E3 cancellation causes crash for Entertainment Software Association

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

Driving the news: Entertainment Software Association revenue fell more than $10 million, or 25%, in the 12 months ending March 31, 2021, due to the absence of its E3 show in recent years, according to a Axios review of his tax returns.

Why is this important: The ESA is one of the most powerful players in the industry, but what it does tends to go unnoticed.

  • The 30 corporate members of the DC-based lobby group include EA, Tencent, Sony, Nintendo and Microsoft.
  • Among his most important tasks: leading E3 and the Entertainment Software Ratings Board, which applies ratings to games.

What they say : ESA is “the voice” of the industry, the group’s chairman, Stanley Pierre-Louis, told Axios in an interview. He strives to perpetually bolster the game’s reputation while lobbying DC and state lawmakers.

  • In 2021, ESA spent $2.5 million on lobbying and millions more on advocacy on issues such as intellectual property, child safety, free speech and STEM education.
  • Its approach has changed since its founding in 1994. At that time, it was to focus on defending against American politicians, largely Democrats, who blamed the games for school shootings and other violence in America.
  • In 2010, its lawyers successfully argued in the Supreme Court that games are protected speech, thwarting a California attempt to criminalize the sale of violent games to children.
  • These days the ESA takes political positions on loot boxes (not gambling; let the industry regulate itself), immigration (supports visas for tech workers and athletes esports and supported Deferred Action for Childhood Arrivals, or DACA) and more.

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

  • It raised funds through game review fees and increased dues from its member publishers. (The ESA doesn’t share what its members pay, but a recent Activision filing found its annual dues exceeded $680,000 in 2021.)
  • But the absence of an E3 has resulted in a massive drop in revenue, which may add a new perspective to the value that ESA and its members place on the show.
  • The show’s latest in-person iteration, in 2019, generated $17 million for ESA, compared to $12 million in convention and meeting fees for the full year.

Between the lines: The band’s positions serve the industry powerhouses that fund it, if not always positions that would necessarily be popular with gamers.

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

  • The nation’s most important legislation on the issue, New York’s recently passed Right to Repair bill, exempts game consoles from its repair requirements. An ESA representative 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 had a role to play in keeping companies to higher standards.
  • The ESA publicly condemned the harassment, but Pierre-Louis declined to say whether the ESA had taken action or spoken directly to Activision on the matter. “We talk to our members about the issues of the day and comment on them publicly when appropriate,” he said.

The bottom line: The ESA is organized around the promotion of the games and the protection of foreigners.

  • Asked if he advocates gun regulation, in light of years of games being accused of shooting, Pierre-Louis said: “We haven’t weighed in on those kinds of policy issues. We’ve focused a lot more on how we promote the benefits of the video game experience.

And after: ESA’s E3 show is set to return in 2023, with production from events company ReedPop.

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