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The Looming Threat of Video Game Regulation

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Tags Corporate WelfareCronyism and CorporatismMedia and Culture

In just a few decades video gaming has grown from a niche market into one of the largest entertainment industries in the world, certainly no mean feat. However, its transformation has also brought with it the same regulatory problems that every large industry encounters sooner or later. And like most other industries, gaming’s regulatory woes are a combination of internal and external threats. We can categorize these threats as follows:

  1. Politicians and regulators trying to control and manage the emerging industry (external)
  2. Industry leaders using regulation to their own advantage and to the detriment of competitors (internal)

Gaming and Politics

In the case of video games, the first type of problem is evident in the periodic hysteria about the alleged evils of gaming: games are addictive, games promote violence, games use predatory or fraudulent marketing, games taught my dog to lie and steal, etc. These assertions, which are usually supported by flimsy or nonexistent evidence, nonetheless make excellent fodder for political grandstanding. Recent examples include calls for the regulation of loot boxes and other microtransactions.

However, despite claims to the contrary by many gamers, demands for the regulation or outright banning of games do not originate solely from the political left: far from it. Conservatives have also been part of the crusade from its earliest days, right up to Trump’s current plan to curb the spread of violent games. Right and left are often united in their passion for bringing gaming under government control.  Of course, it’s sometimes true that there are differences between their motivations, or between the types of content they object to: liberals can’t fathom how anyone could be interested in digital violence, while conservatives can’t fathom how anyone could be interested in sex. Yet the ultimate goal of both sides is to regulate and censor games.

Fortunately, like most political talking points, moral panic about gaming tends to last only as long as the current election cycle, that critical phase in which politicians try desperately to convince voters that “something must be done” about the latest scourge to society (that will be forgotten by next week).

Regulation as a Weapon

Internally-driven regulations, however, tend to be longer-lasting and more damaging to the industry and its consumers. They are also harder to explain to the public, as they tend to revolve around mundane economic problems rather than the emotionally-charged topics that drive political efforts toward regulation (such as violence among children). A second problem is that private companies are too often thought of as innocent victims of government intervention. In reality though, the motivation for government regulation of business very often comes from businesses themselves. This is well-known, but can be obscured when the business in question is a young company offering flashy new products to devoted fans (think of someone like Elon Musk, whose grandiose innovations are often popular with free-market supporters, but whose businesses are heavily subsidized).

The gaming industry is no different. Like many of its products, game development is a fiercely competitive market, and it’s hard to consistently satisfy consumers while staying ahead of new players. Sadly, rather than risking their own assets in the marketplace through innovation and finding new and cheaper ways to serve consumers, many developers choose the safer strategy of using legal and regulatory privileges to keep out competition.

The typical case involves larger firms excluding smaller ones. Larger, established developers have the financial resources to seek out and take advantage of benefits that are unavailable to their smaller competitors. Common examples include the targeted tax breaks that exist in several US states for developers. These are not, as sometimes claimed, equivalent to straightforward subsidies for firms, but they are a kind of legal privilege that hurts the companies that are unable to qualify for them.

A more deeply-rooted example relates to intellectual property rights. IP litigation is on the rise in the gaming industry, and appears increasingly to target smaller companies and even not-for-profit and fan-based projects. The recent rash of these cases gives the lie to the idea that IP rights are intended to help struggling innovators. Microsoft, for instance, closed down ElDewrito, a free-to-play Halo mod that used some IP from an abandoned Halo project. The same fate also met Shadow Moses, a fan remake of Metal Gear Solid (released in 1998, and hardly one of Konami’s current bestsellers).

Other cases of using IP as a weapon abound. The UK-based broadcasting company Sky fought a secret three-year legal battle, which it eventually lost, to prevent the use of the word “sky” in No Man’s Sky (the company also sued Skype on the same grounds and forced Microsoft to change its “Skydrive” to “Onedrive”). And this isn’t the only example of trademarking a clearly unoriginal term: CD Projekt Red recently invited criticism by trademarking the word “cyberpunk” for its upcoming Cyberpunk 2077. The company claims this is a purely defensive move, but whether that turns out to be true or not, it only highlights an atmosphere of paranoia surrounding aggressive IP litigation in the industry.

It’s also important to point out that external, politically-driven interventions have the same result as internal, anticompetitive ones: they privilege some producers at the expense of others. For example, restrictions on violent content benefit companies like Nintendo who don’t specialize in violent games to begin with, while punishing companies like Rockstar, who do. At the same time, even Rockstar benefits from these laws relative to smaller competitors that make the same kind of games, but lack the time and money to navigate legal barriers. And crucially, these results have nothing to do with the intentions of the laws, or of their sponsors. They simply reflect the logic of regulation playing itself out. In fact, gaming is another sad case study of how counterproductive regulation can be—laws intended to limit the power of business can end up giving it more.

These are just a few examples of a growing trend among major developers to use resources to extract money from competitors rather than to produce compelling original content that consumers want to pay for. Yet this is just what we should expect from companies that use the legal system to insulate themselves from the demands of consumers. Just like any good game, the video game industry needs more competition, not more cheaters.

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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