The Supreme Court vs. Gaming

The Supreme Court vs. Gaming

It’s clear that a loss in the upcoming ‘violence in video games’ Supreme Court case, aka Schwarzenegger v EMA, would have profoundly negative public relations impact for the industry and for gamers in general, but would it also impact the bottom line of publishers?

The games business in the U.S. is worth a whopping $12 billion dollars and contributes $3.8 billion to the Gross Domestic Product. The industry employs almost 100,000 skilled workers and even has a presence on the Fortune 500 list. It’s an American success story from beginning to end. But later this year, the Supreme Court of the United States (SCOTUS) will hear the State of California’s appeal and determine if games should continue to enjoy the First Amendment protections afforded them under the Constitution, like movies and music.

Those who read what the case is about and limit their thinking to just that would tell you that there’s sufficient precedent from the District Court level to abate any concerns gamers might have. Or that the repercussions of a failure would be limited to how games are retailed, or that this is solely about minors. It’s a short-sighted and marginalizing commentary, as industry executives are fast to point out.

Lobbyists and advocates have their opinions, as we’re generally a pretty dogmatic bunch, so I posed the question about the impact a SCOTUS loss would have to Wedbush Securities managing director, Michael Pachter. He agreed with Graham Hopper, EVP & DM of Disney Interactive, who told CNBC, “It’s not about having a dramatic impact on our bottom line, (but) it’s going to make our retailing abilities a nightmare.”

Michael feels that the pure real-world economic impact would be limited in scope and scale to the State of California, saying, “My best guess is that ‘excessively’ violent games make up maybe 10% of game sales. And since California has around 10% of the population, it’s reasonable to extrapolate that the law will impact only 1% of overall sales. The portion sold to minors directly is probably less than 5% for any given M-rated game, so 5% of 1% is 0.05% of game sales. Not very significant. This will be offset by those gamers who induce an adult to buy the game for them. My guess is that it will end up impacting sales by 0.02% or less, not anything to get excited about.”

According to the ESRB, Mature-rated games account for about 17% of the total annually, but the vast majority of the industry’s gross annual sales come from games that would be impacted by the ruling. And, if the other states were to follow California’s lead, as both Michigan and Illinois may, we would see a wave of legislation across the country, which would certainly change the economic impact.

Pachter said that the most immediate concern would be the chilling effect it would have on game developers, as “the existence of such a law would serve as a prior restraint on free speech, which is the crux of the current lawsuit. I think it’s entirely reasonable to conclude that developers would think twice about what to include, for fear of being rated X.” The development community has been active and vocal and their trade organization, the International Game Developers Association (IGDA), is filing an amicus brief (friend of the court document) in support of the publisher’s position.

He also believes that a loss would have a short-term impact on the investment community, who would “freak out,” but that stocks would recover quickly. However, the market volatility that occurs between a negative courtroom decision and when analysts like Michael would be able to calm fears may be significant.

Another interesting point that Pachter made concerns the culpability that publishing companies, their respective officers and directors may have in doing everything in their power to insure that the case succeeds. “Publishers have a fiduciary duty to see that the government doesn’t legislate against creative freedom, in order to encourage their developers to make the best games possible. Prior restraint on free speech (would) impact game quality, pure and simple.” That fiduciary responsibility means that the pressure is on publishing execs in ways that none of us likely anticipated and gets compounded further for those that are also Entertainment Software Association (ESA) board members, as the best interests of the trade association and those of the member companies themselves may not align all of the time.

Press Start to Continue is a running column which addresses topically-important industry issues that impact gamers and the industry trade.

About Hal Halpin
Hal Halpin is founder and president of the Entertainment Consumers Association (ECA), a non-profit organization that represents interactive entertainment consumers in the U.S. and Canada, giving gamers a voice to relay concerns, address issues and focus advocacy efforts.

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