Levelling Up: The latest legal trends shaping the UK gaming industry
Gaming has become the world’s biggest entertainment industry and is at the forefront of harnessing technological advances. Tech developments are bringing growth in areas such as cloud gaming, esports, and virtual reality, and more immersive experiences and simulated worlds are enabling social gaming, entertainment experiences and online events.
Despite a post-pandemic slump in consumer demand and a volatile geopolitical and economic outlook, gaming continues to attract significant interest and investment. In order to leverage tech advances, gaming companies and investors will need to navigate tightening regulation, increasing regulatory enforcement and heightened litigation risk to take advantage of the vast potential of the industry. In this article, we explore five key trends shaping the UK legal outlook for gaming
1. Regulatory hurdles to M&A
Merger control and foreign investment regulatory hurdles to M&A are at an all time high, and it has become harder to predict precisely where and how concerns arise, and the conclusions different regulators will reach on whether a deal is problematic. Last year’s gaming and other tech M&A deals around the world were closely scrutinised by authorities. While there is significant alignment between global regulators about the competitive harms that may arise, the risk of divergent outcomes on both substance and remedies is real, especially in a dynamic and innovative market like gaming.
Around the world we see the complexity and duration of reviews extending, with investigations being ever more burdensome. In an increasingly challenging landscape, we see more businesses considering innovative structures and alternative partnership models in a bid to avoid these hurdles, though these can bring their own issues. To secure an international merger or partnership, it’s therefore critical that parties pay careful attention at the outset to risk allocation and ensure a flexible regulatory strategy to address unexpected hurdles.
2. Child safety online in focus
A key focus for governments in recent years has been the protection of users – particularly children – against online harms. In October 2023, the UK’s long-anticipated Online Safety Act (OSA) became law, forming part of the complex web of new legislation promoting online safety across the globe including the EU’s Digital Services Act, and Ireland’s Online Safety and Media Regulation Act 2022.
The OSA is one of the world’s most ambitious pieces of online safety legislation, imposing significant obligations on up to 100,000 services. Any platform that offers “user to user” functionality could be in scope, and so games that offer online multiplayer text or video communication, content creation, virtual reality or metaverse functionality, and livestreaming could all be caught. We anticipate that with Ofcom’s clear focus on protecting children (and requiring companies to do more, for example, on verifying users’ age), gaming companies with user to user services will be in the regulatory spotlight and need to make significant changes in order to comply with the substantive provisions of the OSA which are likely to come into force in 2025.
As online safety legislation develops across the globe, gaming companies with regulated services will need to continue to map laws and regulations that apply in different jurisdictions and continue to build and refine their frameworks to meet the requirements of these new regimes. The pace of change in regulation is rapid. Platforms need to invest now to ensure they can keep up with the new expectations regulators are placing on them across the world.
3. The evolution of in-game digital assets and payments
As the gaming sector rapidly evolves, new forms of digital asset and payment offerings are emerging. There has been a surge in interest from video game companies in exploring how to enhance their offerings using distributed ledger technology to host gaming applications. This includes facilitating in-game payments through crypto and integrating NFTs in games, which allow players to “play-to-earn” and “play-to-own” in-game assets and to trade them on secondary markets.
According to JP Morgan, revenue from in-app purchases is set to grow to $271 billion by 2025 and $285 billion by 2026. And players, like all other online customers, are more likely to engage in transactions when the process is frictionless and seamlessly integrated into their gaming experience.
Ensuring that payment options support these ideals should increase transactions, but can also drive growth and market expansion: through leveraging payment related data on in-game spending patterns to tailor the offering and enhance player retention. Games need to offer multiple payment options including those which may be impromptu and small-scale. There are a host of options to consider from digital wallet providers, to real-time payments, peer-to-peer exchanges, virtual wallets and other local methods of payment.
As game developers explore these opportunities they will need to navigate the applicable law and regulation. This is particularly relevant following a sustained period of market turmoil for digital assets, and increasing pressure on payments providers to focus on cyber resilience and consumer protection, which has resulted in increased scrutiny, regulatory enforcement, and private litigation.
4. IP strategy in the age of AI
Intellectual Property Rights (IPRs) are the main assets of video game companies and represent the backbone of the gaming sector. In the fast-paced gaming industry driven by technology advances, creative content and continuous innovation, a pro-active intellectual property strategy is key to investing in, protecting and exploiting intellectual property successfully: to protect assets and revenues, but also prevent reputational damage. However, designing and enforcing IP policies is complicated for video games due to the worldwide distribution model typical in the industry, with multiple jurisdictions to navigate.
Meanwhile the potential for generative AI in gaming is huge: to improve game development processes and increase productivity; to create bespoke user experiences and to create adaptive or intelligent behaviours in non-player characters. However the legal landscape in this area remains complex and in flux. Cases pending before the courts in the US and the UK should provide some clarity on the boundaries of legitimate use of copyright protected material to train AI systems. Aside from the training of AI models, AI outputs may infringe third party IP rights. Where AI is used to create content in games, robust clearance processes are therefore increasingly complex to execute, yet remain as important as ever. Outputs might further not be protected by IP rights, so that video games companies should balance using AI to ease video games development and at the same time have clear guidelines on how AI can be used.
The EU’s AI Act contains provisions making those companies that train AI models subject to transparency requirements, including putting in place policies to comply with EU copyright law and disseminating detailed summaries about the copyright content used for training. Most jurisdictions are also still seeking to find an appropriate balance between content creators and the AI industry, and further regulation is expected.
Broader concerns re AI focus on the lack of transparency and control, inaccuracy, biased outputs, and the need to protect privacy and intellectual property. Governments and regulators are grappling generally with how to regulate AI and agree global standards, with regulators enforcing data protection and other existing laws to protect gamers and other consumers. The EU is a first mover on AI specific regulation with its AI Act, and the Commission has recently closed a call for information on generative AI and virtual worlds: its work taking this forward is likely to put gaming directly under the spotlight.
As the industry seeks to push boundaries in implementing this emerging technology, managing regulatory and reputational risk is paramount. To unlock the potential of AI safely, gaming companies will need to address this evolving legal landscape and establish the right governance and risk management models in their wider ESG frameworks to safeguard their interests.
5. Managing the gaming workforce
In 2023 it was estimated that layoffs in the gaming industry reached over 6,000 in the UK as macroeconomic headwinds and the rise of AI has led to studios restructuring. As studio heads and integral employees leave, especially when studio valuations are based on these individuals being at the helm, it’s key for gaming companies to consider if suitable incentives and deterrents/incentives are built into deal documentation.
Buyers are increasingly looking to structure most of the deal consideration as deferred consideration or earn-outs (i.e. financial or game development milestones in 2-5 years post-closing). These need to be drafted carefully and account for a variety of scenarios that could happen (e.g. what if main founder/head of studio leaves).
Consideration needs to be given also to pay transparency, which has been identified as a major hurdle in closing the EU’s gender pay gap. With women reported to earn on average 13% less than men in 2020, the EU took a bold step forward by introducing the EU Pay Transparency Directive in June 2023. To tackle pay discrimination and increase pay transparency, the Directive creates new and far-reaching information and reporting obligations for EU employers which will start to bite as it is transposed into Member State law.
AI is increasingly becoming a feature of the modern workplace right through the employment lifecycle, from recruitment, to line management and promotion, monitoring and surveillance, appraisal decisions and up to termination of employment. The rush of interest and investment in generative AI has brought a renewed focus on the risks of AI to the workplace and the potential impact on the workforce. But alongside challenges, there are opportunities as workforces learn to adapt and collaborate with new technologies and ways to embrace new technology whilst managing associated legal risk.
Find out more about Linklaters’ gaming activity by clicking here.
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Rory Daniels
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This campaign has explored how the UK can lead on the development, application and commercialisation of the technologies set to underpin the Gaming & Esports sector of the future.
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Rory Daniels
Rory Daniels
Rory joined techUK in June 2023 after three years in the Civil Service on its Fast Stream leadership development programme.
During this time, Rory worked on the Government's response to Covid-19 (NHS Test & Trace), school funding strategy (Department for Education) and international climate and nature policy (Cabinet Office). He also tackled the social care crisis whilst on secondment to techUK's Health and Social Care programme in 2022.
Before this, Rory worked in the House of Commons and House of Lords alongside completing degrees in Political Economy and Global Politics.
Today, he is techUK's Programme Manager for Emerging Technologies, covering dozens of technologies including metaverse, drones, future materials, robotics, blockchain, space technologies, nanotechnology, gaming tech and Web3.0.
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- [email protected]
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- https://www.linkedin.com/in/rorydaniels28/
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Rory Daniels
Rory Daniels
Rory joined techUK in June 2023 after three years in the Civil Service on its Fast Stream leadership development programme.
During this time, Rory worked on the Government's response to Covid-19 (NHS Test & Trace), school funding strategy (Department for Education) and international climate and nature policy (Cabinet Office). He also tackled the social care crisis whilst on secondment to techUK's Health and Social Care programme in 2022.
Before this, Rory worked in the House of Commons and House of Lords alongside completing degrees in Political Economy and Global Politics.
Today, he is techUK's Programme Manager for Emerging Technologies, covering dozens of technologies including metaverse, drones, future materials, robotics, blockchain, space technologies, nanotechnology, gaming tech and Web3.0.
- Email:
- [email protected]
- LinkedIn:
- https://www.linkedin.com/in/rorydaniels28/
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Rory Daniels
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Verity Egerton-Doyle
Verity is a partner in Linklaters’ London Antitrust & Foreign Investment Group and co-head of the UK technology sector team and Global Co-Head of Gaming.
Ben Packer
