From e-Gaming to e-Music

TIME Law News 1 | 2008

Against the background of Web 2.0, e-business in Germany has been able to record magnificent records in turnover, and – on the other hand – is faced with treacherous risks – an economic, technical and legal examination of a future market in Germany.
Germany and the WWW: this has, particularly during the last 5 years, been a unique success story – in particular from the economic point of view.

1. The economic side of German e-business

A recent study, commissioned by the BITKOM (German Federal Association for Information Industry, Telecommunications and New Media), forecasts a continuing steep increase in turnover for German e-business. By as early as 2009 – according to BITKOM – turnover will have increased to the incredible amount of 694 billion Euro. Just as the football club FC Bayern München (FCB) will be leading the Bundesliga for an incalculable period of time, Germans seem to be uncatchably active in the WWW, and particularly in European internet trade. Altogether, Germans have sold 30 per cent of all goods and services traded and sold via the internet – according to the latest BITKOM study. And just as Luca Toni (“Il Bomber”) is the trump card for the FCB, the area of internet gaming seems to be a promising card in the pack of German e-business. Nielsen, an international institution for media and market research, reported at the end of August 2007 that the number of online players increased by 76 % within a period of only three years. In July 2007, 9.2 million Germans had visited online gaming websites (27.6 % of all German internet users), only 5.2 million in July 2004 (17.5 %; source: Nielsen/NetRatings, NetView, Germany, Home & Work).

In a press release from the 10th of June 2008 the German Internet Industry Association BITKOM focuses on the current private Internet Betting industry. This sector is booming especially in times when Europe´s leading soccer nations meet in Switzerland and Austria. According to a new marketing study 2,2 million Germans are betting in the internet on a regular basis. Approximately 700.000 Germans are betting on the UEFA European Championship Tournament. According to BITKOM Vice-President Achim Berg these figures indicate that the private i-betting business is booming in Germany!

The “mother of online gaming”, the digital game market for consoles and PC games, also is continuing to grow steadily in Germany. The motor of this growth, however, mainly is the increasing spread of PCs and the growing number of broad band connections.

The potential of online gaming in Germany is even beaten by the potential of online gambling and the field of internet games of chance respectively. It is not unlikely that this area (in particular sports betting), will soon be knocked out of the state’s hands (which is what happened in Italy and Spain and will probably soon happen in Sweden and France).

Until the time of the definite end of the (online) gambling monopoly in Germany, it will not only be the legal situation that continues to be fragmented. Economic estimates can hardly be carried out either, due to the lack of regulation and supervision and the growing black market in the area of unlicensed gambling coming with it (in this context, please also see the report in TIME-Law-News by Prof. Dr. Dr. Schneider – “Rapid growth expected of the black market for sports betting”).

Goldmedia GmbH, a consultancy company specialising in consultancy in the area of telecommunications, media and entertainment, in spite of all difficulties dared to make a forecast in 2006, which clearly shows the size of this hugely promising but also risky market. We refer to the chart in the attached pdf docoument „TIME Law News 1|2008“.

The lion’s share of the growing turnover in online gambling, however; goes to the large providers of online gambling in Britain, Malta and Gibraltar.

The flowing chalice more or less passes by the state-run providers of gambling in the Deutsche Lotto-und Toto Block and the potential recipients of their funds (e. g. leisure sport associations) who recently registered record losses in turnover. The reason for this is simple: The State Treaty on Gambling, which came into effect on 1 Jan. 2008, provides for a highly disputed prohibition of operations and advertising. However, this prohibition does not apply for some private providers due to reasons based on the EU Treaties and on the German Constitution (compare report in – TIME-Law-News „Taking stock of legislative activities“ – by the gaming law experts Claus Hambach & Dr. Wulf Hambach). Since the State Treaty on Gambling came into force, sports betting turnover – according to Toto-Lotto Niedersachsen –has collapsed dramatically. Lotto boss Rolf Stypmann said that the game Oddset slumped by 51.3 per cent during the first 15 weeks of this year. The Lotto boss also predicts economic problems in connection with the State Treaty on Gambling for the future. The newspaper Hessische/Niedersächsische Allgemeine Zeitung reported on the topic in an article on 15 Apr. 2008:

“According to the State Treaty, it will be prohibited to play the lottery via the internet from the beginning of next year onwards. “I consider this to be a mistake”, Stypmann said. On the one hand, the internet is an important future market for Toto-Lotto. On the other hand, the game would be easier to control there than in a lottery receiving office, where the players remain completely anonymous.”

Let us now leave the losers of e-business, and return to the winners: For years, so-called internet dating services have been another important pacesetter for German e-business. According to BITKOM, turnover in this segment of internet trade increased by almost one third to an incredible 85 million Euro in 2007. For 2008, an increase to 103 million Euro has been forecast. This means that 6.3 million Germans per month are looking for a partner online. This corresponds to the number of people living in the Federal State of Hesse. With 85 million Euro, Germans spent more money on the online search for a partner than on music downloads.

However, the e-music industry has no reason to hide behind online gaming and the “Friendscouts”. While the e-music segment so far had shown rather restrained growth in comparison with the rest of the world (2005: 19 million downloads of individual titles, 2006: 24 million; source: heise.de), 2008 seems to finally be seeing the breakthrough. The first quarter of 2008 already gave the providers of legal music downloads a new record. During these three months alone, 10.3 million individual titles were bought online. According to the market research company Media Control, this corresponds to an increase of 38.1 per cent compared to the same quarter of the previous year. Turnover increased by 45.2 per cent to the present figure of 20.4 million Euro (source: GfU/BITKOM).

Bernhard Rohleder, CEO of BITKOM, thinks that, in addition to the growing number of internet users, further factors are decisive for a positive development of e-commerce:

“High safety standards lead to a higher level of Trust in online purchases, electronic payment systems for smaller amounts become increasingly accepted, and mobile telephones have been established as a new sales channel in addition to the PC.”

2. Assessment of German e-business under aspects of (internet) technology

A high level of security can be ensured by standards regarding technology or internet law. However: In particular young operators of (start-up) web portals often can hardly implement such high security standards for financial reasons. From such operators’ points of view, such standards rather impede fast initial growth.

However: Simple (start-up) online shops more and more often develop into complex Web 2.0 offers. In addition to the possibility of ordering products, such pages provide e-poker schools, the compilation of an own user profile, internal communications or live streaming offers. The web applications necessary for this are becoming more and more complicated and pose (internet) technical problems for the operators of the websites as well as for their users; as a consequence, the utilisation of such problem-afflicted 2.0 websites (once more) becomes unattractive.

The following commentary from the CHIP online forum shows the technical difficulties:

”Today for the first time I am having massive problems with Online Video Streams. Giga, Gamesports-TV and various other streams are lagging and buffering continuously. Haven’t reset anything and done the whole programme like searching for viruses/trojans/bugs, system recovery, hardware check etc. I have zero problems with my speed on the net, and all audio streams run without any problems. But as soon as I open a videostream via Winamp or WMP, it lags + re-buffers every 20 – 30 seconds.”

Such technical problems lead to frustration – in particular on user sites.

Thus: In order to prevent the operator from a technical and – as a logical consequence – an economic waterloo after the initial web euphoria, prevention is essential. This is because it is sufficiently known: A coffee party amongst elderly ladies is nothing compared the gossip- and criticism-mania of disappointed users who will not let off steam at the coffee table, but regularly in user forums. Obviously, the operator or the person interested in an IT-safe web offer exceeding a mere information site, can find information, in particular on the internet. For instance, the Bundesamtes für Sicherheit in der Informationstechnologie (German Federal Office for Security in Information Technology) provides extensive information in this field (e.g. http://www.bsi-fuer-buerger.de/).

However, in order to face the task of providing a website which really is secure (in internet traffic) it is not obligatory but advisable to contact the “TÜV (technical control board) for internet security”. A recommendable contact here is, for instance, TÜV Rheinland Secure IT GmbH (www.tuv.com) which specialises in the area of internet security; TÜV Rheinland Secure IT GmbH is a company of the TÜV Rheinland Group which is about to merge with the TÜV Süd. Free events such as the TÜV Rheinland Secure IT event “Webportale: Mehr e-Business durch höhere IT-Qualität” (web portals: more e-business through improved IT quality) can provide an idea of the current dangers looming on the internet for the website operator and his users, and how to best face the continuously growing and changing dangers.

This is particularly important if entertainment games, competitions or the collection of private data (keyword: build-up of a data bank) are incorporated, if a user portal is established or if music offers are provided (regarding the legal difficulties surrounding the e-music business, please compare the TIME-Law-News report “The utilisation of music on the internet” – by Attorney-at-Law Marco Erler, expert in the areas of music and copyright law. The legal problems which inevitably arise in this context – some of them will be described in the following legal chapter – should also be eliminated in this process. Legal challenges occur as soon as an internet offer is no longer gratuitous, but if payments are due for internet services. Attorney-at-Law Dr. Michael Hettich approaches the problems surrounding so-called e-payment in his TIME-Law-News chapter “E-payment in Europe: Current technical and legal framework conditions”).

The pitfalls of IT law must not be neglected either. Such pitfalls are lurking for the operators of websites, in particular if they use non-updated information obligatory under user or consumer protection laws (keyword: outdated general terms and conditions, data declaration and cancellation notification etc.). For instance, website operators are obligated to adapt their notification on the user’s cancellation rights to the new statutory requirements by 30 Sep. 2008 at the latest in order to avoid expensive legal action. Attorney-at-Law Susanna Münstermann, expert in IT law, describes some treacherous pitfalls of IT law in her legal chapter: “Threat to existence due to cease-and-desist letters”.