Regulation

The reshaping of subscription models for the metaverse

Business models for access to gaming worlds have already diversified beyond the simple one-off payments of the past for licensed software. Subscriptions for cloud-based gaming as a service are now common, offering the financial advantage of lower individual payments for the consumer plus a steady revenue stream for the provider.

As gaming worlds start to merge into a single interconnected metaverse, subscription models will need to adapt, assuming that they are not overtaken by other business models. Access could potentially become free to the consumer – as it has with other digital platforms – with revenue and value streams generated elsewhere (for example, through advertising) or by monetising individual events or specific interactions or items as the range of activities conducted within the metaverse expands beyond gaming. Newzoo anticipates such a diversification and sees the metaverse business model becoming multi-stream, including digital events, play-to-earn, non-fungible and pay-to-social.

Whatever monetisation model metaverse access eventually settles into, subscriptions are likely to be part of the landscape for some time to come. It will remain as important as it is currently to ensure that subscription packages are legally compliant, since they are an area that receives notable regulatory attention.

"Subscription law" does not exist as a distinct field, but draws together a range of legal requirements and regulatory regimes, including consumer law, advertising law, data protection and marketing law, plus financial services regulation in some cases.

The subscriber journey

When designing the user interface for subscription services, consumer and e-commerce law must be complied with. This, for example, includes requirements around the provision of pre-contractual information, which must include a description of the good or service and the terms of the subscription. Subscribers must be provided with details such as the price, the contract duration, how the price changes depending on the length of the subscription and any additional delivery fees, as well as their cancellation rights and any associated fees.

The full terms and conditions of the subscription must be available for consumers to read and accept before entering into the agreement. The business's privacy policy must also be made available and, depending on its data processing position, either acknowledged or accepted by the consumer.

It is important to take a front-loaded, "compliance by design" approach to these legal requirements. The detail in this area is important, because failure to meet legal requirements may mean that the consumer did not enter into a valid contract or they may only be bound by certain terms, or be given certain enhanced rights, such as a significantly extended cancellation period.

Retaining subscribers

It is very important for the business to set out its position both clearly and in advance in relation to renewals and termination of subscriptions, in order that the terms are enforceable and consumers know where they stand. This approach will also enable the business to take advantage of options that may be available to mitigate the effects of consumers leaving.

Automatic subscription renewal mechanisms need care. It is vital to make sure consumers are aware of the auto-renewal in advance of entering the contract to avoid any suggestion of seeking to trap consumers in a subscription. Not only could this create legal compliance problems but it can also generate damaging publicity around the brand.

'In life' issues

Providers sometimes want to change the terms of a subscription part way through the contract term. Consumer protection law may deem certain changes to be unfair and, therefore, unenforceable, unless the consumer has the right to get out of the contract and has given their express consent to the change.

These requirements will usually apply (among other things) to any increase in price and to any change to the service provider. Depending on the extent and impact of the change, they may also apply where the service itself is changed.

It can be difficult to change the terms of an "in life" subscription. Changes may be easier to manage for subscriptions that operate on the basis of monthly renewal, since the provider can simply say to the consumer that changes will come into effect in the next month and, if the consumer does not like them, they can cancel the subscription.

Financial services regulation

Where a subscription concerns goods, equipment or other physical assets, the long-established financial services concepts of regulated hire, hire purchase and credit come into play. These issues are less likely to bite on subscriptions to access the cloud-based metaverse, assuming no hardware or physical assets are provided as part of that service. But care is needed if the subscription includes any physical assets, in case the package of goods and services is considered to be activity regulated by the Financial Conduct Authority (FCA).

It may be possible to pass the regulated activity to an FCA-authorised third party, but care is required in structuring such partnerships to ensure regulatory compliance. Carrying on a regulated activity without the requisite authorisation from the FCA is a criminal offence. This, is, therefore, a high-risk area in compliance terms and is an important consideration in evaluating the benefits, risks and potential costs of moving to a subscription model that involves physical assets.

Regulatory focus

One of the drivers to ensure that subscription offerings are compliant with the various laws that they fall under is that enforcement bodies are particularly active in this area. In the UK, the Competition and Markets Authority has investigated subscription auto-renewal terms under consumer law and is developing principles around fair consumer contract terms. The Advertising Standards Authority has taken action where customers were given misleading information about what they were signing up to and issued guidance on offering a subscription box.

EU regulators are similarly active. For example, German authorities have a strong record of enforcement in relation to consumer protection, and the Italian regulator is also very active and has powers to fine up to €5m. The EU's New Deal for Consumers will introduce General Data Protection Regulation-style heavy fines for breach of consumer protection law in the EU, and this is likely to mean increased regulatory attention and consumer awareness.

Metaverse access subscriptions?

As gaming worlds start to interconnect, providers must consider giving their subscribers access to other parts of the metaverse developed or controlled by another provider. This will need to encompass how liability will be structured between the different providers, potentially developing mechanisms to ensure subscription revenues are distributed in a proportionate or, at least, appropriate way between the providers. It will need to address issues such as whether consumers can elect to buy access to one or more areas of the metaverse or just to the whole construct.

It seems likely that free-ranging access on the basis of one subscription would need either a network of bilateral subscriber recognition and admission arrangements or an umbrella arrangement across the industry. The latter perhaps has parallels with multi-modal ticketing arrangements in the transport sector. Such arrangements can generate competition concerns, since they are agreed between competitors and require collaboration on pricing and integrated ticketing systems.

In the UK, inter-operator ticketing for public transport has been given a specific exemption from the competition rules, as it is considered beneficial for a consumer to be able to buy a single ticket to use across multiple operators. Similarly, the balance between any competition restrictions and the consumer benefits of open accessibility across the metaverse will need careful consideration from a competition compliance perspective.

The potential complexity of structuring inter-operator subscriptions may become an incentive to develop different monetisation models for the metaverse, as noted above.

Authors

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Catherine Hammon Digital Transformation Knowledge Lawyer Head of Advisory Knowledge, UK catherine.hammon@osborneclarke.com +44 207 105 7438

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Chloe Deng Senior Associate, UK chloe.deng@osborneclarke.com +44 20 7105 7188