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Subscriptions: When are auto-renewals fair game? | Opinion

As the CMA investigates the use of subscriptions in video games, legal experts at Lewis Silkin offer advice on best practices

Around six months into the launch of Nintendo Switch Online, Nintendo had signed up 9.8 million users to the online service.

In the midst of these encouraging figures however, Nintendo president Shuntaro Furukawa highlighted an obstacle that the company still needed to overcome -- many of these new users had only signed up for short-term subscription plans.

"It's critical that these members want to continue using the service for a long time rather than letting it expire," said Furukawa.

Today, gamers seeking to enjoy 'live service' gaming and other online multiplayer modes are generally required to pay for a membership with the specific platform/game. In this pay-to-play environment, major players in the gaming industry are increasingly employing the use of subscription agreements which automatically renew at the end of their subscription period ("auto-renew" or "roll-over" contracts) in an effort to tie gamers into longer-term memberships.

"Make sure consumers understand upfront how long they are signing up for, when they can cancel, what the price is and when renewals or price rises might occur"

There is a clear tension in this scenario between the use of auto-renewal contracts which on the one hand can improve convenience for gamers (and maximise profits for the platform/game) and on the other hand can interfere with consumer rights (which seek to protect consumers from misleading or unfair commercial practices). This has led to Citizens Advice accusing multiple industries of dealing in bad faith by deliberately ripping-off loyal customers "in the hope that people won't notice."

In response, the UK's competition watchdog -- the Competition and Markets Authority (CMA) -- announced a package of proposed reforms in December 2018 and subsequently launched an investigation into Nintendo Switch, PlayStation and Xbox to assess whether their online subscription terms are unfair.

CMA chief executive Andrea Coscelli announced how "the investigation will look into whether the biggest online gaming companies are being fair with their customers when they automatically renew their contracts, and whether people can easily cancel or get a refund."

The investigation is still ongoing and the UK Government had promised to consult on changes to address the CMA's proposed reform package. In the meantime, game publishers, developers and platforms that offer auto-renewals for online services would be wise to consider use of the 'best practice' principles below to stay out of the regulatory spotlight.

Be fair

A term is unfair if it causes significant imbalance in the parties' rights and obligations to the detriment of the consumer. Unfair terms are not binding on consumers.

Left to right: Lewis Silkin's James Gill, JJ Shaw and Mark Hersey

Left to right: Lewis Silkin's James Gill, JJ Shaw and Mark Hersey

Be clear, transparent and prominent

All terms need to be written in plain and intelligible language. The good news is that the price and description of the service are exempt from the fairness test mentioned above if those terms are also prominent.

Although terms relating to auto-renewal cannot benefit from the exemption, being prominent will nevertheless go a long way to achieving fairness. Therefore, make sure consumers understand upfront how long they are signing up for, when they can cancel, what the total price is and when any renewals or price rises might occur.

Above all, don't simply include these types of provision in the T&Cs -- include them prominently in the sign-up process before or near the 'buy-now' or order button.

Rely on 'opt-in' rather than 'opt-out' consent for auto-renewal

Auto-renewal is more likely to be fair if the customer has exercised a choice at sign-up, rather than failed to take action to prevent auto-renewal.

"At the heart of the CMA's investigation is the notion that loyal customers are being ripped-off for inaction or forgetfulness"

This is especially important for subscription periods with a longer initial term (e.g. six to 12 months) which then roll over into another fixed period without any cancellation right for the consumer. The CMA considers that these sorts of auto-renewals should not generally be used at all.

However, taking an opt-in approach should help to stay the right side of the line. If going down the opt-out route, gaming companies may be wise to auto-renew customers on a rolling month-to-month deal after expiry of the initial subscription period (provided that they achieve prominence and give reminders about cancellation rights prior to the roll-over).

Cancellation rights

After expiry of the initial term, allow customers to cancel their subscription on reasonable notice (e.g. one month) and/or consider offering a refund for any unused but pre-paid part of the renewed subscription. This is especially true for contracts of 12 months or more. Again, prominence and reminders about cancellation rights are still needed.

Even where they use auto-renewals, some leading online gaming providers make clear that customers cannot receive a refund for pre-paid subscription fees (subject to mandatory 'cooling-off' rights during the first 14 days of the initial subscription period). This approach is ripe for regulatory attention in respect of the auto-renewal period, although compliance with the tips above should assist.

Pricing

Be careful if charging more to existing customers who auto-renew than to new customers. At the heart of the CMA's investigation is the notion that loyal customers are being ripped-off for inaction or forgetfulness. The CMA seems to take a dim view of gaming providers that renew subscriptions for one price while simultaneously offering a lower price to new customers. The challenge to address is how you offer promotional terms to new customers.

Remind users of the renewal

A term is more likely to be fair if the user is reminded a reasonable period of time before renewal that the subscription will automatically roll over. Gaming companies should think practically as to how they can achieve this -- for example, by notifying users when they turn on their consoles or by using mobile-app push notifications.

Different strategies can also be adopted for different classes of user. For example, for users that do not frequently use the service (and may have forgotten that they have subscribed to it or no longer want it), consider sending more frequent reminders and don't just rely on emails that may end up in the spam folder. Gaming companies should, however, take care to not breach e-marketing laws in their communications with the customer.

Online gaming is a fast-changing landscape and it's up to all of us not only to evolve and to innovate, but also to choose to thrive through the adoption of sales practices that keep customers happy.

James Gill is a partner at legal firm Lewis Silkin and leads the commercial and technology group. JJ Shaw is an associate and heads the video game and esports practice. Mark Hersey is an associate in the commercial, data privacy, and brands and IP practice groups.

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