Those tuned in to the policy news cycle are likely aware of the Biden administration’s aggressive anti-tech agenda. Its approach has sparked increased scrutiny and various instances of regulatory overreach in the tech space. While that hostility was initially directed at the core products of the so called “Big Tech” companies, the administration appears set to branch out to the video game industry.
The Federal Trade Commission’s (FTC) relentless, misguided effort to block the Microsoft-Activision acquisition has garnered most of the headlines. However, other agencies, like the Consumer Financial Protection Bureau (CFPB), have also turned on the regulatory machine. Increasing regulatory burdens on the gaming industry could stop one of the most lucrative and fastest growing industries in its tracks.
Despite losing its initial attempt to block the Microsoft-Activision merger, the FTC continues to double down in attempt to oppose the transaction. On July 18th, the FTC sent a letter to the Court of Appeals of the 9th circuit, claiming that the recent changes to the Xbox Game Pass subscription (which introduced a new subscription tier and increased the prices of the remaining tiers) were proof of the agency’s arguments that the acquisition would harm consumer power. According to the agency, the price increases, the sunsetting of the “console” tier, and the introduction of a new “standard” tier that would not include day-one releases would amount to product degradation.
However, as Microsoft noted in their response, the agency’s allegations are a profound mischaracterization of the service’s offerings. It also brings forward new arguments that the agency itself seemed to not be concerned with originally. As the response clearly highlighted, the FTC’s complaint focused almost exclusively on the potential for Microsoft to withhold valuable titles (such as Call of Duty) from being released on competing platforms. With this new letter, the agency is trying to shift to new arguments not part of the original complaint. The agency is also quick to mischaracterize the new “standard” tier as a degraded product due to the removal of day-one releases from the available games catalog. Such a claim conveniently ignores that the new tier now grants access to online multiplayer services instead, which used to be an additional stand-alone subscription valued at around $10/month.
The administration’s regulatory effort does not stop with the FTC’s actions. Earlier this year, the CFPB released a reporton the economies of video games and virtual worlds. In this report, the bureau tried to characterize the offerings of certain online video games as financial products, particularly bank accounts. The bureau argues that certain digital assets present in videogames, such as proprietary virtual currencies or cosmetic items, can be considered as stores of value as they can be converted to “real” dollars. In drawing this parallel, the report ultimately brings forward the question of fraud protection and account security in videogames. According to the CFPB, if these video games act like a financial institution, they should offer similar services, such as scam and fraud protection.
These demands ignore the nature of the gaming industry. While some of the games mentioned in the report are backed by big developer studios with vast resources, that is not the norm in the industry. Independent studios are taking a growing stake in the gaming market, and they often do so with limited resources. To comply with such a mandate, these studios would have to divert resources from their core mission of developing and maintaining video games to hire employees that are able to process, evaluate, and enforce these fraud protection services.
Such a requirement would be nearly impossible for these developers to comply with, likely destroying the gaming industry’s most creative and disruptive market. In some cases, these measures could lead to a degraded player experience. As the CFPB itself concedes, if the developers return a stolen virtual item to its rightful owner without removing the item from the in-game economy—which presents various technical and practical issues—it will depreciate the value of the item for all the other holders of the item. In other words, the requirement could potentially have an inflationary effect on the in-game economy, which would create the loss of value that the CFPB claims to protect.
The gaming economy is the most valuable entertainment industry on the planet, tripling the value of the music and movie industry combined. This has resulted in massive benefits to the American economy, as the American gaming industry has had historic dominance over the market. However, in the ever-expanding regulatory of the Biden administration, the virtuous circle which has led to this booming economy might break. The next administration should reign-in the regulatory overreach by the FTC and the CFPB to ensure that the American gaming ecosystem retains its place as global industry leader.
