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Virtual World Phenomenon Gets The Government’s Attention


A recently published study by the Federal Trade Commission (FTC) entitled “Virtual Worlds and Kids: Mapping the Risks” is yet another sure sign that massively multiuser virtual environments (“MMVEs”) are rapidly growing in popularity and importance.


The report, released in December, was the result of a congressional directive to the FTC last March to conduct a study of online virtual worlds to examine the methods virtual world operators use to restrict minors’ access to explicit content available in virtual worlds. Accordingly, the FTC surveyed the explicit content offerings in 27 online virtual worlds.


For those not yet familiar with virtual worlds or MMVEs, I am sorry to say that there is no single universally agreed upon definition for virtual worlds despite the fact that millions of people have interacted in MMVEs for years, and that there has been a considerable scholarship concerning virtual worlds. The FTC study described online virtual worlds as a blend of “three-dimensional or 3D gaming environments with elements of online social networking, allowing their users to interact in and shape their own online content. Through avatars,virtual world users socialize, network, play, and often conduct business in graphics-intensive landscapes using text or voice chat, sounds and gestures, and video.”


While the FTC’s formulation is a fairly accurate description of the virtual worlds surveyed by the FTC, the universe, or shall I say multiverse, of virtual worlds is a dynamic and rapidly evolving phenomenon. As a result, I prefer a broader and more general description of public Internet-based virtual worlds as immersive 3D environments that enable large numbers of simultaneous users to interact with one another via the Internet generally through avatars.


But by far the best way to get a grasp on just what this phenomenon is all about is to simply visit an online “world” such as Red Light Center (redlightcenter.com) or Second Life (secondlife.com). This recommendation, i.e., to directly experience a virtual world to best gain an understanding about it, is interestingly much like the answer I used to give people in the mid 90s when they would ask the question like “what’s is the World Wide Web?” or “Where exactly is the Internet?” Moreover, I think the difficulty of formulating a comprehensive or even practical description of online virtual worlds at this relatively early stage of development, in the same way as it was difficult to verbally describe “the Internet” in its early days, is potentially very telling. I find the analogy particularly interesting because, like the promise of the Internet, virtual worlds appear to also offer literally limitless opportunities, and most likely will, like the Internet, transform business, communications, entertainment and culture on a global scale.


But leaving aside the broader issue of just how big virtual worlds may someday become, on a more practical level, the FTC study and its conclusions are noteworthy for virtually every online adult entertainment company for a number of reasons.


1. Online virtual worlds are likely to soon become a major profit center for the online adult industry. The emergence of profitable adult virtual worlds, such as Red Light Center, is, in my opinion, a harbinger of the next phase of both social networks and the online adult entertainment industry. In fact, with the highly successful recent debut of the Virtual World Web by Utherverse, the parent company of Red Light Center, it is clear that sooner rather than later virtual worlds will be seen less as merely 3D islands on a 2D web and more as the essential backbone of the emerging modern 3D Internet.


2. Online virtual world businesses are better equipped to compete in a business environment marked by rampant piracy and an oversupply of content.Because of the harsh realities imposed on the adult industry by the twin dragons of unrestrained piracy and a seemingly limitless content glut, it is clearly advisable for adult businesses to decrease dependency upon content sales revenues. Virtual worlds are an example of an emerging business model that is almost impervious to damage by content pirates or content oversupply because virtual worlds are not dependent upon content sales in the traditional sense.


3. FTC interest in sexually explicit virtual worlds should, in and of itself, be a matter of concern for all online adult entertainment companies.Here’s a free legal observation from an adult entertainment attorney with a fair amount of experience dealing with the FTC: if the FTC aims its big guns at anything in the proximity of your company’s business, the best course of action is to get a good lawyer and get some good advice regarding what your company must do to be in full compliance with the FTC regulations appurtenant to your business. Given the resources and effort that went into the FTC’s virtual worlds study at the behest of Congress, it is clear that more than a few people in government are thinking that virtual worlds are going to become a very big deal that will pose new challenges regarding consumer and child protection.


4. The FTC’s virtual worlds study is more evidence that regulation of the adult entertainment industry is beginning to resemble conventional business regulation.The study, including its recommendations (discussed below) are yet more confirmation of the refocusing of federal regulatory efforts regarding the online adult industry away from criminal prosecutions by the Department of Justice in favor of consumer protection actions by the FTC. For those who regularly read my XBiz articles, this transition should not come as a surprise as I have predicted that the Obama administration would likely effect such a judicious redirection and redeployment of federal resources mirroring those that occurred shortly after the Clinton administration took the federal reins from the administration of George Bush, Sr.


5. Businesses seeking to enter the virtual world space or interface with the virtual world businesses are well advised to be aware of the issues attracting the attention of government.Given the fact that virtual worlds present such an increasingly attractive opportunity for adult businesses, it is likely that many companies will soon enter the virtual world space through the use of third party software, such as Utherverse’s free virtual world building tools or by developing their own worlds from scratch. Either way, the FTC study makes it clear that our government is already considering how to best regulate the activities of online virtual worlds. Success in any businesses requires at least a fundamental knowledge of the rules and the likely actions by the parties responsible for enforcing the rules, especially in the case of adult businesses. The FTC study is a likely an early warning regarding the types of early regulations that we are likely to see in the field of virtual worlds.


The FTC Study


According to the study, FTC researchers selected 27 online virtual worlds and registered in each of the worlds as adults, teens, and children, creating video recordings of each world’s content offerings. Commission researchers then looked at each video recording, documenting instances of sexually or violently explicit content observed. The data was then tabulated and analyzed to produce the study’s conclusions and recommendations.


Overall, the Commission found at least one instance of either sexually or violently explicit content in 19 of the 27 virtual worlds surveyed. The Commission observed a “heavy” amount of explicit content in five worlds,

a moderate amount in four worlds, and a low amount in the remaining 10 worlds.


The virtual worlds identified as having the greatest amount of explicit content were Gaia, Meez, Red Light Center, Second Life, and Vivaty. Recall, however, that the Commission asked the researchers to look for instances of explicit violent content in additionto sexually explicit content. Consequently, one might view this failure to distinguish sexual and violent content as misleading and unfair to a virtual world like Red Light Centerthat specializes in erotic avatar interaction in a non-violent virtual environment. Put another way, the FTC’s report seems to unfairly lump together a sexually-oriented virtual world, like Red Light Center, with a virtual world allowing or oriented toward violent avatar interactions.


Another problem regarding the findings of the study is instantly apparent to anyone familiar with web traffic metrics. In Appendix A of the study, the Commission reported tabulated results regarding the numbers of visitors to the various virtual worlds in the study as well as the numbers of teens and children visiting the worlds in the month of May, 2009. The chart would seem to indicate that each of the worlds had had tens or even hundreds of thousands of teen and child visitors during the month. But nowhere in the study, however, is it revealed just how the Commission was able to determine that there were such large numbers of teen and child visitors to the sites or how it distinguished visitors between the two groups. The Commission simply attributes the data to a company called “comScore”. The report fails to disclose the means by which the data reported in the study was acquired or derived by comScore.


Regardless of how the researchers actually acquired the “data” published in the report, in my opinion, for the reasons set forth above, and because of other problems I have observed regarding the study’s methodology that are beyond the scope of this article, I believe the scientific value of the study’s reported data is questionable at best.


The Report’s Recommendations.


Despite what I believe are serious methodological problems with the FTC’s virtual worlds study, it is important to note the following recommendations published by the FTC in the report’s Executive Summary, as these recommendations to Congress are likely to be a very influential foundation for any future regulatory actions by the government regarding online virtual worlds.


As a result of its study, the Commission suggests that virtual world operators make certain enhancements aimed at reducing the risk of youth exposure to explicit content, including:

  • Ensuring that the age-screening mechanisms virtual world operators employ do not encourage underage registration;

  • Implementing or strengthening age-segregation techniques to help ensure that minors and adults interact only with their peers and view only age-appropriate material;

  • Re-examining the strength of language filters to ensure that such filters detect and eliminate communications that violate online virtual worlds’ conduct standards;

  • Providing greater guidance to community enforcers in online virtual worlds so that they are better equipped to: self-police virtual worlds by reviewing and rating online content; report the presence of potential underage users; and comment on users who otherwise appear to be violating a world’s terms of behavior; and,

  • Employing a staff of specially trained moderators whose presence is well known in-world and who are equipped to take swift action against conduct violations.

Given important First Amendment considerations, the Commission supports virtual world operators’ self-regulatory efforts to implement these recommendations.

In addition, the Commission recommends that parents and children alike become better educated about the benefits and risks of youth participation in online virtual worlds. The Com­mission is committed to ensuring that parents have the information they need to decide which online virtual worlds may be appropriate for their children.


What’s Next?


To its credit, the FTC states in its report to Congress that it supports virtual world operators’ self-regulatory efforts to implement the study’s recommendations. Even more importantly, the FTC’s stated support for industry self regulation in the report directly follows from the Commission’s clear acknowledgement of the First Amendment implications of governmental regulation of online virtual worlds. Ahh, what a refreshing change to have an administration that actually treats the constitution as something other than merely a piece of old parchment comprising a popular tourist attraction in the Library of Congress.

But unfortunately, good intentions notwithstanding, where there’s the smoke of a government study, there is likely a fire in belly of politicians to regulate (and tax). Government studies, particularly those published by a federal agency like the FTC, usually foreshadow the adoption of regulations and/or the passage of new laws to regulate the area targeted by the study.

So, wonderful as the FTC’s concluding recommendations are that the virtual worlds industry should be self-regulated and that parents should take a more active role in protecting their kids in online worlds, the fact is that the FTC ain’t Congress. And if there ever was bastion of boobs that have demonstrated an utter disregard for civil rights in the face of political expediency its is our beloved representatives on Capital Hill. Remember, those currently in Congress are by and large the same group that gave us two unconstitutional Internet harmful matter laws (COPA and the CDA), criminalized porn cartoons as child pornography and, of course, passed, and made worse by revision, the 2257 regulations. Thank you, FTC for trying, but let’s face it, if the question comes down to constitution or campaign contribution, the aspirations of our founding fathers don’t have a chance with the boys and girls currently on the hill.


So, notwithstanding the FTC’s acknowledgement of constitutional concerns and advocacy of industry self-regulation, it is nevertheless important to remember how and why this study was conducted in the first place. Recall that the purpose of the study was to examine the functioning of online virtual worlds so that children could be better protected online. So since almost nothing wins votes better than introducing, or voting for, legislation that ostensibly protects children while socking it to pornographers, I would be very surprised if the growing popularity of online virtual worlds does not soon result in an attempt by one or more legislators armed with the FTC’s virtual world study’s findings to introduce legislation directed at the regulation of online virtual worlds with explicit content or explicit conduct.


Consequently, given the emerging importance of virtual worlds to online commerce in general, and survival in the online adult space in particular, and given the fact that virtual worlds are now clearly on the FTC’s radar, it is critical, in my opinion, for adult entertainment entrepreneurs interested in the virtual world space to read the FTC report and consult with their attorneys regarding its potential impact on their current and future plans.


The FTC’s virtual worlds study can be accessed at http://www.FTC.gov/os/2009/12/oecd-vwrpt.pdf


A Final Thought.


The typical adult business owner needs more government regulation like a hole in the head. Yet on balance, perhaps the FTC’s report isn’t such a bad thing. It has often been said that imitation is the sincerest form of flattery. I’ve always liked that bit of folksy wisdom because it economically says so much about human nature. The publication of the FTC’s virtual world study has inspired me to invent my own folksy saying: “governmental regulatory scrutiny is the sincerest expression of government’s opinion that your business is a hit.“



This article is not intended to be, nor should be considered to be, legal advice. I strongly urge you to seek the counsel of a qualified and experienced adult entertainment attorney familiar with Federal Trade Commission matters of the types discussed in this article.


1Gregory A. Piccionelli is an intellectual property and adult entertainment attorney experienced in Internet matters and Federal Trade Commission matters. He can be reached at Piccionelli & Sarno at (805) 497-5886 or greg@piccionellisarno.com.




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