Mobile game makers missed a chance to get their issues on the Federal Trade Commission's radar, according to a telecommunications lawyer who tracks game issues.

Writing for Gamasutra, Steve Augustino (left) notes that a just-issued FTC report, Beyond Voice: Mapping the Mobile Marketplace, devotes but a single paragraph - out of 54 pages - to mobile gaming. The report is the result of a two day FTC town hall conference held in May, 2008.

From Augustino's article:

There is no discussion of app stores, of the impact of the carrier deck, of other handsets as gaming platforms... of innovative games taking advantage of location capabilities of phones, or any other significant development in the mobile gaming marketplace.

There also was no discussion of the PSP, DS or DSi and the implications that wi-fi and VoIP create... It’s too bad, for this would have been a good opportunity to paint a fuller picture of the games industry and also could have been a vehicle for addressing impediments to the further growth of the platform.

Augustino doesn't blame government bureaucrats for the oversight. Instead, he faults the mobile game industry for failing to take the initiative. He told GamePolitics:

I do not fault the FTC. They organized this conference based on the entities that they knew about or that expressed an interest in participating.  My point is that the games industry is being silent and that the silence could harm them.  Too much of what the industry does is defensive... The industry cannot win if it always plays defense. 

 

I think the FTC "Mapping the Mobile Marketplace" is an example of a missed opportunity for the industry to discuss its successes and to present a different image to the policy makers.

Kotaku reports that a GameStop corporate policy of selling games played by store employees as brand-new may be a violation of federal law:

GameStop's "check-out" policy, confirmed to Kotaku by a number of the chain's managers and employees, could fall under scrutiny of the Federal Trade Commission.

Kotaku cites GameStop's policy, which it reports that it obtained from several employees of the leading video game retailer:

Associates are allowed to check out one item of store merchandise for personal use for up to four days. Merchandise checkout is a privilege, not a right, and may be revoked at any time...

If the product is returned in unsellable condition, or if anything is missing from the package, or if the product is not returned, the Associate must purchase the product...

When asked by Kotaku, the Federal Trade Commission declined to say whether GameStop's practice of selling employee-played games as new might be considered deceptive. The FTC also declined to say whether it was looking into the practice.

The Federal Trade Commission's much-anticipated Town Hall Meeting on digital rights management (DRM) will take place today at the University of Washington Law School in Seattle.

The all-day event begins at 8:30 A.M. Pacific and will be webcast live.

Among other participants, Entertainment Consumers Association President Hal Halpin will serve on the 1:15 P.M. panel "Informing Consumers." According to the FTC's agenda, "This panel will discuss how companies communicate the existence and effects of DRM protections on products and services to consumers. It will explore ways of providing consumers with better notice."

In advance of his panel appearance, Halpin issued a statement on the Town Hall Meeting:

Over the past year we have witnessed a growing concern from gamers about the issues of increasingly invasive Digital Rights Management (DRM) and End User Licensing Agreements (EULAs). While we respect the careful balance that must exist between the content community and the customer, and agree that piracy is an ever-present challenge for the trade, it is also becoming evident that consumer rights are being diminished in the process...

The law, in the area of EULAs in particular, is not as clear as it once was. And the software industry’s potential side-stepping of the First Sale Doctrine’s protections – by terming their products as “licensed” rather than “sold” - leaves us concerned about the future of interactive entertainment, generally...

Halpin also noted that the ECA is preparing new position statements on both DRM and EULAs. You can read the full text of his statement here.

Among others known to be appearing at the Town Hall on behalf of consumers is Staff Attorney Corynne McSherry of the Electronic Frontier Foundation.

FULL DISCLOSURE DEPT: The ECA is the parent company of GamePolitics.

The Federal Trade Commission has issued a consumer alert designed to warn parents about the risks their children may face while gaming online.

The alert, Virtual Worlds and Kids: Mapping the Risks, contains the following advice:

According to the [FTC] many virtual worlds say they’re for adults only and try to verify that visitors are over 18 before they can enter. But a posted age requirement may not stop kids — especially curious teens — from finding their way in, either accidentally or otherwise...

If your child gets really interested in online gaming or virtual worlds, watch for changes in their patterns of behavior that could indicate an unhealthy obsession. Nobody knows your child better than you do, so you’re best placed to know what sites may be appropriate for your child.

For more online safety information, the FTC refers parents to OnGuardOnline.gov.

Digital activist group the Electronic Frontier Foundation has called upon the Federal Trade Commission to mitigate the harm caused to consumers by digital rights management (DRM).

An EFF press release quotes staff attorney Corynne McSherry (left) on the DRM issue:

DRM does not prevent piracy.

 

At this point, DRM seems intended to accomplish a very different purpose: giving some industry leaders unprecedented power to influence the pace and nature of innovation and upsetting the traditional balance between the interests of copyright owners and the interests of the public.

 

The best way to fix the problem is to get rid of DRM on consumer products and reform the [Digital Millenium Copyright Act], but the steps we're suggesting will help protect technology users and future technology innovation in the meantime.

The EFF press release adds:

Industry leaders argue that DRM is necessary to protect sales of digital media, but DRM systems are consistently and routinely broken almost immediately upon their introduction.

The group filed public comments with the FTC in advance of the government agency's Town Hall on DRM, which is scheduled for March 25th in Seattle.

Do you pay attention to the fine print when you install a game or other software on your PC?

Me neither.

But in many cases, End User License Agreements (EULAs) stack the deck against consumers.

In his Law of the Game on Joystiq column, attorney Mark Methenitis speculates that the Federal Trade Commission may decide to weigh in on the EULA debate in order to protect the interests of game buyers.

In Methenitis's view, the FTC has three possible courses of action:

• requiring that EULAs be written in plain language, not indecipherable legalese
• mandating that EULAs be dropped entirely in favor a consumer information checklist devised by the FTC
• a hybrid of these two

Mark sees potential revenue opportunities for the FTC in EULA regulation as well (hit the jump for the update).

Last September's controversial release of Spore demonstrated the extent to which digital rights management (DRM) has become a wedge issue between game publishers and game consumers.

Might the government step in on the side of consumers?

That's difficult to say, but we note that the Federal Trade Commission will hold a town hall conference on DRM issues in Seattle on March 25th. The event will be co-hosted by the Technology Law and Public Policy Clinic at the University of Washington School of Law.

The FTC is currently recruiting panelists and hasn't yet finalized topics. Here's the preliminary agenda:

• Opening remarks
• Demonstrations of DRM-related technology
• Panel discussions regarding burdens on, and benefits for, consumers, and other market and legal issues involving DRM
• Review of industry best practices
• Consideration of the need for government involvement to better protect consumers.

That last bullet point is pretty interesting, especially in light of the FTC's mission:

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

Game consumers have been complaining loudly about DRM and lately even filing class-action lawsuits over the issue. Publishers who employ DRM routinely cite game software piracy as the reason.

Those interested in serving as panelists or suggesting topics for discussion should contact the FTC at drmtownhall@ftc.gov by January 30, 2009. An FTC press release offers these guidelines:

Interested parties should include both a statement detailing their expertise on the issues to be addressed at the Town Hall, and complete contact information. The Commission will select panelists based on their expertise and on the need to represent a range of views.

Those with a view may also submit written comments or original research until January 30, 2009 to this URL. The town hall meeting is free and open to the public. Pre-registration is not required. It will be webcast live on the FTC website.

Thanks to: GP reader Steve Augustino

Mom and Dad forgot to turn an assignment in, apparently.

While lavishly praising the video game industry in its 13th Annual Video Game Report Card, the National Institute on Media and the Family has tagged parents with an "incomplete."

Actually, the "I" grade is NIMF's cutesy way of saying, well, not much, to be honest. Here are the grades along with NIMF's commentary:

ESRB Ratings.... A The addition of ratings summaries is yet another step forward in the growing list of improvements that the ESRB has made in recent years.

ESRB Ratings Education.... A  We commend the ESRB for intensifying efforts to help parents understand the video game ratings. The ESRB has become the entertainment industry leader in educating retailers and parents about the rating system.

Retailer Ratings Enforcement.... B+  The 80 percent enforcement rate shows significant progress with still some room for improvement.

Gaming Console Manufacturers.... A  Parental controls, timing devices and parent education efforts are all major
improvements giving parents more tools to supervise game play.

Parental Involvement.... Incomplete  The focus of this year’s report card is providing parents with the information they need. All segments of the industry have made significant improvements in recent years. Parents now have more information and tools than ever before. However, the constant changes present new challenges. Parents need to pay more attention to the amount of time and the types of games their kids play. The parent guide section in this report card is intended to motivate and equip parents to do this.

GP: We can't argue with the grades assigned to the game industry categories by NIMF, and the industry must certainly be pleased. There was a time, and not so long ago, that the ESA and ESRB dreaded this day as NIMF head David Walsh and Sen. Joe Lieberman would step to a Capitol Hill podium and deliver their annual video game beatdown, er, report card.

As to the incomplete for parents, it's meaningless, since NIMF has no way to measure it.

We must also say that the process would be far more coherent if NIMF maintained the same grading categories from year to year. The 2007 version, for example (which was far less complementary to the industry), included grades for "Retailer Policies," (broken down by National, Specialty and Rental) and "The Gaming Industry."

The 2005 version absolutely savaged the industry and included grades for "Ratings Accuracy," "Arcade Survey," and "Industry's 10-year cumulative grade." 

In addition to the grades, the report card contains about 30 pages of material regarding topics such as game addiction and a section on aggression research by Prof. Douglas Gentile of Iowa State University.

Finally, NIMF's unfortunate decision to accept game industry funding clouds their grading effort. Inevitably, there are those who will say that the one-time watchdog has become a lapdog.

Here at GamePolitics I've been complaining (some might say whining) since 2005 that EA's exclusive arrangement with the NFL is, at best, a bad deal for gamers.

At worst, it's a monopoly.

Ultimately, the Federal Trade Commission, looked at the Madden issue in relation to EA's merger dance with Take-Two Interactive. But, inasmuch as the FTC pre-approved the EA-T2 deal, its regulators apparently came down against the monopoly view.

But that was before secret e-mails from officials of the NFL Players Association were made public in September during a bitter court fight between retired players and the NFLPA. As GamePolitics reported last week, the retirees were ultimately awarded $28 million by a U.S. District Court jury in San Francisco. Three-quarters of that amount was levied as punitive damages. The NFLPA says that it will appeal.

While millions in Madden licensing fees were central to the case, EA itself was not a defendant. Despite that, incriminating e-mails clearly show that EA knew it was "scrambling" the likenesses of retired players on Madden's classic NFL teams. More relevant to the monopoly issue, however, is an e-mail which demonstrates that the NFLPA was complicit in helping EA maintain its status as the sole publisher of a pro football game. A February, 2007 e-mail from NFLPA executive Clay Walker to an NFLPA attorney makes this quite plain:

I was able to forge this deal with the [Pro Football Hall of Fame] that provides them with 400K per year (which is significantly below market rate) in exchange for the HOF player rights. EA owes me a huge favor because of that threat was enough to persuade Take Two to back off its plans, leaving EA as the only professional football videogame manufacturer out there.

 

...The per player price for most of these guys was tens of thousands of dollars less than what they were guaranteed by Take Two Interactive so it’s a real coup that we were able to pull this off so cheaply. You have to remember that EA’s total cost is only $200,000 per year. We know that Take Two offered six figure deals to several former NFL players so the total cost is millions below market prices...

Will the revelation that the NFLPA was actively assisting EA by keeping Take-Two on the sidelines raise any red flags at the Federal Trade Commission? Will FTC regulators revisit the Madden issue?

That remains to be seen. If you're asking yourself, "why is this issue important to gamers?" There are several very good reasons; all revolve around the concept of competition:

• When Take-Two published the NFL2K series, EA had competition.
• Competition forces companies to put out a better product.
• Some gamers even preferred NFL2K to Madden.
• Without an NFL license, Take-Two could not compete with Madden and gave up on pro football.
• After EA's exclusive deal killed NFL2K, EA's raised the price of its next version of Madden by $20.
• The price has remained at a higher rate ever since.

Finally, we should point out that a class-action lawsuit, Pecover vs. Electronic Arts, is currently working its way through U.S. District Court in California. Pecover essentially argues that game consumers were screwed by EA's Madden monopoly.

If you thought being permanently disbarred would cause Jack Thompson to ride off into the sunset, guess again.

The ex-attorney is currently seeing fire and damnation in Bethesda's recent recall of Fallout 3 trailer videos. A rambling letter from Thompson to the Federal Trade Commission accuses the ESRB of duplicity in the enforcement of its advertising guidelines:

The ESRB’s [advertising] Principles and Guidelines are not intended to protect the public.  They are obviously intended to protect the video game industry from the public backlash prior to a hyperviolent game’s commercial release.   The ESRB, by allowing such violence in games but not in the advertising is institutionally mandating the cloaking of a game’s real content from the public in advertising.

Thus, the ESRB is actively using its “watchdog” muscle to intimidate game developers into participating in the ESRB’s long-standing shell game by which it has tried to hoodwink Congress and the American people into thinking that the video game rating system is working, that the ratings are reliable, and that minors are being protected from the sale of “Mature” games... 

And, even though Take-Two has zilch to do with Fallout 3, Thompson cannot resist taking a shot at the GTA publisher:

Take-Two, for example, knows that if it adhered to “truth in advertising,” most of its Grand Theft Auto games never would have made it out of the warehouse.  Take-Two has figured out how to collaborate with the ESRB in this shell game by which false advertising cloaks the real nature of their games until the games are released, and then it is too late...

 

Bethesda’s only sin was that it advertised truthfully what its game Fallout 3 is all about.  The ESRB’s idiotic but telling response has fashioned a noose that I expect either the FTC or Congress to slip around the ESRB’s neck...

Full letter after the jump...

In the United States, secret shopper surveys conducted by the Federal Trade Commission offer a pretty clear idea of how well the video game industry is doing at enforcing ESRB ratings.

But, how often are mature games sold to minors in the U.K.?

No one really knows.

Unlike in the United States, in the UK, BBFC ratings are backed by force of law. But, according to Spong, the British government doesn’t collect data concerning inappropriate game sales to minors.  When questioned about the number of retailers selling video games or DVDs to underage customers over the years, U.K. Labour government minister Vernon Coaker said:

Information on the number of recorded offences of retailers selling video games or DVDs to underage customers is not collected centrally. This is a summary offence and is not included in the police recorded crime statistics.

While Coaker was able to obtain data on “the number of police cautions issued, the number of fines imposed and the average fine,” these figures include both DVD and video game sales.
 
-Reporting from San Diego, GamePolitics correspondent Andrew Eisen.

 

Now that the Federal Trade Commission has opted not to place any regulatory hurdles in the way of a potential EA-T2 merger, the two publishers will begin meeting behind closed doors.

An filing made by Electronic Arts with the Securities & Exchange Commission late yesterday reads in part:

On August 25, 2008, [EA] and [T2] entered into the confidentiality agreement contemplated by the letter of August 17, 2008 from Strauss Zelnick, Executive Chairman of the Board of Directors of Take-Two to John Riccitiello, Chief Executive Officer of EA, and the letter of August 18 from Mr. Riccitiello to Mr. Zelnick.

 

The terms of the confidentiality agreement prohibit each of EA and Take-Two from, among other things, publicly disclosing the status or terms of any discussions or negotiations between EA and Take-Two unless EA or Take-Two notifies the other that it is terminating discussions. As a result, EA does not intend to make any further announcements regarding the status of any discussions or negotiations with Take-Two unless and until discussions between EA and Take-Two have been terminated or such parties have entered into a transaction. As previously disclosed, EA now requires due diligence to support any proposal to acquire Take-Two and there can be no assurance that any proposal, negotiations or transaction will result.

Among other things, EA will be looking at T2's three-year game release schedule. Not a tough one to figure out: GTA V, Bioshock 2. A GTA MMO would be a nice surprise...

The Federal Trade Commission has posted letters on its website which indicate that it will not oppose a proposed merger between Electronic Arts and Take-Two Interactive.

The letters, written in government bureaucrat-speak, are dated August 18th and read as follows:

The Federal Trade Commission’s Bureau of Competition has conducted a non-public investigation to determine whether the acquisition by Electronic Arts Inc. of Take-Two Interactive Software, Inc. may violate Section 7 of the Clayton Act or Section 5 of the Federal Trade Commission Act.

 

Upon further review of this matter, it now appears that no additional action by the Commission is warranted at this time. Accordingly, the investigation has been closed. This action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. The Commission reserves the right to take further action as the public interest may require.

With the FTC hurdle apparently out of the way, EA and Take-Two are free to attempt to reach agreement on a takeover.

Via: Reuters

Yesterday we noted a New York Post report on the proposed EA takeover of Take-Two which claimed that the Federal Trade Commission, scheduled to rule on the merger by tomorrow, might require that T2 spin off one or more of its sports franchises so as not to hand EA a stranglehold on the sports segment of the market.

Heidi Moore of the Wall Street Journal digs a little deeper, interviewing Jeff Anderson, CEO of startup online sports gaming service Play Hard Sports (and former Turbine CEO) concerning his view of potential monopoly issues:

It’s in the best interests of consumers to have a choice. I’m always in favor of having more choice in the marketplace. Look at the ESPN football product when it came out. There was no [NFL] exclusivity agreement then. When Take Two changed its price point, people moved toward the Take-Two product and forced EA to reduce its price. You saw how competition can work in the advantage of the consumer.

 

The question we’re looking at, and what the FTC should be looking at, is whether this will reduce competition. If Take-Two’s sports franchise becomes part of EA, will that influence competition for the better or not? And will it influence prices positively or negatively?

 

Generally I’m not a fan of monopolies in the gaming world. We’re interested in providing a new choice to consumers. As a gameplayer, we’d love to see great games produced by these studios. And we’d love to see them compete.

As GamePolitics reported yesterday, EA may have called a cease-fire in its hostile bid to absorb Take-Two Interactive. That development, however, does not mean that the two game publishers are ready to share a hug.

The New York Post reports on snarky (and anonymous) barbs traded between EA and T2:

"To say that EA blinked is a huge understatement," said one source close to the Take-Two camp. "They finally came to their senses and realized this wasn't going to be done their way."

 

A source close to EA countered by suggesting that the company was miffed that it had to make the first overture to Take-Two. The source added that EA officials don't want to negotiate with Take-Two's current management team.

The Post also reports that, while the FTC is expected to bless the proposed merger, it will insist that Take-Two spin off some of its sports franchises, so as not to give EA a complete monopoly on sports games:

Though a deal would combine two of the world's largest video-game publishers, the Federal Trade Commission is expected to give the go-ahead to a potential combination by Thursday on the condition that it divest one or more of its sports gaming franchises, with basketball or hockey being the most likely.

GP: Great mashup (left) of GTA and T2 boss Strauss Zelnick accompanies the NY Post article...

As expected, Electronic Arts has once again extended its deadline for Take-Two Interactive stockholders to tender their shares at $25.74. The new deadline is August 18th.

EA is apparently beginning to make some progress in its bid to acquire T2. The game publisher says that 11,741,339 shares have been tendered under the offer, nearly double the amount turned in when the previous deadline expired in late June. That is almost certainly related to T2's sagging share price of late. The stock has been trading below EA's offer price, making the deal more attractive to shareholders. TTWO closed on Friday at 25.04

This morning's EA press release links the extension to the Federal Trade Commission's review of potential anti-trust implications:

Extending the tender offer allows the FTC review process to continue. The proposed transaction is still subject to certain conditions that include regulatory approval. EA retains the right to terminate the offer if the conditions are not satisfied.

Coming up later today: Take-Two's obligatory press release explaining why, in its view, EA's offer is a bad deal for shareholders.

UPDATE: Wow, that didn't take long. In a press release which followed EA's by less than an hour, Take-Two, as expected, slams EA's offer. T2 chairman Strauss Zelnick alludes to "multiple" suitors, but does not name them (Activision? Ubisoft?):

We are fully engaged in a formal process to evaluate strategic alternatives that have the potential to deliver greater value than EA's inadequate offer. As part of this process, we continue to engage in meaningful discussions with multiple parties, a number of whom have been conducting due diligence.

UPDATE: In a lively interview wiith VentureBeat's Dean Takahashi, EA CEO John Riccitiello touches on the T2 deal:

Having clever verbal sword play about Take-Two doesn’t really matter. I’m not really playing for a headline in the New York Times...

 

I don’t think we’ve played a poker hand. We have expressed our interest. We have made a public bid. We are in the Hart-Scott-Rodino antitrust review. All of the information has been disclosed. We’re playing it to the way we’ve said we would play it. There have basically been three moves and there have 6,000 articles on it. It’s sort of amusing. I feel a little bit like those strobe light things where it looks like a guy is moving a lot. The flash goes off but the body doesn’t move. Every time a flash goes off, somebody writes a story on it. To be honest with you, the last time there was news was a couple of months ago.

Earlier this week GamePolitics reported on complaints by UK watchdog groups that online auction sellers were selling 18+ games to underage buyers.

Now the Harrow Observer reports that some game retailers in that part of London have been caught selling mature-themed games in a sting conducted by Harrow Council Trading Standards and Which? Computing. The stores fingered in the report are Woolworths, Game and Maplin.

From the newspaper account:

All three shops have now launched internal investigations into the sales and will face legal action from the council if caught out again.

 

Woolworths sold Grand Theft Auto (GTA) - Vice City Stories.... to the [15-year-old] girl without question. In the Maplin store, the assistant asked the investigator's age, but did not refuse the sale of Hitman, even when she said she was 15.
 
The six other Harrow stores that were tested in the operation in May - Tesco, Argos, Debenhams, HMV, Currys Digital and Entertainment Exchange - all refused to sell the game to the teenager.

GP: While this smcall-scale study almost certainly wasn't conducted with the design rigor of the Federal Trade Commission's secret shopper survey in the US, its results (67% success rate in blocking the underage sale) aren't that far off from the 80% success rate that the FTC found here in the States.

Things are beginning to get ugly between Take-Two Interactive and the Federal Trade Commission.

Attorneys for Take-Two have strongly disputed the FTC's contention that the Grand Theft Auto publisher is stonewalling the government agency's investigation into antitrust aspects of the potential EA merger (see: FTC Hauls Take-Two Into Court Over EA Takeover Bid).

In a document filed yesterday with the U.S. District Court in Washington, D.C., Take-Two fires back at the FTC:

No one at Take-Two Interactive Software, Inc. (“Take-Two”) is seeking to thwart the proper investigation by the Federal Trade Commission (“FTC”) staff of Electronic Arts, Inc.’s (“EA”) tender offer. On the contrary, from the outset, Take-Two has fully cooperated with these efforts, already having produced more than 479,000 pages of responsive documents through the date of this Opposition.

 

The issue before the Court is how the seemingly boundless desire of a government agency for information can be contained in order to save a company from the ruinous costs of compliance with a subpoena that requires it to search virtually every electronic and paper document in its possession, and to make available most of its senior executives for investigational hearings (pre-complaint depositions) in a situation where the company is not even a willing party to any transaction being investigated and where it is quite possible that no such transaction will ever occur.

 In the lengthy filing, Take-Two claims that it has been bending over backwards to meet the FTC's demands, including keeping a team of attorneys working over the recent Memorial Day weekend in an effort to supply requested internal documents. Referring to the FTC's conduct as an "abuse" at one point, T2 goes on to assert:

The FTC fails to engage in any meaningful analysis, in either its negotiations or motion papers, of its specific requests. It refuses to acknowledge that compliance with all of its requests would require a comprehensive, company-wide review of Take-Two’s data and documents, which encompass a huge universe of information...

A seperate declaration from a Take-Two attorney claims that it costing the company $50,000 per day in legal bills to meet the FTC's requirements.

Take-Two also submitted a slew of exhibits to the Court. Although no trade secrets are revealed in the publicly-viewable documents, it's clear from their context that the FTC is probing the workings of the "pipeline" by which T2 gets its sports games to market. The company also provided data on its exclusive licensing arrangement with Major League Baseball (MLB 2K8 screen at left) as well as NPD sales data for its sports games from 2001-2007.

In our previous GamePolitics story we described how the Federal Trade Commission went to U.S. District Court in an attempt to force Grand Theft Auto IV publisher Take-Two Interactive to cooperate in an anti-trust investigation related to Electronic Arts' potential takeover of T2.

So, why would Take-Two thumb its nose in the government's face, even to the point of reneging on previously agreed-upon conditions?

We asked financial analyst Michael Pachter (left), who covers the video game sector for Wedbush-Morgan:

I think that the reasons range from A) being incredibly savvy and holding off the FTC as a tactic to slow the process to Z) being incredibly arrogant.

 

It's hard to know where Take-Two fits on the scale from A to Z.  Their general counsel is pretty experienced, and it surprised me that he would allow the company to deal with a subpoena this way.  The FTC's action of seeking a court order is pretty severe, and shows how seriously the FTC takes this slight.

 

I'm not sure what Take-Two hopes to gain from this, other than the obvious delay to the process.  However, the process won't be delayed if Take-Two's failure to comply with the subpoena results in the FTC granting approval without looking at these documents. There is NOT a presumption of anti-competitiveness, and if EA demonstrates that the combination would not be anti-competitive, Take-Two would be better served to provide evidence to the contrary if it wishes to remain independent.

 

It seems to me that they would be best served by cooperating fully with the FTC, and by pointing to records that show how competitive their business is with EA's business.  Apparently, they have reached a different conclusion.

 

 

UPDATE: So, what's to be gained by delaying? We put that question to Pachter as well:

I think it's always in their best interest to buy more time.  Management has an incremental 720,000 shares of restricted stock that vest if the takeover happens after March 31, 2009.  More time buys them a greater ability to prove the impact that they've had on the company, and they appear sincere in their belief that they have turned Take-Two around.  More time allows Activision to close its Vivendi deal and give Take-Two a look.  Ubisoft might be interested...

Reuters is reporting that the Federal Trade Commission has initiated proceedings in U.S. District Court to compel Take-Two Interactive to respond to the FTC's subpoenas in relation to Electronic Arts' ongoing hostile takeover bid.

As GamePolitics reported last week, Electronic Arts placed its takeover on hold pending the FTC's review to determine whether an EA-T2 merger would violate federal antitrust laws.

GP is currently reviewing court documents. An affidavit by FTC attortney Reid Horwitz alleges that Take-Two reneged on agreements to provide documents requested by the FTC.

Horwitz also writes that the federal agency is particularly interested in the files of Take-Two CEO Ben Feder and Visual Concepts president Greg Thomas, along with several sales and marketing execs, one of whom was formerly the marketing VP for 2K Sports.

Given the government interest in 2K Sports and Thomas, whose studio creates most of T2's sports titles, it's clear that the FTC investigation is centered around a possible monopoly in sports games should the EA takeover occur.

While it may appear odd that T2 would balk at the FTC request, according to FTC attorney Horwitz, T2's position seems to be that it should not be burdened with providing the documents since it was EA that inititated the uninvited takeover attempt. T2 claimed to the FTC that it spent in excess of one million dollars in providing a limited amount of info to the agency.

Horwitz relates that, while T2 agreed to give up some of the requested employee files, it refused to provide files from CEO Ben Feder or Visual Concepts' Greg Thomas. When the FTC asked why, a Take-Two attorney replied:

These individuals were "creative types" who would leave the company rather than allow their files to be searched...

UPDATE: U.S. District Court Judge Henry Kennedy has apparently been persuaded by the government's position, and has ordered Take-Two into court on June 24th to show cause why he shouldn't rule in favor of the FTC.

UPDATE 2: A document filed by Take-Two with the Securities and Exchange Commission provides its comment on the FTC issue:

Prior to the issuance of the FTC’s subpoena and CID the Company has been cooperating fully with the FTC with regard to their review of EA’s Offer to acquire the Company. The Company has already provided enormous quantities of data and access to key executives, and has offered to provide the FTC staff with additional documents and information. Nevertheless, the Company believes the FTC’s subpoena
and CID are unnecessarily broad and would entail unacceptable additional expense to the Company. To limit the inordinate expense and labor that the FTC’s demand would entail, the Company has sought to obtain reasonable limits on the scope of the information sought. The Company will continue to cooperate actively and produce documents in response to the FTC’s previous requests, and will of course attempt to seek an acceptable resolution to this matter as quickly as possible.

We've got additional reactions to yesterday's report by the Federal Trade Commission which gave high marks to the video game biz for its enforcement of ESRB ratings at point-of-sale.

A spokesman for State Senator Leland Yee (D), architect of California's contested video game law, remarked:
 

The Senator is pleased and commends retailers for significantly improving on the latest FTC study.  Clearly retailers are much more cognizant of the potential harmful effects of ultra violent video games and are not selling such games to minors in as great a number. 

With that said, it is imperative that the industry does more to prevent the sale of adult oriented games to children. Twenty percent of minors can still easily get their hands on games that are inappropriate for them. That equates to hundreds of thousands of children who are potentially in harm's way. The Senator looks forward to continuing his efforts and working with the various interested parties to end the sale of extremely violent video games to children.

Meanwhile, Gavin McKiernan, National Grassroots Director of the Parents Television Council, lauded GameStop for its 94% enforcement record, but said that, as a whole, the video game industry needs to do better:

The steep decline in sales of M-rated games to underage buyers reported this morning by the Federal Trade Commission is a clear victory for the video game industry on both the political and public relations fronts.

Taking a victory lap is the organization responsible for operating the video game industry's rating system, the ESRB. Via press release, ESRB president Patricia Vance commented on today's FTC report:
 

Video game retailers have clearly stepped up their efforts to enforce their store policies, and they deserve recognition for these outstanding results.  We commend and applaud retailers for their strong support of the ESRB ratings, and will continue working with them to help ensure that these levels of compliance are sustained if not further increased.

The ESA, representing US video game publishers, declined to comment, referring us instead to the ESRB.

Bo Andersen, president of the Entertainment Merchants Association, a trade group representing a number of video game retailers, also weighed in. For retailers, the report is a mixed bag. They scored superb numbers on game rating enforcement, but were criticized by the FTC for sales of R-rated and unrated DVDs to underage buyers. Andersen said:
 

Retailers don’t want children to be able to purchase or rent video games and DVDs that their parents do not want them to have. As a result, they have made real and significant investments in enforcing the voluntary video game and motion picture ratings in their stores. The FTC’s latest ‘undercover shopper’ survey demonstrates that these investments are producing strong results... While we are pleased with the progress that has been made in ratings enforcement, retailers still are not where they want to be as an industry.

On the consumer side, Hal Halpin, president of the Entertainment Consumers Association, remarked:
 

This is an extraordinary accomplishment from the nation's leading interactive entertainment retailers, as it clearly shows their increased commitment of keeping mature-rated games out of children's hands. Perhaps most impressive is the incredible reversal in their failure rate over such a short period of time and with a comparatively new rating system.

This is truly a vindication for video game merchants who have been falsely damned by anti-game advocates and special interest groups, who now don’t have a leg to stand on.

GamePolitics also offered several high-profile game industry critics and watchdog groups an opportunity to comment. So far we've not heard back from the Parents Television Council, the National Institute on Media & the Family or California State Sen. Leland Yee. There was one critic we did hear from, though...

Despite the eye-popping retail enforcement numbers, anti-game activist Jack Thompson refused to give credit to the video game industry. Instead, he credited... Jack Thompson:
 

I'm more than happy to take credit for the improvement. The threat of legislation has improved performance, not some altruism on the part of the Strauss Zelnick's [or] the industry. To America's parents: Jack Thompson is delighted to have helped.

Of course, Thompson would have been all over the FTC numbers had they been unfavorable to the video game industry. Classy, Jack...

UPDATE: Dr. David Walsh of the National Institute on Media & the Family has now weighed in. NIMF claims a bit of the credit as well:
 

The results of the [FTC's] latest undercover survey are good news for retailers and the [ESRB], but most of all for parents... With its consistent pressure on the video game industry, [NIMF] played a significant role in improving ratings enforcement and education. Similar to our... Video Game Report Cards, the FTC survey shows that specialty retailers, such as GameStop, continue to lead in enforcement and the rental companies need to step up their efforts...

Full Disclosure Dept: The ECA is the parent company of GamePolitics…

The results of the Federal Trade Commission's latest research into the marketing of violent entertainment to children is a major win for the video game industry.

Just-released numbers show that the FTC's underage secret shoppers were only able to purchase M-rated games 20% of the time, a massive improvement over last year's 42% success rate.

Amid heightened parental concerns following last week's high-profile release of Grand Theft AUto IV, the news couldn't come at a better time for the video game biz.

DVD sellers, on the other hand were spanked by the FTC for selling R-rated and unrated movies to underage buyers about half of the time. Theaters allowed the FTC's secret shoppers into R-rated movies 35% of the time, making the game industry's results all the more impressive.

New in this year's report are individual ratings for retailers. The FTC results indicate that GameStop is doing the best job of retail ratings enforcement, turning away 94% of underage buyers. Wal-Mart and Best Buy scored high marks as well, with 82% and 80% turn-away rates, respectively.

Listed below are the FTC's video game secret shopper results, listed by retailer (number indicated is successful purchases of M-rated games by underage buyers):
 

Game Stop/EB Games - 6%
Wal-Mart - 18%
Best Buy - 20%
Toys R Us - 27%
Target - 29%
Kmart - 31%
Circuit City - 38%
Hollywood Video - 40%

A graph posted on the FTC website (and seen at left) traces a steep decline in underage sales since 2000, when secret shoppers were successful 85% of the time.

 We'll offer reactions from the video game industry and other stakeholders as we receive them.

Sen. Sam Brownback (R-KS) has sponsored legislation in the United States Senate which would require the ESRB to play games in their entirety before assigning an age rating.

Brownback's Truth in Video Game Rating Act (S.3935) would appear to be the Senate version of a House bill of the same name proposed by Rep. Cliff Stearns (R-FL).

“The current video game ratings system needs improvement," Brownback said, "because reviewers do not see the full content of games and don’t even play the games they are supposed to rate. For video game ratings to be meaningful and worthy of a parent’s trust, the game ratings must be more objective and accurate.”

Brownback's measure would mandate the Federal Trade Commission (FTC) to administer the requirement for a complete play-through before rating.

“Game reviewers must have access to the entire game for their ratings to accurately reflect a game’s content," Brownback added.