2016 is certainly an eventful year for the regulatory regime of online games in China, signified by the issuances of various milestone legislations. On December 5, 2016, the Ministry of Culture of the People's Republic of China ("MOC") released the Notice on Regulating Online Game Operation and Strengthening Concurrent and Ex-Post Supervision ("Notice") as well as its official interpretations. The two major regulatory bodies in charge of online game publishing and operation in China, the MOC and State Administration of Press, Publication, Radio, Film and Television ("SAPPRFT"), may not act in concert to enact key legislations one after another in 2016. However, they obviously are after the same goal—to further reinforce their administration and supervision over online game market.
The Notice is intended to restate and introduce a series of important regulatory requirements governing online game operation in China, to be implemented from May 1, 2017, when the Notice takes effect.
Clarifications on Online Game Operation and Operators
Under the Notice, online game operation is defined as activities providing online gaming products and services to the public by making available user registration system or downloadable games in order to benefit by various means including charging the users, e-commerce, advertising, sponsorship and etc. To prevent attempts to bypass the governmental administration, the Notice specifically mentions that technical testings of online games that make user registration, fee collection, log-in or client software available to the public shall be deemed as online game operation though such offerings may not directly generate revenue. Moreover, those entities shall be regarded as a game's joint operators and may be held liable for non-compliance in game operation if they take part in (i) user registration, game downloading, maintenance, debugging, fee settlement and collection, game marketing or other relevant operation or services; and (ii) game revenue share.
The above-mentioned clarifications on online game operation and operators are intended to eliminate any circumvention of MOC's administration and subject the following activities and parties to the Notice and other relevant regulations:
- publishing or operating free-to-play games with any type of in-game purchase or advertisement;
- various forms of game testing granting game access to non-specific users, including distribution of invitation codes, open beta test and etc., and
- joint operators of an online game, namely those work together with the on-the-record game operator in the game operation ecosystem and share game revenue, including APP Stores, Internet platform providers, advertisement platform or technical service providers and etc..
In addition, the broadened scope of online game operation and operators may actually require those joint operators must also have an Internet Culture License, which is granted only to domestic companies with no foreign investment according to currently applicable laws. That is to say, foreign invested companies in the game operation ecosystem may not be allowed to share revenue generated from online game operation after May 1, 2017 though they are still able to provide technical or operational services in relation to online game operation.
Rules on Virtual Items
According to the Notice, from regulatory compliance perspective, virtual items shall be treated as virtual currency if they are purchasable with real world money or virtual currency and convertible to other in-game virtual items or value-added services. Accordingly, the following rules governing virtual currency will become applicable to such virtual items:
- they shall not be redeemable for real world money except that the game operation or service is to be ceased;
- they can only be redeemable for physical goods of small value; and
- game operators shall publicize relevant information including virtual items' names, functions, prices, conversion rates, expiry dates as well as how to give away, assign and trade virtual items upon updating the game version, adjusting functions and expiry dates of virtual items, introducing new virtual items or holding any provisional in-game events.
Rules on "Random Events"
One important highlight of the Notice is for the first time it sets forth rules on gameplays similar to lucky draw or lottery by which users can get or make conversion of virtual items or other value-added services randomly ("Random Event"). According to the Notice,
- it is forbidden to require or encourage users to spend real world money or virtual currency to take part in Random Events;
- game operators shall timely and truthfully publicize the information regarding Random Events including names, functions, content and quantity of the virtual items or other similar services offered in the Random Events as well as the probability of winning and the results;
- virtual items and other similar services offered in the Random Events shall be obtainable by other means, such as they can be purchased via real world money or virtual currency; and
- records of any Random Event shall be kept by game operators for no less than 90 days.
No doubt the above-listed guidelines will help to avoid using Random Events as in-game gambling, greatly enhance the transparency of Random Events and facilitate users to make informed decision when taking part in such in-game events. On the other hand, it remains highly challenging to game developers and operators how to "translate" such dos and don'ts in game languages easily acceptable to users, how to implement these rules in the game world, and more importantly, how to ensure regulatory compliance without sacrificing game fun too much.
Other User Protection Measures
In addition to the above, the Notice also requires game operators to put in place the following measures to protect users' rights and interests:
- users must register their real identity information if they wish to make any in-game purchase;
- a monetary cap must be set for any user's single payment for in-game purchase in one game;
- in-game purchase or expense must be confirmed by users when requesting their payment of real world money or virtual currency, including payment amount, virtual items or similar services to be purchased;
- user's personal information should be properly taken care of to avoid unauthorised use or disclosure of their privacy information; and
- there must be restrictions and limitations on minors' access to certain game scenes or functions, their play hours as well as in-game purchase or expense.
The real-name registration is already widely implemented in the operation of web games and client games in China. However, currently the SAPPRFT does not require real-name registration in mobile games, thus a majority of mobile games is downloadable or playable without users' real-name registration. It remains to be seen whether real-name registration will become mandatory in mobile games as well after the Notice takes effect, .
Reiteration of MOC's Approval and Filing Requirements
In the last section of the Notice, it lists the corresponding penalty provisions in higher-level legislations promulgated by the MOC for reference if online game operators are found in violation of the Notice. It's worth noting that the Notice specifically restates that game operators may be subject to administrative punishments if they engage in the operation of foreign-copyrighted game without approval by the MOC or of domestic-copyrighted game without filing the same with the MOC. Such reiteration does not come from nowhere. As far as governmental administration over online game content is concerned, there is still significant overlap in the jurisdiction of the MOC and SAPPRFT according to applicable laws. In particular, to launch a foreign-copyrighted game in China, approvals from the SAPPRFT and MOC must be obtained respectively. However, recently a large number of online game (especially mobile game) operators seem to pay more attention to the SAPPRFT's approval requirements, which gives rise to a major mismatch of games approved by the SAPPRFT and games approved by or filed with the MOC in practice. The reiteration of MOC's approval and filing requirements in the Notice is to remind game operators the importance of the MOC's role in game content review and approval in addition to its role in administration over online gaming market.
Impact of the Notice
The Notice came as another important signal that censorship and administration over online game operation are further tightened. To comply with the Notice, online game developers and operators may have to examine their games and make changes in game settings, functions, gameplays, fee payment and collection system, user registration system and etc. before the Notice comes into effect on May 1, 2017. Though the regulatory authorities have paid great effort to make the legislation and administration keep pace with the fast developments of online gaming industry, it is extremely challenging to regulate such a new and special area with traditional means, thus it remains to be seen how the Notice will be implemented in practice. In addition, the long-term existence of the dual approval systems not only creates heavier administrative burden for entities in the industry, but also makes regulatory compliance more complicated and expensive for those entities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
