Consistently making headlines, gaming has been a contentious subject of late. Increasing accessibility to the internet and smartphones has allowed India to become the world’s largest mobile gaming market in terms of app downloads. Three domestic unicorns have emerged. This has led to efforts to contain the market, including the setting up of an Animation, Visual Effects, Gaming and Comics (AVGC) Promotion Task Force under the Ministry of Information and Broadcasting (MIB).
The task force reported to the MIB in December 2022, making recommendations for a gaming framework. The report proposed measures to attract investment, boost growth and reduce costs for users. These included tax breaks, incentives to foreign companies outsourcing work or employing local game developers and encouraging gaming startups to file applications under the Startups Intellectual Property Protection scheme. It further proposed a national framework for online skill gaming, with such classifications as casual games, real money games and e-sports, receiving regulatory and market development support from the government. The draft national policy annexed to the report identified areas of development in the AVGC sector, including access to funding, market access and development, education, skilling and mentorship and intellectual property.
The Ministry of Electronics and Information Technology (MeitY) published a draft amendment (draft rules) to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. This came after the MeitY was put in charge of matters relating to online gaming. The draft rules define an online game as a game offered on the internet accessible via a computer when a deposit is made with the expectation of earning winnings, and an online gaming intermediary (OGI) as an intermediary that offers one or more online games. Further, the MeitY is empowered to designate any game on the internet as an online game if it is satisfied that it risks harming the sovereignty and integrity of India, state security, friendly relations with foreign states or public order, or causes addiction or other harm to children. However, the draft rules are silent on what constitutes a game and a plain reading of the online game definition includes applications offering discounts or cashbacks to users for every payment made.
The draft rules require OGIs to appoint a grievance officer, establish a physical presence in India and appoint a nodal contact person constantly available for co-ordination with enforcement agencies. OGIs must appoint a compliance officer to ensure adherence to the law and liaison with law enforcement and governmental agencies. These requirements may be a barrier to entry for small startups looking to break into the field, with heavy compliance expenditure at the outset.
The draft rules provide for the establishment of self-regulatory bodies (SRB), being section 8 companies or registered societies established by OGIs. An SRB must be registered with the MeitY, which will consider factors including the number of its member OGIs, the presence of certain persons on the board of directors or governing body, excluding rather surprisingly those from the legal field, and the relevance and suitability of its board of directors or governing body. SRBs will grant membership to OGIs, register online games offered by member OGIs, and ensure such games conform with SRBs’ frameworks. No online games may be hosted, published or advertised by an OGI unless they have been registered with an SRB. As SRBs are not government agencies and will consist of members of OGIs, requiring member OGIs to disclose their business models and offerings to an SRB before publishing or hosting may be detrimental to the interests of startups. Conflicts of interest may arise over intellectual property and confidential information.
The report and the MeitY both emphasised the importance of startups to the online gaming industry. However, the amendments in the draft rules may restrict the entry and growth of startups in the space, leaving opportunities only for established players or those with substantial funding. The need to regulate the sector and establish proper governance cannot be overstated. However, as fundamental developments in the online gaming sector are being proposed, there is an urgent need for clarity on what will follow such changes.
Ashima Obhan is senior partner and Shuchi Dutta is an associate at Obhan & Associates
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