California's AB 2426: Game changer for video game and digital media purchases?

Effective 1st January 2025, a new law in California (AB 2426) will change how digital games and other digital goods, including movies, music and e-books are sold in this state, requiring online marketplaces to clearly inform customers when they are purchasing a revocable license to access digital media, rather than an unrestricted ownership right.

This measure aims to protect consumers and ensure transparency in digital transactions. Retailers will need to adjust their sales strategies to comply, or face potential fines.

The tipping point

In recent years, the video game industry has witnessed a notable shift towards subscription-based models, moving away from the traditional model of purchasing and owning individual games. This transition mirrors broader trends in digital media consumption, where access and convenience are increasingly prioritized over possession. 

However, this shift may also entail more risks for consumers. Recent cases of publishers revoking licenses and shutting down popular games have attracted considerable media attention and prompted California lawmakers to respond by amending California's False Advertising Law.

The new legislation requires sellers of digital goods to disclose when consumers are purchasing a license to use the content (i.e. a right that can be terminated), rather than an unrestricted ownership right.

AB 2426 aims to enhance consumer protection by imposing transparency obligations on online marketplaces, making it unlawful to use confusing language “which a reasonable person would understand to confer an unrestricted ownership interest in the digital good”. 

The transparency obligations will also impact on sellers’ online choice architecture, imposing marketplaces to rethink how information is presented to consumers.

Key provisions of AB 2426

The new legislation will require online marketplaces to be more transparent when advertising or selling digital media licenses to consumers. Sellers of digital goods will still be able to use terms such as “buy” or “purchase” when customers receive a license to use the digital media. However, sellers must comply with the new informational requirements introduced by AB 2426, either before or at the time of each transaction. 

Sellers must also ensure that disclosures and acknowledgments are distinct and separate from any other terms and conditions of the transaction that the purchaser acknowledges or agrees to. 

This includes using a larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks.

Exceptions to AB 2426

Exempt from the new AB 2426 requirements are:

• subscription-based services
• free digital goods, and
• digital goods purchased for permanent offline download.

In addition, the legislation makes clear that cable and satellite relay television service, or any other distribution of television, video, or radio service fall outside the definition of digital goods, and are out of scope.

Risks associated with AB 2426

AB 2426 adds a new Section 17500.6 to the California Business and Professions Code, relating to consumer protection. Violation of this section of the California code is a misdemeanor punishable by imprisonment for up to six months and/or a fine up to two thousand five hundred dollars ($2,500).

Wider international context

Consumer protection in the tech space, and especially in the video game space, is a hot topic in many parts of the words.

It is interesting to mention an initiative seeking to prompt the EU Commission to introduce legislation to prevent video games publishers from disabling video games “before providing reasonable means to continue functioning of said videogames without the involvement from the side of the publisher.” Although this initiative does not seek to impose the same obligation as the AB 2426 law, the spirit is the same: protecting consumers and the investments they made in video games.

Looking ahead

Video games is the fastest-growing segment in digital media, projected to reach a global market volume of $363.20 billion by 2027. California accounts for a significant portion of the U.S. digital game market, so this law’s impact will certainly be substantial. 

Both the California AB 2426 and the European initiatives underscore the increasing potential for reputational harm and regulatory scrutiny. Video game companies must navigate their way through the law of many jurisdictions and take a risk-based approach to decisions as they grapple with their obligations in this evolving regulatory landscape. 

See our Games and Interactive Entertainment page to find out more about our work and thought leadership in the space.