According to a report in Media Week, advertising spending for advertising in videogames will reach about $1 billion by 2012. Advertising in video games can take a number of forms: in-game advertising, which is preformatted ads that appear within the game itself; advergames, which are games constructed around a particular brand or product in order to highlight and promote that product or brand; context-sensitive or dynamic advertising, which is similar to in-game advertising, but rather than static advertisements, can be contextually modified in a number of ways depending on when, where and how the in-game scene is viewed. Most of that growth is projected in the casual, online, web game world catering to a broader audience than hard core console gamers. The logic is that people are more willing to accept advertising in return for free game playing on the web; and absent a dynamic Internet connection with more user acceptance than is evidenced to date, console gaming provides fewer opportunities for placing context sensitive or behavioral advertising.
Online Deceptive Ads Cost Millions
To settle FTC charges of deceptive advertising, ValueClick (and its subsidiaries—we’ll just use ValueClick, for short) agreed to pay $2.9 million. In addition to the civil penalty, among other things, ValueClick agreed to conspicuously disclose costs and obligations associated with “free” products. ValueClick is also precluded from making any deceptive claims about the security of a consumer’s information collected by its websites. The FTC charged that ValueClick attracted web traffic using deceptive e-mails, online banner ads and pop-ups claiming individuals were eligible for “free” gifts, but instead were required to plow through and participate in tiresome and potentially expensive third-party offers in order to receive the “free” products. With respect to the security of consumer information, ValueClick’s privacy policies represented that customer information was encrypted—but that either there was no encryption, or a non-standard, insecure form of encryption was used. The proposed order would require ValueClick have a comprehensive security program and obtain independent thirdparty assessments of their programs for 20 years. This is not the first time the FTC has brought an enforcement action against “lead generating” companies, and certainly among a string of cases relating to the data security and information security practices of companies handling non-public consumer information.
Are You For Real?
In the 1960s, Stanley Milgrim, then a psychologist at Yale University, conducted a controversial experiment. In an obviously controlled setting for the study, Milgrim and his associates directed their subjects to give ever-increasing electrical shocks to strangers whenever they gave the wrong answer to questions in a test of memory. The strangers were really actors pretending to experience pain and did not actually receive any jolts of electricity. The study, intended to measure how compliant people would be to obey authority figures, even to the point of inflicting pain on otherwise innocent individuals, was disturbing, to say the least. The subjects, despite some discomfort at first, continued to “shock” the test-taking actors. The experiment raised ethical concerns about subject study methodologies, among other things.
However, recently, Mel Slater, a computer scientist at University College London in England (with a joint appointment to the Universitat Politecnica de Catalunya in Barcelona), reproduced this experiment without running afoul of the ethical concerns that the original study raised. Mr. Slater conducted his experiment in a virtual world where test-taking “victims” were avatars whose expressions changed from happy to pained in response to the actions of participants in the study—much the same way the real-life actors did more than 40 years ago. Not only were the results astonishingly similar, but to the surprise of many, the real-life participants experienced increased heart rates and described feelings of regret or feeling badly about delivering electrical shocks—even though they knew the strangers on the other side of the screens were avatars and not real people!
FTC Continues to Focus on Marketing to Children
The FTC is expected to release a Report on how violence is being used to market to children—in movies, music and video games. Some insiders fear the FTC will suggest the entertainment industry has violated or outgrown its voluntary standards—can you say “regulation.” Both the FTC and the FCC have targeted children’s advertising, programming and products. Want to know more? Contact John P. Feldman in our Washington, D.C. office; me or Douglas J. Wood in our New York office; or Stephen Edwards, Michael Skrein or Carolyn Pepper in our London office. Please also visit our www.KidAdLaw.com web pages. If you market or advertise to children or if you are a company that carries advertising which is or could be targeted to children, why would you look anywhere else for legal counsel.
Advertising & Marketing to Children–Update from Italy
This article was provided by Felix Hofer, partner in the Italian law firm of Hofer Lösch Torricelli and member of GALA. If you need more information, contact Felix.
Advertising targeted at children and minors has become the focus of legislators and watchdogs throughout the world. In the United States, the Mobile Marketing Association (“MMA”) released stricter industry guidelines directed to wireless carriers, aggregators and content providers, to increase protection of children in marketing practices. In the U.K., Ofcom (the regulatory authority) has required an end to “junk-food” advertising to children under 16. The Greek Ministry for Education has established a mobile phone ban for teachers and pupils at school that also regulates how students may carry cell phones onto school premises.
The issue has become a topic of intense debate in Italy and on Nov. 15, 2006, the local Communications Regulatory Authority (“Agcom”) required communication providers offering audiovisual and multimedia services available through mobile devices, to include technical means to prevent minors from accessing harmful content. Services with adult-oriented content must provide a control mode—allowing parents to block access. Providers should provide notice about these controls and users must confirm, in writing, receipt of the notices. A few days later, the same Agcom issued additional rulings to protect minors in the context of entertainment programming, requiring television and radio broadcasters to ensure that content directed at—or likely to attract—children complies with requirements as to language and behavior, and avoids unjustified violence, vulgarity, bad language and sexual innuendo.
Almost at the same time, the National Journalists’ Association released a new version of its rules (the so-called Carta di Treviso) with a specific section (no. 7) dedicated to protection of minors. The rules require that, with few exceptions, journalists refrain from publishing personal or identifiable data of minors; these rules have been approved by the local Privacy Commissioner as an ethical self-regulatory code. This updated version of the ethical rules now applies to on-line, multimedia and any kind of journalistic communication—even bloggers will have to take into account the Carta’s prescriptions.
Food advertising to children is being targeted by the authorities in Italy. For example, a company producing a lollipop popular among young consumers, ran into trouble in a recent television advertising campaign. The commercial depicted three young girls in a bedroom sucking lollipops. The narrative comments “New XX lollipop with fruit cream, really excellent!” One of the girls picks up her skates and says, “Well now we’ll have to do some exercise.” The other girls reply “Exercise? Why? XX contains 0% fat! Didn’t you know?” The commercial closes with the statement “XX: new ultra-juicy flavours and zero percent fat.”
The complaint filed with the Italian Authority for Market and Fair Competition argued the advertisement was targeted at children and the lollipop was presented as a food product that didn’t increase weight because it didn’t contain fat—thus exercise wasn’t needed, suggesting a “dietetic” effect for children and specifically young girls concerned about their weight. In its defense, the company argued the lollipop did not, in fact, contain any fat, and might actually be considered a dietetic product.
The Authority held that the ads were likely to reach an audience of children, considering the time the commercials were aired; and that stating there was no fat in the lollipop was irrelevant because it contained sugar, and the ads suggested exercise was unnecessary. Consequently, the commercial resulted in a misleading message and a fine was imposed.
In Italy, as elsewhere, the promotional message, as well as the presentation, in advertising directed to children requires a high level of attention—even more so with regard to food products, given the particular attention the obesity problem has raised among regulators.
Advertisers Online and on the Frontline
New York’s Attorney General has just settled actions against Priceline, Travelocity and Cingular Wireless for promoting products and services using “adware”—the first time a law enforcement agency has held an advertiser responsible for ads displayed through adware.
These settlements require the advertisers (and affiliates—presumably sales agents and promotional partners) to give consumers full disclosure of any adware (including adware bundled in other software); ensure advertising has a conspicuous, identifiable brand; obtain consent from the consumer to download and allow the adware to operate on the computer; and make it reasonably simple for a consumer to actually remove the adware from his or her computer. The settlements require these three companies to investigate how their online advertising is being distributed; and if the delivery mechanism violates the terms of the settlement (or the law), the advertisers must take immediate stops to cease use of the offending adware programs. Priceline, Travelocity, and Cingular have also agreed to pay penalties and investigatory costs to the State of New York.
To those of you familiar with the old saying “Caveat emptor,” we can now add “Let the Advertisers Beware.”
New E-Discovery Rules
With file sizes growing, you would think computers that can rapidly process large files and storage capability would be all the rage. For compliance officers, record managers and lawyers, it’s retrieving the information that is the hot issue and hardly a trivial one. New Federal rules relating to civil litigation took effect at the end of last year, requiring companies involved in federal litigation to produce electronically stored information as part of the pre-trial discovery process. The new rules apply to employee e-mails, instant messages and other electronic, digitally stored information. In the event the companies are sued, legal experts say, companies will need to start worrying about everything in electronic form—from digital photos on employee cell phones to text (“SMS”) messages.
Companies need to have sound record retention and destruction of records policies to ensure compliance with regulatory record-keeping requirements and to avoid potentially massive costs of searching and retrieving information that could and should have been purged. Absent actual or an expectation of specific litigation or a subpoena requiring production of data, companies can purge their systems of information that may no longer be relevant or necessary to their business operations. As the cost of storage has come down, however, companies routinely store information and don’t bother to delete unnecessary information—because it’s easy and affordable to simply keep everything!
The opposite is also an issue. Communication between lawyers and technology folks is less than perfect. A lawsuit arrives, but no one tells data management or systems. Tapes and disks continue to be routinely erased or written-over, with corresponding loss of data. Lots of companies don’t have policies and don’t know what information they have, where it is stored, and who may have, have kept or destroyed copies of information in electronic form. Lack of information is a weakness for lawyers. If you remember the adage, “never ask a question you don’t already know the answer to,” imagine how a litigator for the company will feel blindsided by records she was unaware of or cited by a court for destroying records he didn’t know his client had.
Why pay attention? Because by exercising preventive care, you can avoid potentially huge legal and operational expenses. By crafting and enforcing compliant and well-thought-out record retention and destruction policies, you can avoid high-priced lawyers sorting through email messages about the staff luncheon, and the pitfalls associated with a “smoking gun” needlessly showing up in that pesky lawsuit. Call us. The ATM Legal Team can help!
Looking Back at 2006–Ahead to 2007
How Exciting Was 2006!
That introduction is not a question—it’s an exclamation! Buzz and viral marketing, branded entertainment, social networking, MMOG (that’s online, interactive, web-based gaming for those looking to impress their neighbors or their teenagers), and Internet gambling all made increasingly bigger news in 2006. Then came data protection, identity theft, data breach disclosure legislation, payment card industry data security standards, and gift cards on the top-10 list of technology related issues in 2006. Oh, did we mention virtual reality, digital music, DMCA (that’s Digital Millennium Copyright Act) take-down notices, streaming wireless video, user-generated content, and context sensitive advertising and product placements?
Some things won’t surprise you today, but if you thought about it only a few years ago—indeed, in some cases at the beginning of this year—it was an amazing year. The world’s largest licensor of personal computer operating systems delayed the launch of its new Windows Vista operating system—the traditional core of its business—but entered the digital music business. Some huge un-named search engine technology-driven company (that happens to derive its primary revenue from advertising), just bought a young company that made no profit but virtually created the buzz over user-generated content—YouTube—for more than $1.6 billion. Social networking companies were considered social and anti-social, depending on who you ask—kids, parents, regulators.
Laws and regulations took greater cognizance of the evolving interplay between advertising, technology and media. Identity theft and the compromise of data security became the basis for legislation in state after state in the United States. Obesity and the advertising and marketing of food to children became the soup du jour for regulators on both sides of the Atlantic, and potentially the world. Advertising regulators and marketing associations increasingly noticed the world was changing. Digital technology was not simply an enabler, an automation tool or business productivity tool—it invaded our schoolrooms, our playrooms, our automobiles (now I don’t have to stop and ask for directions) and our living rooms. New business models, new social models and new economic models. It’s just exhausting.
This has been an exciting year, one filled with change and challenge (did you know the Chinese word for “crisis” consists of two characters—one means danger and the other means opportunity). We hope you have enjoyed our year of Legal Bytes as much as we have taken joy in bringing it to you and highlighting some of these exciting developments. So let’s look at what’s ahead.
2007–ATM is Coming!
You have heard the term “convergence” and perhaps you thought about “The Perfect Storm.” Well we are talking about Advertising Technology & Media—our new ATM law group. Have you seen the ads? Product placements in the movies? In banks and on computer monitors? Watch the UGC, unauthorized digitally distributed version, the podcast, advercast, interstitial ad, webcast, streaming video, CGI, buzz and viral version—even the version playing in an embedded video player on my personal web page.
I’m not particularly great at predictions, but like everyone else, I’ll go ahead anyway and make some for 2007. Wireless applications will go through the roof. School children, workers, people at play and people on the go will carry their games, their assignments, their work and toolkit with them digitally and wirelessly–the toolbox of the 21st Century. Applications and content on demand—web apps gone wild! Why load up and clutter up your computers and devices with applications (and content) when you can order them “to go.” And speaking of orders to go, “Would you like fries broccoli with that…?” may be regulated into existence. Worried about the homeless? Advertisements have been feeling lonely on TV lately. Don’t worry—put them on vehicles, beam them wirelessly from your satellite to your car. Move them to the Internet—buffer and stream them before, in between and after news clips and someone else’s dumbest home videos. Better yet, put them in a virtual world and watch the real world virtually go by. Virtual reality will get real. Part play-acting, part gaming, part behavioral therapy and part social networking, virtual worlds will start making money, making waves and making a difference. Go look—start to notice real brands and real people playing in the virtual sandbox. Media will start to take digital seriously (again). Digital effects, digital distribution—did we say digital yet? Intellectual property will need to stop being so intellectual and figure out what to do with all of this “stuff.” The old rules still apply, but are being challenged. So where are the new rules? If content is king, user-generated content is queen, jack and possibly the Duke of Earl. I’m exhausted already.
Brands & Entertainment
Those name brands appearing in hit shows. Those logos on the motion picture screen. The characters at the breakfast table with a favorite cereal. The star driving around in a particular automobile. The airline shown flying the lead character off to an exotic destination. Reality? Coincidence? Hardly. They are the result of contracts between the entertainment company or producers and the advertisers, and they represent a growing and important trend in marketing to consumers, along with the Internet, as reaching market segments through traditional radio and television advertising becomes increasingly difficult in our on-demand, fast-forward world.
In some cases, such “branded” entertainment is subtle—inserting itself into a scene or a sequence quite seamlessly and, not necessarily inconsistent with, reality. In other cases—“Harold and Khumar Go to White Castle”—yes, this really was the name of a movie, as was “Akeelah and the Bee,” which Starbucks helped finance and promote. In case you didn’t know, the FCC (and the FTC) regulate advertising on television—the FCC’s regulations concerning disclosure arose primarily from the quiz show scandals in the 1950s. When does creative control over programming yield to paid sponsorship and financing dollars or Euros (or British Pound Sterling). At what point does a program or movie become an infomercial or advercast? Are there vulnerable groups (e.g., children) that might not distinguish so readily between advertising and programming and at what point is that deceptive? What does SAG say about their actors being de facto appearing to endorse a product or brand inserted into their scenes and programs? If an actress is under contract with a cosmetic brand exclusively and a movie scene requires her to use a different brand—actionable? When the trailer with that clip airs on broadcast television—problem? Witness the following quote from Jonathan Adelstein, FCC Commissioner: “Now, products have even seeped into plot lines. Soap operas have woven cosmetic lines into their tales of who-did-what-with-who, while “The Apprentice” sounds more and more like an hour-long infomercial for the latest corporate sponsors.”
Trademark issues, endorsement and competitive/ambush marketing issues, free speech, freedom of expression, adequacy of disclosures, misleading or deceptive advertising—the list of potential issues is growing as the balance between creative control and commercial reality infect the entertainment industry. At one extreme is the traditional product placement in which an advertiser pays a fee for the hopes that the scene with its product doesn’t get cut and wind up on the editing room floor. At the other extreme is a placement fee and promotional campaign that is so integrally tied with the plot and the program that the two are indistinguishable—think “The Apprentice” or “Home Makeover.”
The deals are becoming more complex, and more fraught with potential legal and regulatory issues, and the stakes are higher. Need help? Contact Doug Wood or me—we would be happy to help.