Dear reader,
Welcome to our metaverse report in collaboration with Newzoo.
What is the metaverse? This is by no means a simple question. In sci-fi literature it is referred to as a convergence of physical, augmented and virtual reality in which users can interact with a computer-generated environment and other users. Although this would seem to be a simple definition, it is one that has complicated layers in practice. Matthew Ball, a venture capitalist who wrote an influential essay on the metaverse in 2020, set out several key characteristics of what a metaverse needs to include, namely:
- Scaling (ability to increase the size of the metaverse).
- Persistence (unlocking technical limitations to improve the immersiveness of the metaverse).
- Interoperability (the merging of different virtual worlds and systems).
- Economy (allowing for trading across the metaverse).
- Identity (evolving current online identities for avatars for a stronger connection to the user).
- Digital and physical (spanning across many aspects of life).
- Multiple contributors (content from all sorts of stakeholders from individuals to commercial organisations).
As you can see from these characteristics, the concept of a metaverse is a complicated one.
Understanding the metaverse requires looking at the world differently. Like many modern-day technological advancements, the metaverse was conceived in science fiction, but the games industry has always been a driver of new technology. While the metaverse has yet to live up to its true potential - and will take some time to do so - there are already early signs of the metaverse all around us. These early-stage metaverses, or proto-metaverses, take many forms, including games embracing blockchain technology and online games hosting non-game social events, such as live musical performances. The early metaverse is already here, and the sector (and its underlying technology) is already attracting considerable investment. The development of the true metaverse is no longer an "if" but a "when."
We are excited to release this report in collaboration with our partners at Newzoo, which is proud to work with some of the world's most successful businesses in entertainment, technology, and media, helping them target their audiences, increase brand awareness, spot opportunities, and make data-backed strategic and financial decisions.
In this report, we examine how the video games industry has started to shape the metaverse. We analyse the legal issues connected with the metaverse from three separate viewpoints: the user, the make-up of the metaverse and regulation.
We hope you find our report interesting. If you would like to discuss any aspects of it, please get in touch with your usual Osborne Clarke contact, any of the authors, or Newzoo.
Author : Peter Warman Co-Founder and CEO, Newzoo peter@newzoo.com +31 20 66 35 816
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Author: Nick Kempton Senior Associate, UK nick.kempton@osborneclarke.com +44 207 105 7333
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Are advertising rules the same in the metaverse?
The metaverse and, more generally, "virtual universes" have started to come under the scrutiny of French and UK authorities. Although there is currently no regulatory framework for the metaverse, the French advertising authority recently updated its digital communication guidelines to provide some rules for virtual universes. These are defined as universes or worlds artificially created by software that can host a community of users who can act, interact and move in the form of avatars.
In the UK, the Advertising Standards Authority (ASA) has not yet released guidance on the metaverse. However, it has an established track record of acting on in-game ads and has additionally commented on various topics that are relevant to the metaverse at large. For example, the ASA has upheld complaints where the in-game ads were misleading to the likely audience of the game. It also released draft guidance in early 2021 on requirements for in-game purchases, such as ensuring that the prices of in-game purchases are presented in a way to readily show the "real world" price of items and not only the in-game currency price.
These guidelines and rules that are already applicable to video games can help with understanding the regulation framework of advertising in the metaverse. This framework mostly relates to the need to identify the advertising content and the regulation of the advertising content itself.
Identification of in-metaverse ads
Standard rules of fairness and transparency apply. French authorities deem that advertising content must be identified as such in a virtual universe and that the advertiser’s identity must be known. In the UK, similarly, marketing communications must be "obviously identifiable" as ads.
The advertising nature of content can be disclosed through the ad presentation itself. For example, content displayed in an ad space similar to those existing in the real world (such as an advertising billboard on the street in the metaverse) may reduce the risk of ads being mistaken for other content. For advertisers and brands themselves, it is important to ensure the ad copy itself makes clear that the content is an ad, for example by incorporating "ad" in the ad copy, image or graphic shown, particularly where the context of the ad space alone may not be clear. These disclaimers must be clearly visible and directly accessible. Disclaimers that are only visible to users taking a specific action or clicking on an information box will not meet these criteria.
In relation to in-game ads in France, the ARPP, the French advertising authority, deems that ads must not be to the detriment of the game playability, including by hindering access to the features or control of the game or by lessening the visibility of the elements that are part of the game. Such a rule could be transposed in the metaverse, especially when consumers not only interact but can also undertake different missions and playing actions.
Newzoo notes:
Interruptive advertising may be harder to translate to immersive worlds, leading to growth of native ads. Native brand integrations/activations, influencers (both real and virtual), and IP will be fixtures of metaverse marketing tools. Limited edition NFT releases can help generate buzz as well."
Newzoo's survey undertaken in their 2021 Trends Report shows that, free content funded by advertisers and sponsors are ranked 5.26/7.
Source: Newzoo Trend Report 2021 - Intro to the Metaverse report.
Influencers in the metaverse
Brands can use popular avatar characters or bots for advertising when they want to target the metaverse community. The ARPP stated in 2020 that such practices would come under its scrutiny, as virtual influencers were expected to represent a multi-billion euro industry. It also expressed concern over new technologies enabling the creation of fake persons (very difficult to tell apart from humans) and the possible need, in future, to discuss with industry players how to inform users whether they are facing a real person or a bot.
In the UK, the ASA is an active regulator in the influencer advertising space. Where an influencer receives compensation of some kind to advertise a brand, and where that brand has editorial control over the message or content that is being conveyed by the influencer, this is likely to fall under the remit of the ASA as an ad. This means that the ad must be clearly identified, for example, by using a clear disclosure such as "ad".
There are practical challenges around ad disclosure in the metaverse. Marketers will need to find ways to ensure the ad disclosure is clear and upfront. For example, where an influencer is running an event in the metaverse that contains product placement, influencers should use the tools that may be available to make any commercial relationship clear, even if it is by way of a verbal disclosure at the beginning of the event.
There may be circumstances where labelling is more difficult. For example, where the influencer may be using a paid-for branded avatar, this can be more difficult to disclose because the user interface might not easily support the display of the "ad" label through the avatar. In such an example, the details of the brand partnership could be included in the influencer's fixed profile pages or biographies as a way to help mitigate the risk of enforcement action.
In France, guidelines on influencers are also clear. The person or brand controlling the avatar must be clearly identified and must not hide behind its creation. Any advertising avatar or influencer avatar and its advertising content (such as contributions, dialogue and statements) must clearly disclose their advertising nature, for example, through disclaimers such as "sponsored by" or "in partnership with". The advertiser must also be identifiable.
Advertising content rules
Misleading practices in advertising are prohibited and highly sanctioned. But will rules applying to advertising content be less strict in the metaverse than for traditional ads, because users know they are in a virtual context? If so, will this be the case both in terms of not being misleading on the features of products or services and with regard to the prohibition of some forms of content (such as violent content)?
In order to decide whether content misleads consumers or not, courts in France and the UK usually take into account the average consumer, defined as a normally informed and reasonably aware consumer (taking into account social, language and cultural factors).
One could expect that the average consumer for the metaverse will be deemed to have an average knowledge of the metaverse and of the fact that its content is imaginary and can be surreal. This could allow some exaggerated and hyperbolic representations of products. However, in the UK, if the brand purports that the effect of its products are realistically shown in the metaverse, rather than fantastical or clearly exaggerated, this is likely to increase the risk of the ASA deeming the ad to be misleading if the brand has overstated the effect. This is an untested area, and this issue should be monitored closely by brands.
Enforcing regulations?
There is not much perspective yet on whether the prohibition of violent content, the regulation of behaviour and the representation of individuals will be less stringent in the metaverse. However, it appears that when depicted situations are close to reality, the rules governing advertising content should remain exactly the same. For example, in France, it is unlikely that it would be found acceptable for a food brand to advertise a fake person eating in front of the TV within the metaverse (which is prohibited under the French advertising ethical rules). There is likely to be some room for lenience when the universe is clearly imaginary and cannot be mistaken for reality.
In relation to violent or shocking scenes, Jury de Déontologie Publicitaire (JDP), the French advertising ethical jury, has sometimes deemed that the perspective that could be taken by viewers, because of an imaginary context or universe, allowed more tolerance towards this type of content. An ad that shows a car crash, which was represented as an imaginary scenario and looked clearly unreal was, for example, found to be compliant with advertising ethical rules on violence. The same conclusion was reached for an ad for a show depicting a hanged horse, because the scene was surreal and clearly distant from reality.
The same could apply to the representation of avatars: the fact that metaverse characters do not clearly look like a human and perform a surreal role mitigates the risk that some representations be found degrading. For example, the JDP deemed that an ad was not in breach of the rule that advertising content must not objectify women or be degrading, because of its unreal and stylised universe. This was helped because the character was not represented as human but closer to a statue. Of course, some safeguards were taken (the character was not naked and the content was not indecent).
Finally, the JDP has found that ethical rules stating that cars can only be depicted as being in compliance with the driving code is only applicable when showing a normal use situation. This is not the case when the car is depicted in an unreal and fantastic atmosphere, which could be the case for the metaverse.
Advertisements and children
Though, based on the above, more tolerance could be expected in the metaverse in France, this is not applicable when the targeted audience is composed of children.
The ARPP recommendations state that ads inserted in virtual universes must never harm children. The JDP is also stricter when reviewing content that targets children or, because of their universe, can be appealing to children. For example, an ad that was deemed compliant with the prohibition of violent content, because it showed an unreal and imaginary scene with fictional characters, was still found to be contrary to advertising ethical rules, because its content was appealing to children and therefore no form of violence could be tolerated.
In the UK, there is likely to be some regulatory appetite regarding the metaverse from the ASA or the Competition and Markets Authority (CMA). This is because younger audiences are more likely to be engaged in the metaverse, and, therefore, the UK and CMA will seek to ensure these spaces or any areas in the metaverse specifically targeted at children only include ads that are child appropriate.
The ASA has also recently released draft guide for in-game purchases, which is likely to be another busy area of enforcement in the UK when it comes to the metaverse. Particularly where children are concerned, clarity and transparency on pricing for in-game purchases is paramount, and marketers should ensure such in-game ads do not unduly pressure consumers to make a purchase (for example, by using count-down timers or limited offers).
Generally, the ASA is keen on taking a technology-first approach in its monitoring of ads and has made it clear that new technologies are not a boundary or a blocker for the ASA when regulating advertisements. For example, the ASA used technology to assess the distribution of ads for certain regulated items on websites, such as alcohol, as part of a proactive monitoring sweep.
Technology agnosticism
On the whole, advertising regulations in the UK and France were intended to be technology agnostic, so current advertising regulations will be applicable to the metaverse. However, the specificities of this new universe should be taken into account when implementing them.
Rapport Metaverse
Welcome to our metaverse report in collaboration with Newzoo. What is the metaverse? This is by no means a simple question.... https://togetherwith.osborneclarke.com/metaverse-report/home/