GO
Loading...

Video Game Court Case Has Big Implications For Industry

Chris Morris, Special to CNBC.com
Monday, 26 Apr 2010 | 12:44 PM ET

For the first time, the US Supreme Court plans to take a closer look at the constitutional protection of video games.

The Court agreed Monday to review a California law prohibiting the sale or rental of violent video games to minors that a lower body had ruled unconstitutional.

The case, which will be decided in the Court’s next term (which begins in October), could have dramatic implications for the industry.

Attorneys who specialize in video game law say they do not expect the Supreme Court to rule that video games are not considered a form of free speech. Rather, Justices seem more interested in determining whether there are factors that necessitate regulating sales in the industry.

“We aren’t going to go towards an outright ban,” says Dan Offner, a partner with Loeb & Loeb in California. “I don’t see that happening. What we do face, which is a real problem for the industry, is if California is able to achieve a prohibition on minors buying these games, that could have a really, really significantly negative impact on the industry.”

California Governor Arnold Schwarzenegger and Attorney General Jerry Brown had argued that violent games are on the same level as sexual materials, of which the government can restrict sales. In addition to regulating the sale and rental of these games, the California law (which was adopted in 2005, but has never taken effect) also imposes a strict labeling requirement on games.

The video game industry’s trade association expressed disappointment in the ruling, but said it was optimistic the Court would ultimately decide against limiting the games’ First Amendment rights.

“As the Court recognized last week in the US v. Stevens case, the First Amendment protects all speech other than just a few ‘historic and traditional categories’ that are ‘well-defined and narrowly limited’,” said Michael D. Gallagher, president and CEO of the Entertainment Software Association. “We are hopeful that the Court will reject California’s invitation to break from these settled principles by treating depictions of violence, especially those in creative works, as unprotected by the First Amendment.”

In an earlier ruling, a federal appeals court said California had failed to produce sufficient evidence that violent games cause physical and psychological harm to minors.

The video game industry is a self-regulating body that works to ensure M-rated games (the equivalent of an R rating in the film industry) are not sold to minors. Despite efforts, though, it’s not hard for teens to pick up games like “Halo,” “Modern Warfare” or “Grand Theft Auto”.

M-rated titles do not make up the majority of games on the market, but they tend to be the industry’s biggest hits.

Activision has made billions from its “Call of Duty” franchise (which includes last year’s top selling game “Modern Warfare 2”). And Take Two Interactive Software relies heavily on the “Grand Theft Auto” franchise to remain profitable. Even Electronic Arts , which in years past has been less dependent on the shooter genre, has shown an increased interest in those titles lately, because of their drawing power.

“These games are right in the crosshairs,” says Offner. “It’s really interesting that the Court decided to hear it. They obviously must have decided that video games should be looked at differently than music or television.”

Beyond potentially putting future publisher earnings at risk, the decision could impact retailers. If the Court does decide that violent game sales should be regulated, stores such as GameStop , Best Buy and Target would have to set up stricter protocols to ensure minors do not buy the games, just as they do with cigarettes and alcohol.

“I don’t believe the Supreme Court will overturn the decision,” says Edward Woo, an analyst with Wedbush Securities. “If that’s not the case, though, and the states begin regulating sales, that’s definitely going to have an impact on video game sales.”

  Price   Change %Change
ATVI
---
BBBY
---
GME
---
TGT
---
TTWO
---