That is, unless the FTC finishes its investigation sooner. It's now got the information it needs from EA in its quest to determine possible antitrust issues, but Take-Two has appeared to struggle with fulfilling the broad-ranging request; when it was initially uncompliant, the District Court of Washington, D.C. had demanded it show cause, with Take-Two risking an injunction if it failed to pony up.

However, Tiffany Steckler of EA's corporate communications said that the August 21 timeline applies regardless of what Take-Two does:

"Whatever happens with Take-Two's process doesn't impact [the FTC's] timing, because our agreement with the FTC provides that they complete their review within the 45 days," she said.

Take-Two eventually reached a compromise with the FTC through which it'd be able to provide all the necessary information, but it has yet to fully certify compliance with the FTC, as EA has done as of market close yesterday.

EA's offer still remains at $25.74 per share, which for the past several weeks has been slightly below Take-Two's daily average share price — but now, things have changed:

Take-Two is currently trading at $23.99, which might make a sale to EA a big gain for shareholders in an economic downturn. Why has Take-Two's price been slumping?

Many analysts had theorized that, once the hype around Grand Theft Auto IV's launch began to ebb, Take-Two's share price would see a gradual adjustment back downward. Prior to EA's offer, the price per share had lingered at about $17 before the stock saw a spike largely on anticipation of the offer, and in some part on the strength of GTA IV. But it may be that post-launch for the major title, while at the same time EA's offer appears to hang in compliance limbo, investors are becoming impatient and selling off.

Most likely, though, the lower share price is due to the overall market downturn and concern about oil prices, and has nothing to do with EA's offer, says Wedbush Morgan analyst Michael Pachter. EA, as well as many other companies in the industry, are seeing somewhat lower values as well.

"It's nothing in particular concerning video game stocks," Pachter said. "Take-Two is worth the same, it won't impact EA's offer."

Said a Take-Two spokesperson, "Our position with respect to EA’s tender offer remains unchanged. Take-Two’s Board is committed to and focused on a process of considering all strategic alternatives to maximize the value of Take-Two. We are considering any and all alternatives which will deliver greater value to stockholders than the current EA offer."

The U.S. District Court of Washington D.C. had asked Take-Two to show why it wasn't complying with the FTC's broad-ranging information request as it investigates potential antitrust issues for the possible combination, probably regarding the companies' sports portfolios.

For its part, Take-Two had claimed that complying with the full scope of the FTC's requests would have been too expensive and labor-intensive, and asked for "reasonable limits."

It's now gotten those limits yesterday through an agreement with the FTC, and the investigation will now continue without the need for Take-Two to appear in court. EA had also previously reached an agreement with the FTC that would delay any acquisition attempt until the completion of the investigation - the fact that Take-Two won't have to appear in court should simplify the process quite a bit.

Said Take-Two in a statement, "The Company is pleased that a resolution has been reached that should substantially reduce the economic burden on the Company and focus the inquiry in a way that should minimize the distraction to the Company’s employees. The Company intends to continue to cooperate fully with the FTC."

EA's current offer deadlines July 16th, but any acquisition will have to wait until the FTC makes its final determination.

ECA President Hal Halpin called the results, which improved significantly over 2007, "an extraordinary accomplishment," praising retailers' commitment to keep M-rated games out of kids' hands. "Perhaps most impressive is the incredible reversal in their failure rate over such a short period of time and with a comparatively new rating system," Halpin said.

"This is truly a vindication for video game merchants who have been falsely damned by anti-game advocates and special interest groups, who now don't have a leg to stand on. Our congratulations and thanks are extended to these retailers, who, above music and movie merchants, have proven their word, empowered parents and shown a commitment to corporate social responsibility."

The FTC survey, and Halpin's comments, come just on the heels of a bill in the U.S. House that would levy $5,000 fines for retailers who sell adult games to kids. The proposed legislation is similar to bills in states such as Oklahoma, Illinois and California, that were all ultimately ruled unconstitutional in 2007.

The survey, which also looked at R-rated movies, DVDs and "Parental Advisory"-labeled music, found that video games had the best enforcement rate.

The FTC also broke out its statistics by retailer. GameStop topped the list with a 94 percent enforcement rate, while Hollywood Video came in last with 60 percent enforcement.

The FTC announced its results just as Republican representative Lee Terry and Democratic representative Jim Matheson introduced a bill in the U.S. House of Representatives that seeks to reinforce Entertainment Software Ratings Board ratings at retail with $5000 fines for violators.

According to the FTC's study, ratings enforcement at retail has increased steadily since 2000, when 80% of its undercover shoppers successfully purchased M-rated games.

The ESRB conducts its own secret-shopper studies using the same surveyors as the FTC. Its most recent survey in November 2007 found 76 percent compliance with store policies.

"Video game retailers have clearly stepped up their efforts to enforce their store policies, and they deserve recognition for these outstanding results," said ESRB president Patricia Vance, in a statement released today. "We commend and applaud retailers for their strong support of the ESRB ratings, and will continue working with them to help ensure that these levels of compliance are sustained if not further increased."

Undercover Shoppers Find it's Increasingly Difficult for Children to Buy M-Rated Games [Federal Trade Commission

While video game retailers have made "significant progress" in limiting the sale of M-rated games to children, movies and music retailers have only made modest progress, according to a report released today by the Federal Trade Commission.

In its latest report to congress, the fifth and most comprehensive study since 2000, the FTC said that while the entertainment industry generally comply with their own standards, the movie, music and gaming industries continue to market adult content to a teen market.

"Self-regulation, long a critical underpinning of U.S. advertising, is weakened if industry markets products in ways inconsistent with their ratings and parental advisories," said FTC Chairman Deborah Platt Majoras. "This latest FTC report shows improvement, but also indicates that the entertainment industry has more work to do."

The most substantiated part of the report comes from an FTC mystery shipper program where unaccompanied children, 13 to 16 years old, tried to make purchases from retailers.

Video games showed the greatest improvement, dropping from 69 percent being able to make the purchase in 2003 to 42 percent in 2006. That's just three percent more than the number of underage children able to get into R-rated movies.

While the mystery shopper study makes for an ugly chart and shoots copious holes in the whole "movie theaters do a substantially better job than video game stores" argument, there's also some interesting grist in the rest of the report.

The study found that while ads for M-rated video games on television shows that are popular with teens are dropping, the same can't be said for internet advertising.

I didn't know this, but the ESRB prohibits ads for M-rated games on web sites where the under-17 audience is 45 or greater and the FTC thinks that the board is not adequately enforcing that rule.

The board is, however, doing a good job of informing gamers and parents about the rating system with 87 percent of parents surveyed saying they are aware of the ESRB system, more than 70 percent use it and three-quarters of the parents surveyed understand the content descriptors and use them.

Many of the parents surveyed did say they wish the system could do more to inform them about the level of violence in games. What do they expect? A frag count?

The FTC did a little digging into the emerging trend of companies using sites like MySpace or YouTube to advertise their goods. They point out that typically when this is done, the page doesn't include any prominent rating information. I guess that would sort of kill the cool of a page wouldn't it?

The report also notes that mobile games often don't try to get ESRB ratings, which is a bad thing, in my opinion.

While the 140-page report wraps up by saying that the Commission continues to support industry self-regulation (sorry Clinton) due to "important First Amendment considerations", it does call for some changes.

For gaming, the FTC calls, again, for the content descriptors of a game to be listed on the front of a title. Sounds like that while possible, that could get really messy. And I don't see DVDs doing that.

This is as important a document as the video game industry can get. Not only does it show that the industry is making vast improvements in the field of education and restricting content to minors, it shows that the video game industry is on the cusp of doing a better job than the oft-cited movie industry.

Good job ESRB. Brian Crecente

The report [FTC]

Oftentimes, internet detectives work out the relationship themselves. In the case of the I Love Bees campaign, those plodding through the Halo 2-based alternate reality game courtesy of 42 Entertainment and Microsoft were well aware of the relationship and seemingly quite enjoyed being marketed to.

However, when viral marketing goes horribly wrong, it can lead to backlash, say in the case of Sony's very recent attempt to shill PSPs via YouTube and embarrasingly composed blogs, or Sony's former attempt to shill PSPs with edgy street grafitti.

Let's hope this move cuts down on the lame attempts to covertly market to us so we can tell the authentic shitty YouTube videos from the fake shitty YouTube videos. Michael McWhertor

FTC Moves to Unmask Word-of-Mouth Marketing

Early last month, the FTC announced that they were putting the company on notice that any future misrepresentation of video game ratings or content descriptors would result in a xxx fine. And that the company needed to implement a system to "ensure that all game content is reviewed in connection with submissions to ratings authorities."

While the FTC ruling was announced last month the public, and in particular politicians, had 30 days to comment on the action, or inaction as some naysayers put it, and the FTC could have changed its mind. Now that the 30 day period has passed the decision is set in stone.

Take-Two Interactive also pointed out that the consent order and agreement was unanimously approved by the commission.

Paul Eibeler, President and Chief Executive Officer, stated, "We are extremely pleased that the FTC has concluded its very thorough investigation, and that the matter has been resolved. We recognize the importance of maintaining public confidence in the Entertainment Software Rating Board (ESRB) rating system and helping the ESRB educate parents and consumers about the rating system. We look forward to putting this behind us and focusing on what we do best - creating video games."

It's good to see that politicians weren't able to influence the decision of the FTC following their investigaiton. It even managed to withstand congressional hearings. Hit the jump for the official press release. Brian Crecente

Take-Two Interactive Software, Inc. (NASDAQ: TTWO) announced today that following the 30-day period for public comment, the Federal Trade Commission (FTC) has unanimously approved the Consent Order and Agreement with Take-Two and its wholly-owned publishing label Rockstar Games. All outstanding matters pending before the FTC have been settled and no penalties or fines have been assessed. Among other things, the Consent Order provides that the Company shall not misrepresent a video game's ratings or content descriptors and that the Company shall implement a system to ensure that all game content is reviewed in connection with submissions to ratings authorities.

Paul Eibeler, President and Chief Executive Officer, stated, "We are extremely pleased that the FTC has concluded its very thorough investigation, and that the matter has been resolved. We recognize the importance of maintaining public confidence in the Entertainment Software Rating Board (ESRB) rating system and helping the ESRB educate parents and consumers about the rating system. We look forward to putting this behind us and focusing on what we do best - creating video games."

This week the Entertainment Software Ratings Board announced Commitment to Parents, an effort geared at bolstering consumer confidence in the current rating system for video games.

Granted that's just my take on the initiative. I spoke with ESRB president Patricia Vance earlier this week about the program and she denied it was spurred by the on-going congressional hearings or Hot Coffee.

Either way, what really matters though is that the industry is taking some steps to tweak one of the chinks in their rating system's armor: retail enforcement.

While the program doesn't really have any teeth, it still does a good job of trying to create a culture of compliance, but building a retail "council" that requires members to follow the rules.

In essence what this does is creates a seal of approval for concerned parents. If you're worried about what your kids buy, just make sure they shop at a retailer that's a member of the ESRB Retail Council.

To be a member of the council, retailers have to enforce the ratings, train their sales staff about the rating system, promote the rating system in the store and through circulars and establish a system for consumer complaints about sales violations.

The most important element of the program is the creation of a mystery shopper program, which will track sales policy enforcement through two audits a year.

Vance tells me that they plan to have mystery shoppers hit about 100 stores from each chain during each audit.
While they will report the overall results of the audit, the ESRB won't break it down by retailer. That's unfortunate, because nothing would help compliance more than the thought of a public drubbing in the press or by politicians.

While I think this is a great step forward, I still think the ESRB has to reexamine the way they rate games. I know there's no easy answer for a medium that can contain such branching storylines and content, but letting developers or publishers choose what the raters see is tantamount to letting the fox guard the hen house. Brian Crecente

Game Industry Strengthens Ratings Enforcement [Rocky Mountain News]

Federal Trade Commission NewsOffice of Public Affairs -Press Releasewww.ftc.gov
600 Pennsylvania Avenue, NW Washington, D.C. 20580 202-326-2180 opa@ftc.gov

FOR RELEASE: June 8, 2006

Makers of Grand Theft Auto: San Andreas Settle FTC Charges
FTC Alleged Companies' Game Content Claims Deceptive

The companies behind the popular Grand Theft Auto: San Andreas video game have agreed to settle Federal Trade Commission charges that they failed to disclose important information about the game's content to consumers. According to the FTC, the companies, in advertising the Entertainment Software Rating Board ("ESRB") rating for the game, did not tell consumers that the game discs contained potentially viewable nude female characters and a potentially playable sex mini-game. Although San Andreas players could not access or view this sexual content during normal game play, sophisticated players posted a program on the Internet, dubbed "Hot Coffee," that revealed this content on the PC version of the game. PlayStation 2 and Xbox players eventually were able to access the Hot Coffee content by modifying or adding an accessory to their game consoles, installing special software, and inputting "cheat codes" developed by third parties. These developments led to a more restrictive rating by the ESRB.
"Parents have the right to rely on the accuracy of the entertainment rating system," said Lydia Parnes, Director of the FTC's Bureau of Consumer Protection. "We allege that Take-Two and Rockstar's actions undermined the industry's own rating system and deceived consumers. This is a matter of serious concern to the Commission, and if they violate this order, they can be heavily fined."

The ESRB originally rated the game's three versions, for PlayStation 2, PC, and Xbox, as "M" for Mature, with the accompanying content descriptors of Blood and Gore, Intense Violence, Strong Language, Strong Sexual Content, and Use of Drugs. According to the ESRB, video games rated "M" contain content that may be appropriate for those aged 17 and older. The rating information, including the rating symbol and content descriptors, appeared in print, television, and retailer ads for the game, and on game packaging for all three versions, including the claims "MATURE 17+" and "CONTENT RATED BY ESRB."
-more-

The ESRB re-rated San Andreas as AO ("Adults Only"). Games rated AO, according to the ESRB, have content that should only be played by persons 18 and older. As a result of the re-rating, many national retailers pulled the game from their shelves.

Under the terms of an agreement with the ESRB, the companies released a patch that, if downloaded and installed on the game, disables the "Hot Coffee" program; the patch is available for download at http://www.nomorehotcoffee.com. The companies also agreed to re-label or recall all existing inventory. According to the game's publisher, Take-Two Interactive Software, Inc., the company incurred $24.5 million in costs associated with returns of San Andreas stemming from the re-rating. The companies subsequently published a second, M-rated edition of San Andreas without the nude images and mini-game content.

The companies that developed and marketed San Andreas, Take-Two and Rockstar Games, Inc., are both headquartered in New York City. The FTC's complaint charges that the companies violated the FTC Act by representing that San Andreas had been rated "Mature" and assigned certain content descriptors by the ESRB, but failing to disclose to consumers that the game discs contained unused, but potentially viewable, nude female images and disabled, but potentially playable, software code for a sexually explicit mini-game that the ESRB had not rated.

The proposed consent agreement with the FTC requires Take-Two and Rockstar Games to clearly and prominently disclose on product packaging and in any promotion or advertisement for electronic games, content relevant to the rating, unless that content had been disclosed sufficiently in prior submissions to the rating authority. In addition, the companies cannot misrepresent the rating or content descriptors for an electronic game. Finally, the companies must establish, implement, and maintain a comprehensive system reasonably designed to ensure that all content in an electronic game is considered and reviewed in preparing submissions to a rating authority. Once the order becomes final, the companies will be subject to civil penalties of up to $11,000 per violation if they violate the order. The companies will be subject to compliance reporting requirements to ensure that they meet the terms of the order.

The Commission vote to accept the proposed consent agreement was 5-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through July 10, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC is requesting that any comment filed in paper form be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

Copies of the complaint, proposed consent agreement, and an analysis of the agreement to aid in public comment are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer tovprevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad.

-3-

"According to the FTC, the companies, in advertising the Entertainment Software Rating Board ("ESRB") rating for the game, did not tell consumers that the game discs contained potentially viewable nude female characters and a potentially playable sex mini-game. Although San Andreas players could not access or view this sexual content during normal game play, sophisticated players posted a program on the Internet, dubbed "Hot Coffee," that revealed this content on the PC version of the game," FTC officials said.

While the company was not fined, they have been placed on notice that if they again violate the ratings, they will be subject to a civil fine of up to $11,000 per a violation.

Calls into Take-Two Interactive, the Entertainment Software Association and Senator Hillary Clinton had not been returned as of press time.

Today's findings come after a nearly year-long investigation into the publisher, developer Rockstar Games and the infamous Hot Coffee content found in Grand Theft Auto: San Andreas.

Hot Coffee, a bit of hidden sex found behind the apartment doors of the game, was discovered last July after a modder released a hack for the game that unlocked the previously hidden content.

At the time Rockstar first denied the claim that the content was in the game and then later said it was a piece of unused programming left on the disc, but not meant to be seen or played.

On July 20, the Entertainment Software Rating Board rescinded the game's rating and asked retailers to stop selling the game.

Take-Two agreed to a recall and rereleased the game with the content removed. According to the FTC, Take-Two incurred $24.5 million in losses associated with the GTA recall.

The recall came a week after Sen Hillary Clinton called for the FTC to investigate Take-Two interactive for deceptive marketing practices. That was followed by a similar request by the House of Representatives, which passed a resolution asking for an investigation.

While neither Clinton nor the House have the force of law to require the FTC to launch the investigation, it did certainly help the commission decide to look into Hot Coffee.

When I spoke with FTC spokeswoman Claudia Bourne Farrell last year she told me that the investigation would only be made public if enforcement action were taken. She added that in general, if the FTC were to find wrongdoings in an investigation, they have the ability to require a defendant to "give up their ill-gotten gains."

The FTC found that Take-Two and Rocksta Games violated the FTC Act by "representing that San Andreas had been rated "Mature" and assigned certain content descriptors by the ESRB, but failing to disclose to consumers that the game discs contained unused, but potentially viewable, nude female images and disabled, but potentially playable, software code for a sexually explicit mini-game that the ESRB had not rated."

Instead of fining the company, the FTC proposed a concenst agreement that requires the company to disclose all hidden content on their packaging that might be relavent to the rating, unless it was disclosed to the ESRB during the rating process. They also are requiring the comapany to develope a system to ensure that all content in a game is considered and reviewed while preparing to submit a game to the ESB.

Take-Two agreed to the proposal and the commission voted 5 to zero to accept it.

While Take-Two got off with a slap on the wrist, the greater issue at stake here is Clinton's claim that the ESRB's rating system is currently ineffectual at enforcement. Clinton would rather have a government run rating system than one run by the industry.

As this unfolds, nearly a year after Hot Coffee scalded the industry, congressional hearings are gearing up to examine both the impact gaming has on childen and the effectiveness of the ratings board. Coincidentally, just hours before the FTC announcement, Clinton put out her "Media Guide for Parents." The guide, she says, is to help parents make sure that when their children are on the Internet, playing video games or watching TV, it's safe and age-appropriate."

I've said it before and I'll say it again, this is video games own Seduction of the Innocents. Welcome to the Fourties

With a decision by the FTC looming, you can expect a return to the full-on hysterical coverage of the game by mainstream and industry press alike.

While I can't imagine Take-Two will suffer more than a slap on the wrist, the bigger picture implications of this decision could be quite frightening. If, for instance, the FTC decides that Take-Two was deceptive they can't help but also lay some major blame on the Electronic Software Ratings Board.

Sure, the reasoning will likely go, Take-Two bent/broke the rules, but why didn't the ratings board catch them? And that would play straight into the hands of Hillary Clinton, who last year called out the ESRB's rating system, saying it was broken.

Coincidentally, as we speak congress, languid in the stifling heat of a Washingtonian summer, is ambling its way through a congressional hearing on video games and ratings.

This, readers, is what you call the makings of a perfect storm. A storm that no amount of wining and dining can stop. Brian Crecente

Anyway, after Rockstar accidentally got an interactive, thrust-by-thrust sex game in San Andreas, the FTC promised the concerned that they'd "look into it." And now, one year later, 1UP is promising that a report on whether or not Rockstar deceived the ESRB is expected soon.

Let's hope common sense prevails. Although there is a valid point that Rockstar's Hot Coffee mini-game went beyond titillation into quasi-pornography, the fact remains that it is a mod and companies should not be forced to disclose to the rating boards every asset in a game that some intrepid hacker may be able to fish out of the source. Although I have to admit, the fallout from Hot Coffee was good for me, as a gamer: it got Rockstar to release a second version of the PS2 game with that stupid bugged Zero mission

We'll let you know when the report from a bunch of career hypocrties comes in. FLORIAN ECKHARDT

FTC's Findings on GTA Forthcoming [1UP]

The Washington Times is a traditionally right-leaning newspaper, and they've recently published an article damning games legislation. I would normally endorse such a tirade, but the article makes some tiresome omissions, keeping it from being just a decent opinion piece and turning it into an agenda-whore. GameDaily has a nice little piece calling the Washington Times on their crap:

Interestingly—or perhaps conveniently—the newspaper completely omits the fact that there have been a number of Republicans who've been on the violent video games legislation bandwagon, including Sam Brownback (R-KS), Rick Santorum (R-PA), as well as a number of Republican legislators who've sponsored video game bills in a number of states (Minnesota, Maryland, Louisiana, Oklahoma, etc.) over the last year.

Santorum's anti-gay nattering has gotten him into colloquial trouble already, but it occurs to me we have a wealth of legislators' names to appropriate for the video game cause. Something really revolting that relates to gaming should be nicknamed much as Santorum was. Now taking suggestions in the comment box. Eliza Gauger

Washington Times Blasts Democrats Over Game Bills [GameDaily BIZ]

While the numbers have improved, at first glance they seem frustratingly low. Only half of cashiers and clerks asked the child shoppers their age. I personally find that pretty embarrassing, but I'm not the ESRB, ESA or IEMA. They find these results pretty pleasing. Check out the follow up story at Game Politics for reactions from the industry.

Obviously, there is a long way to go to ensure that kids don't get their hands on violent games. Any suggestions?

Undercover Shop Finds Decrease in Sales of M-Rated Video Games to Children
Game Industry Reacts to FTC Secret Shopper Survey [Game Politics]

Thank god there's at least one smart gamer who knows how to write out there.

Steven Johnson, author of Everything Bad Is Good For You: How Today's Popular Culture is Making Us Smarter has an open letter to Senator Hillary Clinton in the LA Times today.

If this intro doesn't get you to read the whole thing, nothing will:

Dear Sen. Clinton

I'm writing to commend you for calling for a $90-million study on the effects of video games on children, and in particular the courageous stand you have taken in recent weeks against the notorious "Grand Theft Auto" series.

I'd like to draw your attention to another game whose nonstop violence and hostility has captured the attention of millions of kids a game that instills aggressive thoughts in the minds of its players, some of whom have gone on to commit real-world acts of violence and sexual assault after playing.

I'm talking, of course, about high school football.

Excellent eeeeeexcellent.

Hillary Vs. The Xbox: Game Over [LA Times]

Neither Sen. Hillary Clinton's request nor the House resolution that passed Monday night have the force of law to require the FTC to launch an investigation, but it certainly would have an impact on any decision. Afterall, Congress does make the laws.

FTC spokeswoman Claudia Bourne Farrell said an investigation would only be made public after its conclusion and only then if a law enforcement action were taken. She added that the FTC would be able to confirm any statements made by Take-Two to the SEC about an investigation.

We take the GTA situation very seriously, as we do the House of Representatives' request.

Although Bourne Farrell would not comment directly on the possibility of a Take-Two investigation, she said if the FTC, which has authority over unfair and deceptive acts and practices that could effect commerce, were to find wrongdoing in an investigation they have the ability to require a defendant to "give up their ill-gotten gains."

I have calls into both Rockstar and Take-Two.