ESA lobbying tops $2 million

Trade group's attempts to influence lawmakers go beyond censorship and piracy laws, branch out into overtime regulations, online gambling.

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The Interactive Digital Software Association was founded in 1994, in the wake of a nationwide furor over violence in video games sparked by gory or sexually suggestive offerings like Midway's Mortal Kombat and Sega's Night Trap. With legislators and parents alike calling for regulation of the gaming industry and a mandatory ratings system, game publishers needed a unified voice to represent their collective interests to the American public and government.

The IDSA quickly established the Entertainment Software Ratings Board and the Electronic Entertainment Expo, and it has spent the last 13 years fending off government regulation, working to end game piracy, and acting as the public face of a growing and often misunderstood industry. The organization changed its name to the Entertainment Software Association in 2003 and has continued acting as an advocate for the industry. It publicizes sales and demographics information to underscore the size and popularity of the industry to those outside looking in, and its ESA Foundation charity has raised millions in grants to support organizations like the Boys and Girls Clubs of America and the Juvenile Diabetes Research Foundation.

The ESA has spent more on federal lobbying since 2005 than the MPAA.
The ESA has spent more on federal lobbying since 2005 than the MPAA.

However, the organization's activities don't stop there. It also spends millions on lobbying, the practice of influencing public officials and pending legislation to better suit one's interests. The ESA actively lobbies government agencies and politicians at the federal and state levels on a number of issues that don't receive much attention or publicity, but to what end?

According to filings with the United States Senate Office of Public Records, the ESA spent more than $2 million on federal lobbying efforts in 2005 and was on pace to exceed that tally in 2006 with a first-half bill of more than $1.1 million. It's often said that the gaming industry is bigger than the film industry, and in the case of federal lobbying by their trade groups, it's actually true. The Motion Picture Association of America spent less than $1.6 million on federal lobbying in 2005 and $900,000 in the first half of 2006.

As for what the money is being spent on, the ESA official Web site lists intellectual property protection, content regulation, and efforts to regulate the Internet as its main areas of interest. Interestingly, the ESA also lobbies on free trade and Internet gambling, which Bobby Kotick, CEO of ESA-member-company Activision, recently referred to as the "Holy Grail" of the industry. According to the group's spokesperson, the ESA lobbies to advocate the strongest possible intellectual property regulations in trade agreements. As for gambling, he said the ESA's efforts are focused on ensuring legislation "is not written so broadly that our members' online businesses are negatively impacted."

On the state level, the ESA can be found courting lawmakers nearly anywhere game-restricting legislation can be found. However, the group's efforts in California have not been limited to the fight against AB1179, which sought to impose fines for selling violent or sexually explicit games to minors. According to ESA filings with the California Secretary of State's office, the organization is also lobbying on a number of other issues that haven't popped up in its federal efforts.

Since 2005, the ESA has been lobbying the state's Labor and Workforce Development Agency regarding meal and rest-period regulations for workers, as well as overtime issues. California serves as the home to much of the American gaming industry, including influential members like Electronic Arts and Activision, both of which have faced lawsuits from employees accusing them of skirting the state's labor laws. (EA settled its infamous "EA Spouse" suit in October of 2005, while Activision faced its own suit centered on overtime laws last year.)

The ESA's California lobbying efforts also extended beyond subjects that relate directly to the game industry or the interests of its members. For most of 2005, the ESA lobbied on California AB777, a bill that would have given tax credits for movies and commercials filmed within the state. Nowhere in the bill are games mentioned, and they did not appear to be covered under the bill's definition of a qualifying production.

The organization has also devoted funds to
The organization has also devoted funds to "obtaining interpretive guidance" on overtime laws in California for years.

The ESA also lobbied on AB1351, which doesn't bear any apparent relevance to the entertainment industry, much less games. It was eventually passed as a bill that lets the San Diego County Regional Airport Authority issue notes in addition to bonds for purposes relating to its duties. When it was originally introduced, AB1351 dealt with the Office of Administrative Law's ability to determine whether a guideline or regulation that hadn't been approved by and filed with the Secretary of State could still be considered valid.

While companies engaged in lobbying must report the issues and specific pieces of legislation on which they are lobbying, neither California nor the federal government requires them to disclose what changes they were trying to bring about through lobbying, or whether they lobbied for or against specific bills.

When asked what specific changes the ESA was lobbying for in overtime laws and what possible interest it could have in spending money to influence AB777 and AB1351, the ESA spokesperson denied that the organization had ever done such a thing. After having the California filings pointed out to him, the spokesperson offered another explanation.

"In 2005, we were uncertain of the scope of our project, and so, in an abundance of caution, we registered for a broad range of activities," the spokesperson said. "In the end, our work was limited to obtaining interpretive guidance on the overtime laws from the Labor & Workforce Development Agency."

In the first quarter of 2006 alone, the ESA spent more than $100,000 obtaining interpretive guidance on overtime laws. For the full year, the ESA spent almost $279,000 lobbying in California.

E3 2004 accounted for nearly $16 million of the ESA's $19.8 million income that year.
E3 2004 accounted for nearly $16 million of the ESA's $19.8 million income that year.

To give an idea of how much the cost of lobbying has skyrocketed for the ESA in recent years, that California-specific total easily eclipses the group's entire federal lobbying total in 1998, when it spent just $180,000. An ESA spokesperson brushed aside concerns over the rising costs, saying, "As the industry has evolved over the years, so have, and will, its lobbying efforts. Speculating on what might be or might have been is not relevant in our view."

That money comes primarily from the organization's membership dues, revenue derived from E3, and fees paid for ESRB ratings. In 2004--the most recent year the ESA has filed its tax-exempt status form with the Internal Revenue Service--E3 brought in almost $16 million, with $1.7 million coming from ratings and $980,000 from membership dues. All told, the ESA brought in about $19.8 million for the year.

While the amount of revenue lost from the switch to a smaller E3 is unclear, at least part of it will be made up by a hike in membership dues, ESA president Doug Lowenstein told GameSpot last year. An ESA spokesperson also dismissed concerns that it would impact the group's lobbying, flatly saying, "It will have no impact whatsoever."

Of the US-based nonprofit game-industry advocacy groups, the ESA easily devotes the most money to lobbying federal lawmakers. In the first half of 2006, the Entertainment Merchants Association (formerly the Interactive Entertainment Merchants Association and the Video Software Dealers Association) put up $120,000 to influence federal policymakers and lobbied on just two issues: the regulation of games and record-keeping requirements surrounding sexually explicit videos. EMA vice president of public affairs Sean Bersell told GameSpot that proposed changes to record-keeping requirements would have applied retroactively to some mainstream movies.

"Retailers would have had to identify and remove the existing stock of movies containing such depictions from their shelves and replace them, if possible, with complying products," Bersell said. "This would have presented significant operational challenges and subjected retailers to substantial federal criminal penalties if they made a mistake."

While advocacy groups for the publishers and the retailers are actively lobbying now and have been for years, the major groups representing those who make and buy the games have stayed largely on the sidelines. The International Game Developers Association and the recently established Entertainment Consumers Association have yet to bring their members' interests straight to legislators. Instead, the IGDA helps to foster grassroots lobbying, mobilizing its members to write their legislators on specific issues when appropriate.

"We've actually never paid a penny for a lobbyist," said IGDA executive director Jason Della Rocca. "It's sort of outside the scope of our budget and also doesn't really fall in with our mandate."

According to the IGDA's 2005 annual report, it brought in about $367,000 for the year (mostly from membership dues and studio fees) but spent more than $416,000. Even if the organization did have money to throw around, Della Rocca said there hasn't been much call for it from the developers the IGDA represents.

The IGDA advocates quality-of-life issues for developers, but it limits its actual lobbying to grassroots efforts.
The IGDA advocates quality-of-life issues for developers, but it limits its actual lobbying to grassroots efforts.

"The vast majority of game developers really don't have the legal expertise to fully comprehend the labor laws and all that intricate, very complex stuff," Della Rocca said. "So while someone might have the bright idea to check out the labor laws, no one takes it much further than that. And from an IGDA point of view, there's so much low-hanging fruit in dealing with the issue ourselves...often times those kinds of efforts have the potential for much more dramatic results and impact than squirreling away [money] trying to affect some kind of tweaked labor laws."

As for the voice of consumers, ECA president Hal Halpin said the group's advocacy activities are still taking shape after its formation last October.

"It really depends on the feedback we get from the membership as the organization grows," Halpin told GameSpot. "My hope is we'll be using grassroots measures and chapters eventually to have people testify and show up who are constituents of the respective legislators."

As far as additional lobbying, Halpin said he suspects the group will work on issues like digital-rights management and licensing, as well as disclosure issues in the area of in-game advertising. Regardless of the topics the ECA winds up dealing with, Halpin stressed that the industry needs advocacy groups like his, saying the industry as a whole has been slow to join the public discussion about gaming.

"By not being involved, we've abdicated our voice to the other side--the opposition," Halpin said. "And in doing so, we've empowered them to sort of tell our story to the mass media and the public. I think that lobbying is an extraordinarily important aspect of what each of the organizations--ours included--does. It helps tell the story of what's going on, and only by working together--the IGDA, the ESA, the ECA, and the EMA--are we going to be able to affect that change that we need."

Tomorrow, Halpin, Della Rocca, and Bersell will lose a partner in telling the industry's story, as Lowenstein will vacate the top position at the ESA following a keynote address at the D.I.C.E. summit in Las Vegas, Nevada. While the organization searches for Lowenstein's permanent replacement, his duties will be taken over by ESA chairman Robbie Bach, who is also president of Microsoft's Entertainment & Devices Division, which makes the Xbox 360.

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