Gaming subscriptions: are you playing by the rules?
Published on 16th Feb 2021
The subscription model can be attractive for interactive entertainment businesses, but brings with it a raft of legal considerations and compliance challenges
The trend of offering goods and services on a subscription basis – or 'as a Service' is well-established in the gaming world. 'Subscription law' does not exist as a distinct field, but rather draws in a range of legal requirements, including consumer law, advertising law, data protection and marketing law, plus financial services regulation in some cases.
We have previously touched on this topic when we considered the regulatory aspects of offering hardware on subscription. This time, we are taking a step back to look at the wider legal backdrop for gaming subscriptions.
The 'subscriber journey'
When designing the user interface for subscription services, consumer and e-commerce law must be complied with. This, for example, includes requirements around the provision of pre-contractual information, which must include a description of the good or service and the terms of the subscription. Subscribers must be provided with details such as the price, the contract duration, how the price changes depending on the length of the subscription and any additional delivery fees, as well as their cancellation rights and any associated fees.
It is important to take a front-loaded, 'compliance by design' approach to these legal requirements. The detail in this area is important: failure to meet legal requirements may mean that the consumer did not enter into a valid contract, or they may only be bound by certain terms, or be given certain enhanced rights, such as a significantly extended cancellation period.
It is very important for the business to set out its position clearly and in advance in relation to renewals and termination, in order that the terms are enforceable and consumers know where they stand. This approach will also enable the business to take advantage of options that may be available to mitigate the effects of consumers leaving.
Automatic subscription renewal mechanisms need care. It is very important to make sure consumers are aware of the auto-renewal in advance of entering the contract, in order to avoid any suggestion of seeking to trap consumers in a subscription. Not only could this create legal compliance problems but it can also generate damaging publicity around the brand.
'In life' issues
It is not unusual for a provider to want to make changes to the terms of a subscription part way through the contract term. Consumer protection law may deem certain changes to be unfair and therefore unenforceable unless the consumer has the right to get out of the contract and has given their express consent to the change.
These requirements will usually apply (amongst other things) to any increase in price and to any change to the service provider. Depending on the extent and impact of the change, they may also apply where the service itself is changed.
It is important that business teams understand that it can be difficult to change the terms of an "in life" subscription. Changes may be easier to manage for subscriptions that operate on the basis of monthly renewal, since the provider can simply say to the consumer that changes will come into effect in the next month and, if the consumer does not like them, they can cancel the subscription.
Financial services regulation
Where a subscription concerns goods, equipment or other physical assets, the long-established financial services concepts of regulated hire, hire purchase and credit come into play (as we have previously discussed in relation to gaming hardware subscriptions).
If ownership of the asset remains with the provider, but the subscriber takes possession for three months or more, the subscription is treated as a regulated hire agreement. Where the asset becomes the property of the subscriber when the subscription begins, the arrangement is essentially a 'buy now, pay later' consumer credit arrangement, with the loan repaid during the course of the subscription.
These legal classifications are important because (subject to certain exceptions) they trigger authorisation requirements from the Financial Conduct Authority (FCA). It may be possible to pass the regulated activity to an FCA-authorised third party, but care is required in structuring such partnerships to ensure regulatory compliance. Carrying on a regulated activity without the requisite authorisation from the FCA is a criminal offence. This is therefore a high-risk area in compliance terms and is an important consideration in evaluating the benefits, risks and potential costs of moving to a subscription model that involves physical assets.
Many businesses seek to offer the same subscription model across a number of regions and jurisdictions. It is important to recognise that there will be differences in the applicable laws between each jurisdiction – even between EU Member States, where the thrust of the rules is likely to be similar, but the detail will often diverge. This can create difficulties where a single customer interface is the aim across various territories.
There is a commercial decision to be made whether to aim for full compliance in each jurisdiction or to take a risk-based approach and find a balance between the strict legal requirements and the business's needs, in line with the broader risk appetite of the business.
Part of the challenge for those considering what this means from a compliance point of view is that this is an area where enforcement bodies are particularly active. In the UK, the CMA has investigated subscription auto-renewal terms under consumer law, and is developing principles around fair consumer contract terms. The Advertising Standards Authority has taken action where customers were given misleading information about what they were signing up to, and has issued guidance on offering a subscription box.
EU regulators are similarly active. For example, German authorities have a strong record of enforcement in relation to consumer protection, and the Italian regulator is also very active and has powers to fine up to €5 million. The EU's New Deal for Consumers will introduce GDPR-style heavy fines for breach of consumer protection law in the EU and is likely to mean increased regulatory attention and consumer awareness.
Subscriptions can be long-term, ongoing contracts, with payment taken at different times. Accordingly, clarity around the terms of the subscription and any related offer is particularly important, to avoid confusing or misleading the consumer or offering contracts terms which consumer protection will treat as unfair.
As with many of the regulatory challenges that this business model presents, the key is to consider compliance at the product design stage and look for ways to future-proof against incoming laws like the New Deal for Consumers and further attention from regulators.
Read the series overview here, or view all games and interactive entertainment Insights here.