The big debate about the blurring of social casino games and online gambling

Charles Harper: I think that’s a great illustration of why regulation is so dangerous. First you start out by saying, “We’re going to regulate wherever there’s random number generation.” So a game company says, “OK, I don’t need random number generation. I’m going to have slot machines where I’ve already decided these things.” The users don’t really notice the difference, so they’ve gotten out of regulation there. Then the regulators shift the rules over to cover that as well, and the next thing you know you’re not allowed to spend more than three dollars a day on FarmVille. If we know anything about online game users, [it’s] that they’ll keep shifting, just like the people providing to them will keep shifting.

San: That’s why the industry should get together and say, “We are socially responsible. Here are the things we do.” Then the regulators don’t have an argument. I think that the social-gaming industry should not be regulated. But it needs to do something to avoid being regulated.

Takahashi: Some of the excitement in this industry has been brought by free-to-play as a business model. If you overlay that on top of the traditional games business, it’s been very disruptive. It’s caused a lot of change. It’s caused a lot of opportunity. If you regulate this and put a cap on what can be spent, you ruin the free-to-play model.

San: I don’t think you need to put on a cap, an arbitrary cap, although in the real-money world we do have arbitrary caps as well. We can just empower players to choose their own spending limits. Different people have different amounts of money that would cause them problems if they spent them. If you’re not wealthy, you should be able to say, “I only want to spend $100 a week on my social-gaming enjoyment.” When you get close to that, it should say, “You’re near your limit.”

Jill Schneiderman: I think Sumit was hinting at this, but I’d love for someone to pop out of my fridge every day and tell me not to eat another piece of pizza. We have to have some sort of responsibility for ourselves at some point. We have to know that when we’re going to spend money on anything — a sweater, a social game, food, going to the movies, whatever — there are people who go to the same movie 50 times, and we don’t say that we should regulate them even though they’re getting no tangible good back from that experience. It’s hard to make that argument because I think it becomes a slippery slope.

Takahashi: There’s a parallel argument in the video game industry about regulating violence in games. Were you in favor of regulating violence in games when you were in the console business?

San: I’m not in favor of disallowing it, but I am in favor of age ratings and in not allowing violent games to be sold to underage players. I’m also very for parental control. I think that all manner of games should be allowed to be created and sold, but I don’t think a super-violent game should be sold to kids.

Takahashi: There was a self-regulatory solution there.

San: Yeah. I’m not in favor of regulations for social gaming either. I’m an advocate for social responsibility among their operators.

Takahashi: In the social casino world, as entertainment, if you just look at that world you can make a great case that it is entertainment and it doesn’t need to be regulated. What’s confusing everybody, I think, is that it’s a blurry world. Maybe we can address the topic of just how blurry this world has become, with land-based casinos, online gambling, and social casino games all together.

Keustermans: I’m not sure if the lines are becoming blurry. What I think is happening is that there’s nobody who knows what the future will hold. Nobody has a crystal ball. There are different ways people are strategizing around this convergence. There’s the funnel argument, where some companies say that there are more social gamers, free-to-play gamers, than real gamblers. If we can get 10 million people to play our social game and then convert 20 percent of those guys into spending real money, we profit.

Takahashi: More fully explained, maybe 2 percent of those social gamers would spend two or three dollars a month in the game, but the online gamblers might spend $100 in a game.

Keustermans: Exactly. The second strategy is around customer relationship management [CRM]. It’s kind of like what MGM has been doing with their studios. From a land-based casino point of view, the customer is on your floor maybe a couple of days a year. But when they’re not on the floor, they can still interact with your brands through a social game, and you can link that back to your loyalty scheme.

The last strategy, which is more in line with what I personally believe in, says that there’s a huge audience of people that like casino games, and there are different ways to monetize them. Some people like the games, but they don’t want to spend money. They can still be monetized through advertising. Some people like to spend a little bit of money — spend $10 or $20, buy some virtual coins, feel like a high-roller. Some people like to bet real money to win real money. That’s the convergence that I personally believe in. The casino operator of the future is going to offer content to different audiences. Right now the gambling industry focuses on a very small part of its audience. By integrating free-to-play into the equation, you broaden the audience. But nobody knows. Maybe the funnel idea is the most profitable. Nobody has any data to prove either point.

Harper: Yeah, I agree. One of the points that came up was the idea of using games like this to educate. It’s counter to what you’re saying because if you’re using these games to educate, you’re not making money. That’s a simple truth. If you’re not making it the most entertaining experience possible, then you’re not going to be making money. What you need to do is create each level of game, optimized for the greatest amount of entertainment, for each level of the audience. Exactly what you’re saying. Otherwise you’re only a marginally successful company, and I don’t think anybody in this room wants to be marginally successful when they can see much higher levels of success within their grasp if only they tweak a game one way or the other. It may not make the game more educational, but it can make it a lot more fun. That leads to another issue that we were discussing, which is, what’s the responsibility toward realism when you talk about casino games?

San: The regulators are very interested in that. They’re very interested in what goes on if a game looks like a casino game, or looks like a poker game, but it reduces or changes the possible reward. If you educate people to have an unrealistic expectation of winning, then what is your responsibility if people then go and play a real-money game? Even if it’s not from the same supplier, what is the responsibility there?

Keustermans: There is already legislation around that. If you’re following the conversion model – if you’re using a social game to get people to play a real-money game – there’s already legislation in the U.K. and most other regulated markets mandating that the random number generators work the same way. That’s already covered.

San: That’s for products from the same company, though. What if you’re just doing a roulette game or a blackjack game, but it happens to have unnatural payouts because it’s not real?

Gupta: Well, what about a racing game where a car doesn’t drive like a real one?