POSITION PAPER ON THE COMMUNICATION FROM THE COMMISSION "CHALLENGES FOR THE EUROPEAN INFORMATION
SOCIETY BEYOND 2005"
1. Introduction
The Interactive Software Federation of Europe[1] welcomes the recent Commission Communication "Challenges for the European information Society beyond 2005" and would like to take this opportunity in order to contribute to the dialogue about the future of the Information Society beyond 2005.
2. The Interactive Software Industry
After a fitful start in the 1970s, games have become a pervasive feature of society in developed countries, enjoying massive popularity among young people and attracting a growing number of older players. Across Europe, the interactive software industry is now worth some €5.25 billion annually[2]. Nowadays, best selling games generate revenues similar to top films in cinema, and about 50% of best-selling films on DVD. They generate more revenues than top music hits.
The European interactive software industry is a major world player: while there is still some catching up to do with the US, the other two regions have clearly been outpaced in terms of sheer growth. It is also an industry of increasing significance to the performance of the EU economy. It employs tens of thousands of people in product creation, sales and marketing, manufacturing, retail, associated media, associated hardware, and other specialist services. Many of these are highly skilled in cutting edge technologies.
The impressive pace of growth of the interactive software industry looks set to accelerate further with the uptake of online and mobile access. The combined installed base of home consoles in Europe is about 52.3 million machines, or, not accounting for dual ownership, 30% of European homes. However impressive, these numbers pale in comparison with the 330 million mobile subscribers registered in the same region.
Many of the top games are European or of European origin. In the Harry Potter series, the original story is definitely a most famous brainchild of British intellectual property, while the game product was developed in a UK studio. Another top-selling title, The Lord of the Rings series, at least qualifies on the count of being original European intellectual property.
Interactive software provides users with problem-solving tasks that have an inherent intellectual or educational value, unlike the more passive forms of entertainment provided by traditional content[3]. An increasingly common view in education circles is that today’s media-savvy kids are tomorrow’s lifelong learners. On top of this built-in educational feature, most child psychologists agree to PC and video games enhancing a spirit of community among players. There is a true social value attached to playing PC and video games.
3. The Interactive Software industry and the challenges for the European Information Society
As the recent communication from the Commission "Challenges for the European Information Society beyond 2005" states, the dominant political driver in European policy-making is currently the Lisbon agenda. There is widespread agreement that the primary objective of making Europe the most competitive & dynamic knowledge-based economy in the world by 2010 is not being met. More needs to be done, especially as regards enhancing competitiveness through increased and improved use of IT.
Interactive software has a significant role to play in the achievement of the ambitious goals set forth in the Lisbon Agenda. It is common knowledge that ICT accelerate the pace of technological progress, modernisation and structural adjustment of our economies. The main problem in this respect is the relatively low broadband penetration in Europe. More precisely, the fact that roughly 80% of the EU 15 population could be reached by broadband in July 2004, while a meagre average of 7.7 % elected to be fully fledged subscribers points to an obvious lack of a compelling reason for European consumers to subscribe. In other words, the missing link between broadband capacity running idle and consumers eager to have a test-drive of the promises broadband technology is holding for them, they have been told, can be identified easily: compelling content. This is where Interactive Software comes in.
Interactive software as a stimulus for increased broadband penetration...
There is evidence around the world that online gaming can significantly boost the rate of deployment of broadband networks as well as increase technology development and replacement. The most blatant example in this respect can be found in Korea, that boasts a broadband penetration rate of 25%, a 7% share of the world market for online gaming and a vibrant gaming community.
Online games can be defined as any form of computer-based games played over the Internet including PCs, consoles and wireless games. This includes a wide spectrum of games ranging from small stand-alone games (2-16 players) to Massively Multiplayer Online Role Playing Games (MMORPG), were more than 10,000 players can play at any one moment and more then 1,000,000 players can be registered.
While the massive distribution of traditional content (music and movies) through the Internet is a long time coming, on-line gaming services are already a great driver to push consumers to get broadband connection on their PCs or game consoles. Driven by increasingly diversified on-line gaming services, the growing number of game consoles with online connectivity will soon permit to offer to the consumers a reliable alternative to the PC, thus providing them with easy and cheap access to different kind of on-line content such as music, information or entertainment services.
Online gaming is potentially a much larger driver of demand for broadband Internet access than almost any other form of content. The ubiquity of PCs and the spread of Internet access bring online gaming within reach of many, but for many games high bandwidth is required. With millions of hardcore gamers across Europe and millions more joining them every year, gaming is becoming a major driver of demand for broadband Internet access in the case of both PC and consoles.
As the Commission points out in its communication, the recent take-off of third generation (3G) mobile services is a useful pointer to where the biggest potential for future growth lies in years to come. Mobile gaming will be one of the stimuli driving this phenomenon. As quoted above, there are 330 million mobile subscribers presently in Europe, a growing number of them being already keen gamers: this figure obviously dwarfs the installed base of current generation games consoles. Mobile gaming is the new frontier at hand: all mobile networks across the EU already offer downloadable games, the vast majority using Java technology.
A market in need for independent foresight …
The Commission also rightly states that “the need for R&D in ICT increases continuously and research should be complemented by efforts to promote ICT driven innovations as foreseen in the proposed framework for innovation and competitiveness”. Speaking of foresight, there is an urgent need to independently document the moving demographics and practices of the gaming population. Unlike movie-goers, a well-known species, gamers are an absolute new breed that puzzles industry and governments alike. As suggested by more than one delegation to the OECD Working Party to the Information Economy, documenting this moving target is a prerequisite to designing adequate public policies, whether aimed to drive basic research into productive territory or to shape public action in education, culture, community life, etc. A comprehensive, reliable -in so far as it is independently generated- picture of where leisure and educational software (LES) stands in Europe has yet to be taken. Only when this comprehensive understanding of consumer demographics and consumption attitudes is available will bothindustry and government agencies be able to make informed decisions about market development and thus to manage risk effectively.
Europehas developed a strong global position in content development for leisure and educational software (LES): itsannual sales growth outpaces that in the US or Asia, and it has secured leading positions in worldmarkets. For instance, European games enjoy twice the penetration rates of European movies in the US, while the penetration rate of US games in Europe is hardly half that of US movies. In light of this gratifying record, Europe should take the lead in the quest for independent research on the gaming population.
More generally, interactive digital entertainment is a true social phenomenon. Within Europe 1 in 3 people plays digital games regularly and although every other child plays everyday, (mostly with friends and family) the main user range is between 20 and 30 years old who play for an average of six hours a week. Further, this is a market with strong end user interest such that 80% of consumers spend a yearly average of €150 on LES which represent close to 15% of the overall leisure budget.
Furthermore, it is increasingly apparent that LES has become a leading entry point for driving adoption of broadband Internet access. LES has also become a booster for technology replacement as can be seen in recent PC markets (the shift to 64-bit microprocessors is clearly driven by the gaming community) and currently in the transition from 2G to 2.5G and 3G mobile telephony. Similarly, the success of new forms of digital leisure, such as on line and mobile games, illustrates consumer willingness to actively consume new technologies when content and delivery match expectations and demand.
In light of the above considerations, having a good grasp of how the interactive media community is going to grow within the next ten years in not only instrumental to assessing market trends or adjusting research and investment, but also to better meeting the needs of the wider public.
Proper monitoring, reporting and forecasting of the next developments of the LES market throughout Europe is a prerequisite to developing the right games for online distribution, to provisoning adequate capacity to have them reach end-users in a simple, reliable and affordable fashion, and to assessing their educational, cultural and social impact, i.e. to addressing effectively the major public policy and market challenge governments and industries concerned are being faced with.
Light touch regulation of the essence…
The Commission is also right stressing that “the regulation of ICT activities and in particular of electronic communications will remain crucial to the creation of an environment conducive to more investment, more innovation, newer services and lower prices”. This being said, the political and regulatory environment in the European Union is undoubtedly experiencing a fundamental shift towards the goal of better and less regulation. The telecommunications sector, for instance, is now under a regime that explicitly limits regulation to what is necessary to force the pace of liberalisation. The current Dutch presidency has made clear its intention to accelerate this trend. It is also well understood that industry supports vigorous enforcement of a strong EU Competition policy. Taken together, these trends point towards the development of more streamlined and responsive regulation.
In this respect, the Commission refers to the example of the new regulatory framework for electronic communications and services, which lifts the burden of ex ante regulation from telecom operators who do not have dominant positions as defined in competition law. This is a reflection of the more competitive nature of telecom markets in Europe since the deregulation of 1998. Similar logic should govern the thinking of policy makers with regard to possibly regulating industries poised to flood the broadband pipes. The market for interactive software is very competitive, and has been so from the start. Application of the “3 criteria” contained in the Recommendation on Relevant Product and Service Markets[4] described above cannot but result in a conclusion that regulation is not required. While the rise of broadband sets the telecom and interactive software industries closer together, the market structure of the latter bears no relation to the former’s: there is not, and never has been, a dominant or “incumbent” player in the interactive software industry.
As a result, if competition law is any guide, there would seem to be no reason to impose licensing requirements or other ex ante regulation. Experience tells that wherever adequate infrastructures are available, copyright legislation is not only able to secure proper distribution of the products and services concerned, but also offers the only possible safeguard to distributors and creators of content against abuse or misuse of the relevant works.
On making sure the regulatory framework “remains appropriate in an environment where technologies evolve rapidly”, one has to bear in mind that the interactive software sector is currently comparatively free of regulation. This has been a key factor in its success. Forcing a straitjacket of government imposed rules on it would damage the successful business models that have been created, thereby jeopardising the potentially massive contribution interactive software can make to the creation of the Information Society in Europe.
Among “other regulatory issues which have important implications for the development of ICT”, the Commission quotes the protection of copyright, and rightly so from the perspective of an industry that lives on effective exploitation of its IP rights. Actually, from a rights holder's perspective, a single factor constitutes the primary barrier to full use of existing broadband pipes and the full exploitation of the potential of interactive software to stimulate the rollout of broadband across Europe: the uncertainty created by slow and ineffective transposition, implementation, and enforcement of the current legislative framework. The recently published report from the High Level Group chaired by Wim Kok “Facing the Challenge - The Lisbon Strategy for Growth and Employment” reaches the same conclusion on clearly stating that protecting Intellectual Property Rights is indispensable for promoting innovation which in turn will boost growth[5]. In this respect, the good news is that the present legal and regulatory environment is adequate for the purpose of ensuring the level of protection that rights holders can legitimately expect. This is of course assuming that the legal framework is properly enforced. That is where the rub is, and we cannot agree more with the Commission stating that “a concerted effort is needed to identify and implement solutions that will safeguard the legitimate concerns which appropriate business and regulatory environments must address, while allowing the full exploitation of the benefits of ICT”.
4. Issues for an Information Society policy beyond 2005
4.1. Content and services.
ISFE fully agrees with the Commission that an appropriate regulatory framework is essential for a healthy development of ICT. The communication states that “Audiovisual and multi-media content are driving forces for the success of the new technologies in general and broadband in particular. Therefore it is important for the European Union to play a pro active role by supporting content providers and fostering the emergence of innovative services”[6].
Among the variety of obstacles listed by the Commission, mention is made of situations of dominance in the market place. As a first observation, there is no dominant or “incumbent” player in the interactive software market, and never has been. As pointed out earlier, competition law is therefore sufficient to ensure a level playing field, with no ground to impose licensing requirements or other ex ante regulation. Experience tells that wherever adequate infrastructures are available, copyright legislation is not only able to secure proper distribution of the products and services concerned, but also offers the only possible safeguard to distributors and creators of content against abuse or misuse of the relevant works.
Over the last 30 years, case law in this field has addressed the needs and objectives of the market, of industry, of authors and of the public. We believe that it would be undesirable to attempt to introduce new regulation to such a complex environment, involving cultural sensitivities, at a time when experience has shown that where the technical infrastructure is available copyright offers a safe legal landscape for both content distributors and content creators. Simplification remains a key avenue to a more practical, hence more effective regulatory environment. In contrast, the introduction of new legislation is bound to upset the balance achieved so far, both at the Community and national levels. Finally, it should also be borne in mind that the Constitution for Europe with the Charter of Fundamental Rights will constitute a further step towards the clarification of the copyright protection.
We therefore believe that an appropriate combination of horizontal legislation encompassing all services and of regular competition law is a superior blend to sector specific regulation, bound to early obsolescence in these areas shaped by fast-moving technology. A case in point is the Television without frontiers Directive: it has reportedly done a good job of regulating broadcasting throughout Europe for more than a decade; however, the mere notion of contemplating to shoe-horn new media born to be delivered online into this movie-TV specific legislation would only generate the toothless, almost pointless compromises that go with far-fetched approximation.
4.2. eInclusion and citizenship
The Member States have committed themselves to ambitious targets in the area of electronic communications in the framework of the eEurope Action Plan, the most recent version of which is due to close in 2005. The EU’s commitment to the goals of eEurope is an indication of how seriously governments take the ICT industry. Funding, benchmarking, and priorities are focused on infrastructure rollout (broadband and high-speed mobile) and government-led content – eHealth, eGovernment, eLearning etc. These are good examples of what governments can do to help stimulate the early demand for infrastructure. The market has the potential to express vastly greater demand, but investment decisions have been on hold for quite some time. The piece seemingly missing in this elandscape is a focus on what consumers like the most after they have dealt with their administrative forms, their health concerns, etc, i.e. entertaining themselves. Call it eEntertainment if you will, the interactive software industry is serious about making it a reality anyway.