that from a societal perspective, consumers believe that they have more protection. Stringent new regulations have been introduced in areas such as regulatory oversight of online content, scrutiny of algorithmic recommendations, a ban on cryptocurrencies, and restrictions on cross-border data transfers. 

China also has gaming-specific legislation.  For example, game operators require a publication licence from the National Press and Publication Administration for each game.  China has prioritised protection of children and in 2021, it introduced further requirements of game operators including requiring real name authentication and restricting minors to playing online games for an hour day only on Fridays, weekends and public holidays. 

The U.S. at an earlier stage 

While European jurisdictions are well developed in their approach to digital markets, the U.S. initiatives are at an earlier stage of development.

While potential platform regulation initiatives have stalled in Congress, both enforcers and private plaintiffs have been active in pushing the bounds of antitrust law in gaming markets. In April, for example, the Department of Justice applied new theories of harm for labour markets to professional esports circuits, requiring Activision Blizzard to remove a “tax” on player compensation over a set threshold. Private class claims are progressing, challenging decisions by gaming systems to stop offering digital download codes in brick-and-mortar retail.

However, these enforcement developments are so far not fundamentally changing the market structure. In April, a federal appeals court largely affirmed the dismissal of claims by Epic Games that challenged Apple’s restrictions on in-app purchases. Proposed legislation targeted at preventing these restrictions is pending both in Congress and state legislatures around the country but has so far not gained significant traction.

There are bipartisan efforts to revamp online harms, content moderation and Section 230 of the U.S. Communications Decency Act (immunity for liability).  On the data privacy side, there are an increasing number of new State regulations that are pushing a renewed focus at the federal level on data privacy regulation. Digital asset regulation is failing to gain traction at the federal level while the SEC and other regulators ramp up enforcement in the space.

Navigating digital regulation

We work with companies across the games and interactive entertainment ecosystem to navigate the evolving regulatory landscape around the world to build and defend successful businesses. View our Games and Interactive Entertainment webpage to find out more about how we can support games companies and investors in the sector.   

Visit our dedicated Games and Interactive Entertainment page to find out about our Linklaters gaming offering.