Game industry lobby flexes influence despite E3 cash crunch

The video game industry’s biggest trade group is weathering a revenue shortfall, even as it continues to shape public policy around games.

Driving the news: Revenue for the Entertainment Software Association dropped more than $10 million, or 25%, in the 12 months ending March 31, 2021, due to the lack of its E3 trade show in recent years, according to an Axios review of its tax filings.

Why it matters: The ESA is one of the industry’s power players, but what it does tends to fly under the radar.

• The D.C.-based lobbying group's 30 corporate members include EA, Tencent, Sony, Nintendo and Microsoft.
• Among its most prominent duties: running E3 and the Entertainment Software Ratings Board, which applies ratings to games.

What they’re saying: The ESA serves as “the voice” of the industry, the group’s president, Stanley Pierre-Louis, told Axios in an interview. It strives to perpetually boost gaming’s reputation while lobbying D.C. and state lawmakers.

• In 2021, the ESA spent $2.5 million in lobbying and millions more in advocacy involving such issues as intellectual property, child safety, free speech and STEM education.
• Its approach has changed since its founding in 1994. At that time it had to focus on playing defense against U.S. politicians, largely Democrats, who blamed games for school shootings and other violence in America.
• In 2010, its lawyers successfully argued before the Supreme Court that games are protected speech, defeating an attempt by California to criminalize the sale of violent games to kids.
• These days, the ESA is staking policy positions on loot-boxes (not gambling; let the industry self-regulate), immigration (supportive of visas for high-tech workers and esports athletes and backed the Deferred Action for Childhood Arrivals, or DACA) and more.

Details: The ESA took in $30 million in the 2020-21 tax year, versus $40 million from the year before.

• It garnered funds through fees to rate games and rising dues for its member publishers. (The ESA doesn’t share what its members pay, but a recent Activision filing disclosed that its annual dues exceeded $680,000 in 2021.)
• But the lack of an E3 incurred a massive revenue hit, which may add a new perspective to how much the ESA and its members value the trade show.
• The last in-person iteration of the show, in 2019, generated $17 million for the ESA, compared to $12 million in full-year convention and meeting costs.

Between the lines: The group’s positions serve the industry powerhouses who fund it, if not always positions that’d necessarily be popular with players.

• For example, the ESA has issues with so-called Right to Repair legislation, which would allow people to legally fix their own consumer electronics, instead of relying on manufacturers or authorized repair services.
• The ESA says such policies “present unique security and piracy risks to the video game ecosystem” and has sought exceptions for gaming hardware makers.

• The country’s most prominent legislation on the issue, New York’s recently passed Right to Repair bill, exempts game consoles from its repair requirements. An ESA rep confirmed to Axios that the group had lobbied New York on this position.

Industry scandals involving sexual misconduct at ESA member publishers, including Activision late last year, have raised questions about the group’s role in policing its industry.

• In November, Nintendo of America president and ESA voting board member Doug Bowser told employees the trade group has a role to play in holding companies to higher standards.
• The ESA publicly condemned harassment, but Pierre-Louis declined to say if the ESA had taken any actions or addressed Activision on the issue directly. “We speak to our members about the issues of the day and comment publicly when it's appropriate,“ he said.

The bottom line: The ESA is organized around promoting games and keeping outsiders off its back.

• Asked if it advocated for gun regulation, in light of years of games being blamed for shootings, Pierre-Louis said: “We haven't weighed in on those types of political issues. We've been focused much more on how we promote the benefits of the video game experience.”

What’s next: The ESA’s E3 show is set for a return in 2023, with events firm ReedPop producing.

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