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Monday, February 05, 2007

Postcards from Second Life: Legality of Virtual Sales

I was just noting the other day about the virtual gold in them thar hills in Second Life and the opportunities it may present for payment systems.

Shankar Gupta of Gaming Online/MediaPost, reports on various legal issues that plague virtual sales:

Online auction house eBay banned the sale of "virtual goods" such as currency or avatars used by players in massively multiplayer online games like "World of Warcraft," "Everquest," and "Neopets."

Exempted from eBay's ban is sale of virtual goods+services of Second Life property, meaning that islands, housing or fursuits can continue to be sold on this, and other, secondary markets.

eBay spokesman Hani Durzy said the move stemmed from growing legal concerns surrounding the sale of virtual property. "Because of those legal complexities, we felt the most prudent thing to do at this point was to ban them from sale for the site," he said.

The taxability of online assets also remains unresolved. In October, the congressional Joint Economic Committee launched a probe investigating how virtual property and income should be taxed. Nearly every game's terms of service state explicitly that all in-game property is actually the property of the game developer or publisher, and not the player in question.

EBay likely could have put off this decision until the legal complexities were resolved and not come out any the worse for wear, but it is very, very likely that the company has been under pressure from game developers to end the secondary market for virtual goods. Why? Developers hate this market, especially when it creates entire companies (like here and here) dedicated to making money by "farming" virtual worlds for in-game cash and rare items. It's such a huge business that workers in Korea who spend hours a day doing nothing but farming virtual goods have attempted to form a trade union, claiming that virtual farming is a $1-billion-per-year industry.

MMO developers, obviously, don't see a cut of this money, and on a more fundamental level, secondary trading of items and currency can destroy a finely balanced virtual economy by causing massive inflation. Professional farmers spend hours collecting money and rare items. They can then put the rare items up for sale in-game, for in-game currency. Then, all the currency they've received is sold outside the game for real cash. Players then use the cash they buy to buy in-game goods, putting that virtual currency back into the pockets of the pros, who can then resell the currency out-of-game again. Over and over again.

Second Life gets a pass because it's not really a game -- it's a virtual world. Second Life has no game rules to speak of, other than the limitations of the platform and the rules set up on individual islands, and no goals, other than the goals that users set for themselves. And the process of people buying and selling virtual items in- and out-of-game is part of the appeal of the virtual world.

EBay's move to ban the sale of virtual goods is a boon for game developers, who recognize that buying and selling virtual goods online is the equivalent of offering your friend $50 for the Park Place card in a game of Monopoly. The exemption of Second Life helps draw a distinction between virtual worlds and simple online gaming.

Keep tabs on the economic state in 2L here
or read SL Business for the latest goings on.

via Gaming Insider and Online Media Daily


Anonymous said...

The tax system for virtual currency already started in some of the asian country (Korean), but they still have not cover a lot of legality issue connected to RMT ( Real Money Trading ). Most of the online goods comes from MMO based games like World of Warcraft. Take for example, company like OffGamers is selling multiple virtual currency like wow gold, lineage 2 adena, everquest 2 platinum, ffxi gil and much more. They have already stop their ebay listing due to current eBay policy on stopping all forms of virtual currency bidding. MMO developers will have a cut on these income too. A lot of asian based games already selling in game items / currency from their own game developers. This is the biggest factor of government intervening all these industry for taxation in the Asia Region.

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