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Video Game Industry to Get Its Day in Court

While most of Washington, DC will be focused on mid-term elections Tuesday, the justices of the Supreme Court will be thinking about video games.

AP

The Supreme Court is schedule to hear oral arguments on Nov. 2 in the case of Schwarzenegger v. EMA, by far the most important challenge – legal or otherwise – the video game history has faced.

The case revolves around a California law passed in 2005 (but never enacted) that made it illegal for retailers to sell violent video games to anyone under 18. California Governor Arnold Schwarzenegger and Attorney General Jerry Brown maintain that violent games are on the same level as sexual materials, giving the government the right to restrict sales.

The video game industry argues there have been no conclusive studies proving games have any sort of negative effects on players – and that no other entertainment field is subject to this sort of regulation. Restricting the sale of any games, it says, would be violation of the First Amendment rights of developers and publishers.

A federal appeals court agreed with the video game industry, noting that California had failed to produce sufficient evidence that violent games cause physical and psychological harm to minors. Supreme Court justices, though, surprised onlookers by agreeing to hear the case in April.

M-rated titles (the equivalent of an R rating in the film industry) do not make up the majority of games on the market. In 2009, they were just 17.4 percent of all games sold by unit. They do, however, 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 for profitability. 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.

While the video game industry’s ratings have been lauded by the Federal Trade Commission and retailers currently work to ensure M-rated games are not sold to minors, it’s not hard for teens to pick up games like “Halo,” “Modern Warfare” or “Grand Theft Auto”.

One overriding concern among publishers – beyond the potential restriction in what they are allowed to do in games – is the impact a negative ruling could have on retail relationships. If M-rated games are classified as adult only entertainment, certain retailers, such as Wal-Mart, could elect to stop carrying them – removing one of the industry’s biggest distribution channels.

"CEOs at game companies also fear other states will pass laws that are similar (but not identical) to California’s – meaning the definition of violence could vary slightly from state to state. That could force companies to create multiple versions of titles to comply with the law."

CEOs at game companies also fear other states will pass laws that are similar (but not identical) to California’s – meaning the definition of violence could vary slightly from state to state. That could force companies to create multiple versions of titles to comply with the law.

“One of America’s great exports is entertainment,” said John Riccitiello, CEO of Electronic Arts. “The implication of Schwarzenegger v ESA is we could end up with state level bureaucracies that define what’s marketable in 50 different jurisdictions across the U.S. I can imagine [the government] trying to tell Steven Spielberg ‘We need 50 different cuts of your movie for each state.’ It will screw us up in a real way.”

Legal observers have also noted that a loss could lead to substantial layoffs at game companies.

Beyond the effect on game publishers, a negative decision could impact retailers as well. 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.

While the case might center on the video game industry, other entertainment and technology companies are watching closely. A ruling in California’s favor, they fear, could quickly affect movies, TV and even online content.

“In terms of online media, beyond the occasional ‘viewer discretion advised’ label, there is plenty of unrestricted access to ‘offensive’ content available online to anyone with a broadband connection,” notes Colin Sebastian, an analyst with Lazard Capital Markets. “The idea that minors are dependent on retailers to acquire violent movies, videos or games seems naïve, in our view, and laws restricting access to content could spill over into the digital realm.”

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