Submissionto

ProductivityCommission

Subject

IntellectualPropertyArrangements

Date

30November2015

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TableofContents1. Introduction...................................................................................................................................3

2. ExecutiveSummary........................................................................................................................3

3. AboutIGEA.....................................................................................................................................3

4. Overviewoftheinteractivegamesindustry..................................................................................4

5. Theimportanceofintellectualproperty........................................................................................6

6. TechnologicalProtectionMeasures...............................................................................................7

7. FairUse...........................................................................................................................................8

8. Conclusion......................................................................................................................................9

APPENDIXA–AUSTRALIANMARKETDATA.....................................................................................10

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1. IntroductionTheInteractiveGamesandEntertainmentAssociation(IGEA)welcomestheopportunitytorespondtotheProductivityCommissionIssuesPaperonIntellectualPropertyArrangementsofOctober2015(theIssuesPaper).In our submissionwehave set out a brief description of IGEA and an overviewof our industry inAustralia, together with a general submission on the importance of intellectual property to theinteractivegamesindustry.ThesubmissionisparticularlyfocusedoncopyrightgivenitsimportanceintheinteractivegamesindustryandprovidesamoredetailedresponseonTechnologicalProtectionMechanisms (TPMs)and“fairuse”and“fairdealing”provisionsasspecificquestionsraisedbytheIssuesPaper.Bywayofbackground,IGEAalsoreferstoitscomprehensiveresponsestotheAustralianLawReformCommission(ALRC)TermsofReferencefortheCopyrightInquiryof29June2012.1

2. ExecutiveSummaryBywayofsummary,IGEAsubmitsthattheProductivityCommissionshouldconsiderthefollowing:

1. Intellectual property (IP) covers a wide range of protections, each of which should beconsidered separately rather than simply as a whole in terms of their effectiveness,efficiency, adaptively andaccountability. IGEAhas focused its submissionon copyright asthemostcommonlyemployedIPrightsintheinteractivegamesindustry.

2. Copyright is essential to encourage innovation and creativity in the interactive gamesindustryandproviderewardstotherelevantcreators.

3. ItisimportantthattheprotectionsofferedbyTPMsundertheCopyrightAct1968(Cth)(theCopyrightAct)arepreservedasthey incentivizethoseintheinteractivegamesindustrytoinnovateacrossdigitalplatformswithinasecurelegalandtechnologicalenvironment.

4. IGEA’s stakeholders have varying perspectives on whether a broad, flexible fair useexceptionshouldbeintroduced.IGEAconsidersthatanyproposedintroductionof“fairuse”exceptions should be thoughtfully explored to ensure that they map to the existinglegitimateexpectationsofinteractivegamecreatorsaswellasconsumers.

In short, IP and its protection is critical to ensure a strong and vibrant future for Australia’sinteractiveentertainmentindustry,anindustrythatexperiencedsignificantgrowthof39percentindigitalsalesin2014andengagescloseto70percentoftheAustralianpopulation.

3. AboutIGEAIGEAisanindustryassociationrepresentingthebusinessandpublicpolicyinterestsofAustralianandNew Zealand companies in the interactive games industry. IGEA’s members publish, market,developand/ordistributeinteractivegamesandentertainmentcontentandrelatedhardware.ThefollowinglistrepresentsIGEA’scurrentmembers:

1Availableathttp://www.alrc.gov.au/sites/default/files/subs/192._org_igea.pdfandhttp://www.alrc.gov.au/sites/default/files/subs/741._org_igea_discussion_paper_submission.pdf(accessed5November2015).

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• ActivisionBlizzard• AllInteractiveDistribution• DisneyInteractiveStudios• ElectronicArts• FiveStarGames• Fiveight• GamewizzDigitalEntertainment• Google• Microsoft• MindscapeAsiaPacific• NamcoBandaiEntertainment

• Nintendo• SonyComputerEntertainment• Take2Interactive• TotalInteractive• Ubisoft• VRDistribution• WarnerBros.Interactive

Entertainment• WellPlacedCactus• ZeniMaxAustralia

4. OverviewoftheinteractivegamesindustryThe interactive games industry is the fastest growing entertainment industry globally2and isconsidered to be highly innovative both in terms of its creative content and businessmodels. In2014,theindustryworldwidewasestimatedtobeworthapproximatelyUS$77billionandforecasttogrowtoUS$96billionby2018.3Bywayofcomparison:4

• Thefilmindustry(includingboxoffice,homeentertainment,sell-through,videoondemandandrental,butexcludingactualadvertisingandrental)wasestimatedtobeworthUS$107billion(witha4.4percentcompoundannualgrowthrate)

• Themusicindustry(incorporatingphysicaldistribution,digitaldistributionandlivemusic)isestimatedtoaccountforUS$52billionby2019,withacompoundannualgrowthrateof0.8percent.

In 2014, Australia’s interactive games industry reached AU$2.46 billion in retail sales in Australia(excluding revenue generated from interactive games development or exports), a 20 percentincreasefromitspreviousyear.5ThatfigureincorporatedtraditionalretailsalesofAU$1.214billionand AU$1.248 billion in digital sales, the latter increasing by 39 percent. Mobile games, digitaldownloadsandsubscriptionsalsocontinuedtogrowsignificantlyin2014.Thegrowthindigitalcameprimarily froma 56 percent jump year-on-year inmobile gamedownloads. More than half of allmobileapprevenueinAustraliawasfrominteractivegames,ofwhichthemajorityweregeneratedthroughin-apppurchases.ForfurthermarketdataforAustraliain2014refertoAppendixAofthissubmission.

2EntertainmentSoftwareAssociationofCanada,“LevellingUp:WinningStrategiestoSupportCanada’sDynamicVideoGameIndustry”,March2014,page3(theESACSubmission).3DFCIntelligence,WorldwideVideoGameForecast,citedinMakuch,E,“Report:XboxOneandPS4willsell100millionunitseachby2020”Gamespot,12February2014,athttp://www.gamespot.com/articles/report-xbox-one-and-ps4-will-sell-100-million-units-each-by-2020/1100-6417687/(accessed3August2015).4PriceWaterhouseCoopers,TheAustralianEntertainmentandMediaOutlook2015-2019,14thEdition,2015.5ResearchbasedonTheNPDGroupAustralia,TimeperiodDecember312012–Dec292013,December302013–Dec282014andTelsyte,IGEADigitalMarketMonitor,2014,citedatIGEA,“Australiangamesalessurgein2014”,MediaRelease,4March2015,athttp://www.igea.net/2015/03/australian-game-sales-surge-2014/(accessed3August2015).

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To demonstrate the levels of engagement with interactive games by the Australian population,IGEA’sDigitalAustralia2016Reportreleasedon28July2015relevantlyfoundthat:6

• 98percentofAustralianhomeswithchildrenundertheageof18haveadeviceforplayinginteractivegames

• 68 percent of Australians play interactive games, with 78 percent of the game playingpopulationaged18yearsorolder

• OlderAustralianscontinuetomakeupthelargestgroupofnewplayersoverthepastfouryears. Australians aged 50 and over now make up 23 percent of the interactive gameplayingpopulation-increasingtheiressentialdigitalliteracyforthedigitaleconomy

• TheaverageageofthoseengagedinAustralianinteractivegameshasincreasedfrom32to33yearsoldsince2013andnearlyhalf(47percent)ofthispopulationisfemale

• Aspartofthenormalmediausage,thedailyaveragetimespentplayinginteractivegamesis88minutesbyAustralians

• 27 percent of players have triedmaking interactive games using software and 9 percenthavestudiedorplantostudyinteractivegamessubjects

Interactivegamesare increasingly identified for theirability toserveotherpurposes inadditiontosimply entertainment. Researchers, educators, businesses and journalists have observed theimportanceof seriousand related interactivegames. Importantly,24percentofAustralianadultshaveusedinteractivegamesatworkfortrainingpurposesand35percentofparentssayinteractivegamesareembeddedintheirchildren’sschoolcurriculum.Gamescanalsobebeneficialforhealthyageing,with89percentofolderAustralianssayplayinginteractivegamesimprovesthinkingskills,76percentagreeinteractivegamesincreasementalstimulation,79percentfindinteractivegameshelpimprovecoordinationanddexterityand61percentstateinteractivegameshelpfightdementia.AcontemporaryanalysisoftheAustralianinteractivegamesindustryisprovidedintheIGEA’sDigitalAustralia2016Report.7Ahistoricaloverviewof the interactivegames industry inAustraliacanbefoundinanumberofpreviousreportsincludingScreenAustralia’sPlayingforKeeps,8theAustralianCentre for Moving Images’History of Games Development in Australia9and the CCI’sWorking inAustralia’sDigitalGameIndustry:ConsolidationReport.1011

6IGEA,DigitalAustraliaReport2016,athttp://www.igea.net/wp-content/uploads/2015/07/Digital-Australia-2016-DA16-Final.pdf(accessed29July2015)(DA16).7Acopyofthereportathttp://www.igea.net/2015/07/games-are-present-in-almost-all-australian-family-households/(accessed29July2015).8ScreenAustralia,PlayingforKeeps:EnhancingSustainabilityinAustralia’sinteractivegamesindustry,2011,athttp://www.screenaustralia.gov.au/about_us/pub_gamesreport.aspx(accessed27July2015)(ScreenAustraliaReport).9Knight,SandBrand,J,HistoryofGameDevelopmentinAustralia,ACMI,2007.10AustralianResearchCouncilCentreofExcellenceforCreativeIndustriesandInnovation(CCI)andQueenslandUniversityofTechnologyinpartnershipwiththeGamesDevelopers‟AssociationofAustralia,WorkinginAustralia’sGameDevelopmentIndustry,AConsolidatedReport,May2011,athttp://www.cci.edu.au/sites/default/files/shaukka/Working%20in%20Australia%27s%20Digital%20Games%20Industry%20Consolidation%20Report%20May%202011.pdf(accessed27July2015).11AnotherresourceisDepartmentofCommunications,InformationTechnologyandtheArts,FromCottagestoCorporations:BuildingaGlobalIndustryfromAustralianCreativity–ReportonAccesstoOverseasMarketsforAustralia’sCreativeDigitalIndustry,2003.

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5. TheimportanceofintellectualpropertyIGEAisoftheviewthatrobustandeffectiveIPprotection,andparticularlycopyright,isessentialtoencourage innovation and creativity in the interactive games industry for the benefit of bothAustraliancreatorsandconsumers.At the outset, IGEA reinforces that it is important for the Productivity Commission to considerdifferent types of IP protection separately and flexibly. 12 For example, copyright and itseffectiveness, efficiency, adaptively and accountability should be considered separately from, forexample,patentsgiventheirdifferenthistory,purpose,applicationandoutputs.For the purposes of this submission IGEA has focused its comments on copyright because it isfundamentaltoencouraging,protectingandrewardinginnovationintheinteractivegamesindustry.There can be little doubt that the interactive games industry has embraced, andwill continue toembrace,theopportunitiespresentedbytheglobaldigitaleconomy.Theindustrycontinuestoleadthe way in innovative business models to access new revenue streams and address consumerdemands.Copyrightiskeytosuchinnovation.Copyrightallowsthoseinthechainofinteractivegamescreation(gamesdevelopers,publishersanddistributors) to protect the fruits of their labour in order to generate appropriate commercialrewards.Gamedevelopersconsistoftheartistsandanimatorsthatdesignhowthegamecharactersandthegameenvironmentwilllook;thegamedesignersthatwilldevelopthegameconceptandtheusers’ game experience; and the programmers who write the source code that pulls all of theseelementstogether.Copyrightprotectionisparticularlyimportantinthecreativeindustrieswhereitis difficult to “pick a winner” and can be challenging to get traditional financial investment.Moreover,anyfinancialrewardsareoftenreinvested intothecreationofmore innovativecontentforthebenefitofAustralianconsumers.Interactive game developers have traditionally earned a living through a number of sources,including entering into publishing agreements or alternatively through U.S. style work-for-hireagreements. These arrangements continue to operate today, with many Australian developmentstudios working on blockbuster games alongside prominent international publishers. Thesedevelopers depend on strong IP laws, particularly copyright and trade marks, to maintain thesetraditional revenue streams. Furthermore, a number of these arrangements involve internationalpartiesandthereforebenefitfromIPlawsthatcomplimentIPlawsinaninternationalenvironment.Whileinteractivegamedeveloperscontinuetobenefitfromthemoretraditionalmethodsofearningrevenue,theproliferationandcontinuedgrowthofInternet-enabledgamedevices,includingmobiledevices,hasprovidedtheinteractivegamesindustrywithdirectaccesstoavarietyofnewrevenuestreamsandnewdigitalgoodsandservicesonaglobalscale.Forexample,itisrelativelyinexpensivefor developers to distribute their iPhone mobile games to a global market through the iPhone’sAppStore.AnexampleistheAustralianappFruitNinja,developedbyHalfBrickStudiosinBrisbane.Fruit Ninja, which recently celebrated its fifth birthday, has had more than one billion globaldownloadsand is the secondmost-purchased iPhoneappofall time.13Due to the successof thissimplefruit-slicinggame,whichhasevenbeenused intheagedcarecommunity,HalfbrickStudiosnowemploys100peopleandhasreleasedgamesincludingJetpackJoyride,HollywoodGameNightandRadicalRappelling.12IssuesPaper,page15.13Swan,D“AustralianappsuccessstoryFruitNinjacelebratesfifthbirthday”TheAustralian,7August2015athttp://www.theaustralian.com.au/business/technology/australian-app-success-story-fruit-ninja-celebrates-fifth-birthday/story-e6frgakx-1227474055464(accessed5November2015).

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The introduction of low-lost, global digital distribution platforms have empowered Australiandevelopers and caused significant growth in the independent interactive games developmentindustry.Foranoverviewofnewandinnovativebusinessmodelsintheinteractivegamesindustryspanning free-to-play, freemium,subscription,advertisingandcrowdfundingpleaserefer to IGEA’sprevioussubmissiontotheALRC.14IPlawsalsoprovidemuchneededflexibilityfortheexploitationofcreativecontentintheinteractivegames industry. Whilecopyrightrights“establishgeneral ‘exclusivity’ foraspecifiedperiod,whichtheholdermayusetoderiveafinancialbenefit”15ultimatelythisisatthediscretionoftheownerofthe IP rights.There iscurrentlya robustcommunityofgamers legitimatelysharingcontentonline,withintheframeworkofexistingprotections,enabledbycopyrightowners.

6. TechnologicalProtectionMeasures

Whathavebeen the impactsof the recent changes toAustralia’s copyright regime? Is thereevidencetosuggestAustralia’scopyrightsystemisnowefficientandeffective?16

As the IssuesPapernotes,17measures toprevent thecircumventionofTPMswere introduced intotheCopyrightActasaresultof theAustralia-UnitedStatesFreeTradeAgreement. IGEAconsiderstheseamendmentstotheCopyrightActasbothefficientandeffectiveforthereasonssetoutbelow.TPMs are employed by rights holders in the interactive games industry to prevent unauthorisedcopyingofandaccesstointeractivegamesoftwareandservicesandarealsousedforawidevarietyofpurposesthatarebeneficialtoconsumersandparents.Forinstance,TPMspermitcompaniestodifferentiateproductstomeetvaryingconsumerdemandsandofferagreaterrangeofoptionsandflexibility to consumers (e.g. rental vs. purchase, etc.). TPMs also facilitate "trial" and "demo"versionsofvideogamesoftwarethatenablea"trybeforeyoubuy"experiencefortheuser.Certaintrialsoftwareistime-limited,othersonlypermitacertainnumberofplays,whilestillotherspermitplayinlimitedareasofagame’suniverse(e.g.limitedtocertainlevels).Alloftheseoptionsprovideconsumerswithinformationthatallowsthemtobemoreinformedbuyersofinteractivegames.TPMs also facilitate digital distribution of products and thus are a critical enabler of e-commerce.Generally,allinteractivegameplatforms(includingPlayStation4,WiiUandXboxOne)offerservicesthat allow users to download games and applications directly onto their consoles/devices, whileValve’sSteamandElectronicArts’OriginStorearejustafewofthedigitaldistributionservicesthathave emerged for personal computer (PC) games. Not only do these services rely on TPMs tooperate,many employ TPMs to offer value-added benefits to consumers. For instance, both theSteamandOriginservicesnotonlyallowsausertopurchasecomputergamesonline,buttetheranypurchasedvideogamesoftwaretotheuser'saccountratherthanaparticularcomputer,socontentcanbedownloadedtoanynumberofinternet-connectedcomputers,allowingconsumersaccesstogamesatconvenienttimesandlocations(suchaswhentraveling).Similarly,Microsoftalsooffersaservicewherean increasingamountofcontentpurchasedforplayingontheXbox360canalsobeusedonthepurchasers'XboxOnewhichisreliantonTPMs.

14http://www.alrc.gov.au/sites/default/files/subs/192._org_igea.pdfpage6.15IssuesPaper,page3.16IssuesPaper,page21.17IssuesPaper,page19.

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Importantly, IGEAand itsmembersarealsoconcernedaboutchildrengainingaccessto interactivegamesnotsuitable for theirageandemploysTPMstoenableenhancedparentalcontrol features.All consoles contain parental controls that permit parents to restrict access to interactive gamesaccording to their classification, allowingparents tomakedecisions aboutwhat is appropriate fortheirfamily.TheXboxOnealsocontainsatimersoparentscandeterminehowlongtheirchildmayplay. Similarly, someMassivelyMultiplayer Online Games (MMOGs) such as Activision Blizzard’sWorldofWarcraft includeascheduler,soparentscanchoosewhattimeofdaytheirchildrenmayplayandforwhatperiodoftime.Whileproviding theabovebenefits to consumers through theuseof TPMs, the interactivegamesindustrymakeswidespreaduseofavarietyofTPMstopreventtheunauthorisedaccessto,useortransmission of copyrighted materials. Such TPMs come in a wide variety of forms, from copyprotectionandaccesscontrolsbuilt intovideogameconsolesandhandhelddevicesthatrecogniseillegally copied versions of games and refuse to play them, to various online registration and/orauthenticationsystemsforPCgamessuchasproductkeysthatverifythatthegameisoriginalandhasnotbeenillegallycopied,tonewdigitaldistributionservicesandonlinegamesthattethergamestoonlineaccountsratherthanindividualcomputers.Therefore, TPMs are critical to delivering a number of innovative features that benefit Australianconsumerswhilealsodeterringtheunauthorisedaccesstointeractivegames.Theongoingsupportofsuchbenefits,aswellasthedeterrenceofunauthorisedaccess, isdependentonthestrongandeffectiveTPMprovisionsprovidedundertheCopyrightActwhichIGEAsupports.

7. FairUse

Howshouldthebalancebestruckbetweencreatorsandconsumersinthedigitalera?Whatrolecanfairdealingand/orfairuseprovisionsplayinstrikingabetterbalance?18

As theProductivityCommission is aware, in2013 theALRC recommended the introductionof fairusecopyrightexceptionswithitsfinalreport.IGEAinitiallyrespondedtotheALRC’sIssuesPaperonthisissuewithitsviewontheproposedfairuseexceptionstatingthat:19

IGEA’s stakeholders have varying perspectives on whether a broad, flexible fair useexceptionshouldbeintroduced.

IGEA notes that the interactive games industry has been able to develop and introduce new andinnovativebusinessmodels inAustraliawithout thebenefit a broad fair useexception. Indeed, anumberofIGEAmembersbelievethattheintroductionofafairuseexceptionisneitherwarrantednordesirable.At thesametime,someof IGEA'sUSmembersdorelyonfairuseaspartof theircreationofnewcontent. Amongst those who do not oppose the introduction of “fair use” exceptions, there is aconsistentviewthatadditionalconsultationisrequiredgiventhecomplexityoftheissues,inordertoensurethattheymaptotheexistinglegitimateexpectationsofinteractivegamecreatorsaswellasconsumers.

18IssuesPaper,page21.19http://www.alrc.gov.au/sites/default/files/subs/741._org_igea_discussion_paper_submission.pdfatpage3.

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Indeed, the complex issues around a fair use exceptionmay ultimately be better addressed in aspecificIssuesPaperonthistopic,ifrequiredatsomestageinthefuture.

8. ConclusionIn conclusion, IGEA and itsmembers supports IP, particularly copyright, as essential to innovationand creativity in the interactive games industry in Australia. The Australian interactive gamesindustry continues togrow, innovateandevolvewith the supportof theunderlying frameworkofthe Copyright Act. It has actively developed new and innovative businessmodels to address thegrowing demands of users in the digital environment and engage its 68 percent of Australianconsumersthatplayinteractivegames.IGEA appreciates the opportunity to provide a submission the Productivity Commission onIntellectualPropertyArrangements.ItlooksforwardtotheopportunitytodiscussthisinmoredetailattheProductivityCommission’sPublicHearingsontheIssuesPaper.

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APPENDIXA–AUSTRALIANMARKETDATATheIGEA’scommissionedresearchfromNPDGroupAustraliashowedthatin2014:20

• Growthwasdrivenbyconsolehardware,whichhadincreasedby47percent.Newconsoles,thePS4andXboxOne,hadthebestsaleswithinthefirst12monthsoflaunchofanyconsolehardware

• Software sales were $614.5 million in 2014, down 5.3 percent from the previous year,howeverPS4,XboxOne,WiiUand3DShadexperiencedgrowthinsoftware

• Twonewfranchises,WatchDogsandDestinyenteredtheTop10gamestitlessoldin2014• ThePS3andXbox360continuedtocontributeasignificantamounttotheoverallsoftware

sales• Originallyadigitalonlygame,Minecraftincreasedinvalueby114percentin2014• ActionwasthenumberonegenreintermsofthevolumeofsalesinAustralia• 61percentofallgamessold(basedonvolume)receivedanunrestrictedClassification

FurtherindustrykeyhighlightsbyindependentresearchfirmTelsyteevidenced:21

• The Australian mobile gaming market, incorporating smartphones & tablets exceeded$700Min2014,growingby56percentfrom2013

• Themajorityofmobilegamesrevenueswasgeneratedthroughin-apppurchases• 20percentofnewgamessalesin2014weredigitaldownloads• The fastest growing segment is the online, in-gamepurchasemarket driven by adventure

games,whichhaveextralevels,missions’campaignsandmappacks

20ResearchbasedonTheNPDGroupAustralia,TimeperiodDecember312012–Dec292013,December302013–Dec282014citedatIGEA,“Australiangamesalessurgein2014”,MediaRelease,4March2015,athttp://www.igea.net/2015/03/australian-game-sales-surge-2014/(accessed3August2015).21Telsyte,IGEADigitalMarketMonitor,2014citedibid.

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KeyFindings:DigitalAustralia2016