Legislation and self-regulation

F2P first rose to mass-market prominence in Asia in the late 1990s, particularly in China and South Korea. Many of the current questions facing Western developers in the F2P market have therefore already been addressed by or for Eastern developers.

Legislation was passed in South Korea in 2010 and among its specifics are that school-age children are barred from playing 19 popular MMOGs like MapleStory or Mabinogi between 12 a.m. and 8 a.m. — this legislation is referred to as the Shutdown Law, or the Cinderella Law.

"In South Korea [children's F2P games] have been a much bigger issue and they take it very seriously," says Ramin Shokrizade, the full-time economist for the World of Tanks developer, Wargaming. "They have the equivalent of a social security number that you have to input before playing a game so they know how old you are, and they put restrictions on how you can be sold to, how much you can spend if you're a minor, even how much you can play. I think that's pretty cool and ahead of everyone else."

In this instance the South Korean government was acting after several years of consultation and research into the issues; but legislation is not always born of considered reflection. "With kompu gacha [in Japan] the way it happened was that moral panic took hold of the media," says Dr. Vili Lehdonvirta, an economic sociologist specializing in virtual economies, a research fellow at the University of Oxford's Internet Institute as well as a virtual economy consultant for companies including Habbo and Mojang.

The kompu gacha mechanic is basically a gambling mechanic, using in-game slot machines to distribute various items that have to be collected in sets to acquire "rare" items. The Japanese newspaper, Yomiuri Shimbun, reported, among many other examples, that one user had spent in excess of $50,000 chasing particular virtual items.

"So regulators needed to be seen ... doing something and eventually declared this illegal," Lehdonvirta says. "Suddenly these companies have very invasive government regulation that restricts what they can do. If they'd been smarter — there was a lot of discussion and public indignation about gacha, so they could have self-regulated and possibly avoided this by putting softer self-control in place."

The potential for a Western moral panic around F2P games aimed at children is obvious. "I don't know what will happen [with IAPs in children's games]," Lehdonvirta says. "But I think it would be very smart of the industry to do some self-regulation."

Self-regulation, however, requires first acknowledging a problem. Disney and Nickelodeon, both of which develop a wide range of children's apps including multiple F2P titles with premium currencies, declined to comment for this article.

"I don't think companies like Disney will take any action without regulators making them," Shokrizade says. "I've been putting pressure on Disney and I've not been alone in that regard. Especially considering they have some of the most offensive products, and I've let them know this."

In October of 2013, Shokrizade spoke to the International Consumer Protection and Enforcement Network in Panama and demonstrated the F2P mechanics of Marvel Super Hero Squad Online, a browser game, in front of Disney representatives. He's yet to see any action on the issue.

"I don't think companies like Disney will take any action without regulators making them."

"I'm absolutely certain Disney will not improve the quality of their products without being forced to," Shokrizade says.

Many companies argue that, in such a fast-moving field as mobile games, rushing to judgement will be counterproductive. The European Commission, in the last few weeks, has nevertheless announced that it will hold meetings with the industry to discuss four issues around IAPs, one of which is "direct exhortations to children to buy items." Further action is possible, but the European Commission's initial attitude will be to try and work within the existing legal framework.

"All of the laws exist already," says Purewal. "Consumer protection, data privacy, IP laws, but their application to an industry that is very young is still uncertain. The starting point is always what existing laws do we have, and how can a regulator try to use that existing framework to achieve the outcome it wants — in this case the protection of consumers."

The biggest stakeholders in the IAP question are easy to identify — the platform holders. If appropriate legislation already exists, and developers will not voluntarily limit their own activities, then Shokrizade believes the gateways themselves, places like Apple's App Store, are where interventions must be made.

"The platform holders are the only way this can be solved," Shokrizade says. "If there are 40,000 new apps coming out every year there's no way you can go in and evaluate each app to decide if it's meeting regulatory standards; there's just no way. But hold the platform holders responsible and then it's gonna happen. Especially if the platform holder's getting 30 percent, then they have a vested interest in making sure it happens."

And that leads back to the App Store's Kids section and how games like Moshi Monsters Village are avoiding it.

A recent settlement between Apple and the US Federal Trade Commission led to Apple refunding up to $32.5 million to parents whose children had unintentionally spent money on IAPs. But the terms of this deal, and the specific apps it concerns, are not as straightforward as they appear.

"There was some strange language in the FTC complaint that I thought let Apple completely off the hook," says Shokrizade. "What was bothersome was how it talked about games 'suitable for children.' There are very few games that are 'suitable for children.' There are lots of games played by children. And that's where the vast majority of spending and possibly misspending is happening."

The settlement figure for refunds was based on Apple's own estimate of the number of people affected. But Shokrizade believes Apple is not an objective source of information on those figures.

"EEDAR is an objective source," says Shokrizade. And EEDAR found recently that, of parents who play video games on their devices, 80 percent of their children also play mobile games on their devices. Of those children, 22 percent make unauthorized in-app purchases, and when they do, they tend to spend much more than an adult would.

"The difference between the 0.13 percent unauthorised purchase rate [that Apple suggests] and 22 percent is the difference between the $32.5 million Apple spent and the $5.3 billion that they maybe should've spent."