Select Committee on Culture, Media and Sport Minutes of Evidence


Letter to the Chairman of the Committee from the Deputy Chairman of Ofcom, dated 13 November 2006

  You will recall that when Ofcom gave evidence last month to the CMS Select Committee as part of your inquiry into the creative industries and new media, you asked a question to which I indicated we would respond to you with a written answer.

  The exact question was:

  Can I ask you one very specific regulatory question quickly. The downloading of content on to different platforms. As I understand it, the downloading of premium content on to mobile devices, Ofcom is arguing, should be covered by the ICSTIS rules and requirements whereas the downloading of content (at presumably much the same price) through the Internet through for instance, iTunes is not regulated. Doe3s this not seem unbalanced to say the very least?

  In these examples, you are drawing attention to a regulatory distinction which appears illogical at first glance—but which in fact has a good basis in consumer protection objectives.

  ICSTIS regulates services independently of the device used to receive them: its responsibility is for services which are purchased using a telephone billing account. ICSTIS regulates such services because the telephone account has some characteristics which distinguish it from other means of payment. Such other means of payment, for example credit cards, attract consumer protection regulation and afford rights to consumers.

  In order to protect consumers from unwittingly incurring excessive telephone bills (which could have consequences for their continued access to a telephone), or from buying services which have been described in an inaccurate or misleading way, ICSTIS regulates all services where a provider is selling information or entertainment and is charging consumers via the telephone bill. These are described as Premium Rate Services, and are subject to the ICSTIS Code of Practice which is approved by Ofcom under the Communications Act 2003.

  The Code of Practice focuses both on the way the service is promoted as well as the service itself. One key focus is information about the charges for the service.

  If a mobile network operator or other service provider in the UK offers phone users a content download service, where content is paid for via the telephone account, this service would of course be subject to the ICSTIS Code—even though the same services might be available in other ways which are not subject to the ICSTIS Code. The availability of music downloads which use other means of payment does not affect the requirement that services sold using telephone accounts be appropriately regulated. Other consumer protection law is likely to apply to those other payment mechanisms such as credit cards.

  While this is the position at present, Ofcom is undertaking a review of the scope of regulation for premium rate services, which will consider whether the current regulatory approach is fir for purpose. The review will look at the issues raised by the Committee to both ensure there is effective regulation of premium rate services in a converged communications market and that regulation is fairly applied to competing services. This review should be finalised by the end of 2007.


Memorandum submitted by Entertainment & Leisure Software Publishers Association

INTRODUCTION

  1.  The Entertainment & Leisure Software Publishers Association (ELSPA) was founded in 1989 to establish a specific and collective identity for the British computer and video games industry. As the industry has rapidly developed and matured, ELSPA membership has grown fivefold and now includes nearly 70 companies concerned with the publishing and distribution of interactive leisure and entertainment software in the UK. ELSPA is an active member of the Digital Content Forum and the Alliance Against IP Theft, both of which are making submissions to the Committee, which we endorse.

  2.  The UK is one of the world's leading countries for interactive games. The majority of global industry players—publishers, software and hardware companies—have their main European or worldwide base in the UK. We are recognised globally as the gateway to the European games market, with around 35% of software sold in Europe emanating from UK studios. The UK industry employs directly around 22,000 people and attracts significant inward investment from the US and Japan—the largest markets in this US$21 billion sector.

  3.  The UK has the world's third largest computer and video games market by value, recording sales in excess of £2.3 billion annually. There is about one games console for every three people in the UK and some 335 million units of games software have been sold in the last decade. A December 2005 report, "Gamers in the UK", commissioned for the BBC found that 59% of UK 6-65 year-olds—some 26.5 million people—play interactive games, with 21.6 million of these regularly playing at least once a week. As a comparison, recent UK Film Council figures show average weekly attendances at UK cinemas in the first half of 2005 at between 2.5 million and 3.7 million people per week, around a tenth as many people as play interactive games.

  4.  A consistent success story, the interactive games industry is a net exporter of products reaching a value of around £200 million in 2003. In comparison, the film and TV sectors recorded trade deficits of £282 million and £553 million respectively in the same year. At current rates of growth, even without the pressures on convergence of interest to the Committee, it has been forecast by PricewaterhouseCoopers that the global games sector value will have doubled by 2008.

RECENT AND FUTURE DEVELOPMENTS IN DIGITAL CONVERGENCE AND MEDIA TECHNOLOGY

  5.  The UK's interactive games industry is rapidly growing commercially and creatively successful because it is, and always has been, at the leading edge of digital technology. Interactive games are integral to the process of convergence, which the Committee is investigating, so it is important to understand how our sector defines convergence. History shows that it will be our definition and our vision that drives creative energies in related sectors. In brief, convergence is both a technological and an organisational process.

  6.  Firstly, there is the convergence of the physical technology itself—devices already available can play interactive games, films, music, radio and television, operate telephony and interact with other people and devices over networks and the internet. In our experience, these devices are fundamentally interactive games machines and computers which now have additional input channels. Many new game consoles are internet-enabled devices, often portable, which also play video and music from both broadcast and recorded sources. Modern home computers can be single control points for an entire household's audio-visual and information requirements.

  7.  Future developments in technological convergence are likely to include the end of many traditional single-purpose devices and further blurring of the boundaries between passive viewing or listening and active engagement with broadcast or recorded content—using interactive gaming technologies and techniques. Popular TV programmes such as "Ask the Nation" have already demonstrated the public's willingness and appetite to take part in interactive entertainment.

  8.  The visual and acoustic capabilities created by interactive games companies go well beyond simple Q-and-A interactivity, however. Technology developed for interactive games can graphically recreate lost civilisations, inaccessible structures and forgotten species in fine detail. Many films and TV programmes already employ these technologies, and the creative people and processes behind them, to enhance their output. The same techniques will allow creative fulfilment of neglected art, music and drama, providing new and exciting opportunities for consumers and for securing employment, developing skills and creating wealth for the UK interactive games industry.

  9.  Interactive games are getting more popular as technology improves. In South Korea, for example, a country with a similar size of population to the UK but a considerably faster and more widespread broadband network, there are some five million registered users of the most popular MMOG (massively multiplayer online game) with up to 200,000 people playing online at any time. Broadband, increased portability of devices and increased ability to access and play interactive games using any platform will lead to a wider penetration of such games.

  10.  The second convergence, driven in part by technology, is the convergence of organisations. It is no longer appropriate rigidly to compartmentalise music, film, TV, computer and interactive games companies. Often these are parts of the same corporation. If not, they are likely to have close working relationships and a high degree of interdependence. ELSPA believes that interactive games will often be the common thread running through diverse media corporations.

  11.  Interactive games companies are amongst the world's biggest commissioners of original artwork and music—the scenery and scores heard on modern interactive games. Several interactive games companies now have music publishing operations and exhibitions of digital artwork, such as recently held at the Institute for Contemporary Arts, are becoming more commonplace.

  12.  Games are inextricably linked with film. Lara Croft: Tomb Raider, Super Mario Brothers and Mortal Kombat, for instance, were interactive games long before they were films. In the last few months, cinemagoers have been able to watch, for instance, King Kong, Harry Potter or Narnia and then enact their own version in an interactive game, or link with many players online to create new adventures. Major directors, such as King Kong's Peter Jackson and Munich's Stephen Spielberg, are creating content specifically for interactive games.

  13.  In sport and television, interactive games have built a unique position. This month TV viewers could watch the Winter Olympics whilst battling near-identical virtual ice and snow in Turino 2006, the interactive game. Gamers all over the world will be lifting the FIFA World Cup in Germany this year, even if they haven't left home and their country didn't qualify. You may see the venues and compete in virtual games before the Olympic flame is lit over London in 2012.

  14.  Film, TV and music organisations, computer corporations and telephony providers, have already begun to shape the converged creative industries of tomorrow. It is not possible to predict where such convergence will end, but interactive games will be integral to successful new organisations. In understanding recent and future developments, the Committee will recognise that the challenges and opportunities it identifies may be unrecognisable to, say, a successor Committee conducting a similar investigation in the next Parliament.

  15.  Finally, convergence is not limited to media organisations or the creative sector and others have already recognised the wider applications of interactive entertainment software and technology. Medical experts use interactive simulations and interactive games both as therapeutic aids and as educative tools. Interactive games exist, for example, which test and train teenagers' understanding of contraception. In education, universities already teach programming and interactive games design. The industry is working with Skillset and DTI on a programme of accreditation, unique in Europe, for games-related degree courses. In schools, interactive software is both being used and being tested in a range of teaching and training settings. Even the US Army has an online interactive game as a recruitment tool. Downloaded 1.5 million times in its first six months, it was one of the world's most successful interactive games launches.

GOVERNMENT'S ROLE IN UNDERSTANDING AND SUPPORTING CONVERGENCE

  16.  It is clear that technological and organisational convergence will radically alter the shape, reach and accessibility of creative industries. It has long been the case that interactive games have been viewed as less significant than other creative industries. However, we have shown in this submission that interactive games are central to today's debate about all creative industries. Today's interactive game player could be anyone; tomorrow's interactive game player will be nearly everyone.

  17.  Convergence is a difficult word for Government, since it involves breaking down traditional barriers—in this case between Departments and spheres of influence. It is not, in our view, in the interests of the creative industries or the country as a whole for one Department to try to hold all the aces. Convergence heightens, not lessens, crosscutting issues of regulation, supervision and sponsorship of our industry.

  18.  It is somewhat surprising for example that the industry's co-sponsoring department, DCMS, does not devote even a single page of its website to the interactive games industry. By contrast, for example, there is a small but well presented suite of pages and downloads available at the DTI site. Responsibility for the industry passed from DTI to a shared position with DCMS after the 2005 General Election, but the new Department has yet to make an impact with ELSPA members. The DCMS has stated its desire to make the UK the world's "creative hub", but announcements so far have been vague about the importance of the interactive games sector.

  19.  A body devoted to supporting the UK interactive games industry at a time of international change would appear to be worthy of urgent consideration. However, there is no DCMS interactive games industry equivalent for example of the Film Council, nor is there a Treasury scheme of direct comparison to that which supports additional tax breaks for UK development of film. Yet the interactive games industry faces similar problems of stimulation of employment for new market entrants and leakage of creative talent among member companies both to overseas competitors and to organisations with convergent products.

  20.  In this submission so far, ELSPA has concentrated on economic and cultural impacts. But the industry has educational, intellectual property and regulatory interests, which are also affected by convergence and related pressures. The approach required to respond to convergence in these areas is one of joint working between HM Treasury, DTI, DWP, Home Office, DfES, HMRC ODPM and DCMS.

EFFECTS OF UNAUTHORISED REPRODUCTION AND DISSEMINATION OF CREATIVE CONTENT

  21.  The Alliance Against IP Theft is making a detailed submission to the Committee concerning crime against the interactive games industry and others and we endorse its sentiments.

  22.  It should be noted, however, that the interactive games industry faces additional and unique problems as a result of such theft. Since the industry has always been digital in nature, it has always had some form of built-in technological protection measures (commonly known as TPMs). As the number and type of devices (consoles, handhelds, mobile phones, etc) that can relay interactive games has increased, so the type, complexity and range of TPMs has adapted.

  23.  However, the biggest area of change is the move to online, subscription, downloaded and streamed content. Consumers demand these versions since they may provide increased playability, wider opportunities for interaction or greater challenge. They improve the "how, where and when" to play options and may also allow easier updating in some instances.

  24.  Widening access for consumers comes at a price in the form of stronger types of TPM protection against criminals. The newer online delivery technologies are using digital rights management (DRM) protections to prevent attempts to infringe the patents, to control user ability to enable or disable features such as copy protection, and to encrypt certain core data so that it can be accessed only by authorised users as a lock against illegal distribution. ELSPA and its members have been engaged in product protection activities from the outset. We support measures to continue the development and implementation of secure DRM systems and we would not support attempts to mandate DRM systems from external sources.

  25.  ELSPA is at the leading edge of tackling software theft. Almost half our time, efforts and resources as a trade organisation are devoted to our anti-piracy unit. This assists Police, Trading Standards, DWP and HM Revenue & Customs personnel in tracking, gaining evidence against and prosecuting often well-organised and funded gangs of illegal software producers, traffickers and traders. We find public bodies to be well motivated but often lacking in funds or sufficiently highly prioritised on software crime. More resources for trading standards work and a legal duty to combat software crime via copyright legislation could help tip the balance in favour of intellectual property protection.

  26.  It is important for the Committee to recognise that software theft is not a victimless crime. In an average constituency this year, criminals involved in software piracy will pocket close to £1,000,000 by making, distributing and selling stolen, poorly reproduced and incomplete copies of genuine interactive games. There is an obvious loss to the Exchequer: the estimated retail value of interactive software piracy is in excess of £2 billion. There is an often less-regarded increase in associated criminal activity, including extortion, people trafficking, violent assaults, benefit fraud and intimidation from software theft. Yet, the Government and public bodies have some way to go before piracy is seen as antisocial, let alone deeply damaging.

  27.  The extent of losses and lack of firm action by Government has several knock-on effects for the industry. Key among these is the effect on innovation. If IP theft continues to take such a high toll on genuine sales, the balance of risk and reward in interactive games development, publishing and marketing will tip too far towards safety. There is already something of a trend towards sequels and licenses in interactive game publication. Producing new versions of tried, tested and well-sold products offers greater protection against losses through piracy. Although more copies may be illegally produced and sold of a "blockbuster" interactive game, there are still enough genuine copies to adequately create a return on investment.

GOVERNMENT'S ROLE IN ATTACKING IP CRIME

  28.  In addition to the comments made by the Alliance on this matter, it is important that the Government should without further delay implement section 107A of the Copyright Designs and Patents Act 1988 thereby placing a duty on Trading Standards Authorities to enforce the criminal offences within the Act. In doing so, it should also seek to increase funding for IP protection by these Authorities.

  29.  The Government should further commit to working closely with the industry to ensure that the offences for circumvention of technical protection measures found within section 297ZB of the same Act keep pace with the development in particular of DRMs within the digital industry.

THE FUTURE REGULATORY ENVIRONMENT

  30.  Finally, ELSPA has already mentioned that regulatory challenges for the interactive games industry may become more complicated as convergence proceeds, with more Departments and Agencies seeking a role in regulating sales, content or performance of entertainment and leisure software. The UK's role as a regulator should be set in the context of the simultaneous sale and launch of many interactive games through the EU and wider Europe and the global nature of the interactive games industry. Interactive games are becoming increasingly global in nature and increasingly expensive to produce. The UK is currently in the front rank of the industry worldwide and it is important for the economy and the future of creative talent development and retention that the UK maintains its flexible approach to regulating global industries.

  31.  ELSPA has led the sector's response across Europe to content related regulatory challenges. The industry has fully adopted robust Codes of Practice on age suitability ratings and advertising. Currently only a small proportion (less than 5%) of interactive games are subject to compulsory age ratings under the regime of the Video Recordings Act 1984. The remainder are classified in accordance with a well-respected and supported European self-regulatory system known as PEGI. In the UK the industry has agreed with DCMS to display more prominent age ratings than are required by the Video Recordings Act in relation to DVDs or Video.

  32.  The European Industry is currently developing a self-regulated age ratings scheme for PEGI for the on-line environment. This scheme, which is shortly to be unveiled, will complement the parental controls which have been made available in the new generation of consoles. These will allow parents to set controls on the content that the consoles will allow users to access both on- and off-line.

28 February 2006


 
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