1.1 Common business models

There’s a degree of confusion surrounding the terms used to describe the various monetization models for digital goods, given the often-subtle distinctions between them. Below are the most common pricing strategies.

• Freemium: the platform provides a core version free of charge along with the offer of purchasable “premium” content or services (e.g. access to exclusive areas). The term freemium — a combination of “free” + “premium” — is generally used to describe this model.

• Free-to-play (F2P): the platform offers a free version along with individual purchasable features that enhance the user experience (e.g. additional tries, the ability to skip levels, etc.). In this model, everyone has access to the same platform; however, the progress of users who do not pay will be generally slower.

• Premium or paid: this strategy features no free version; instead, the user must pay an upfront price to access the platform. The product may be purchased through a one-time payment or by subscription (recurring fees).

1.2 In-app purchases

In-app purchases consist of a simplified payment process that links the user’s account to a form of credit (credit card/prepaid card). Users can thus purchase virtual goods without leaving the platform. Known as “microtransactions,” in-app purchases are a key feature of freemium and F2P products. For instance, to make a purchase while using an app downloaded from Apple’s App Store, the user enters his/her Apple ID, the transaction is charged to the credit card linked to his/her iTunes account and the virtual goods are downloaded instantly.

1.3 Accidental or unauthorized purchases

While adults understand that in-app purchases will be charged to a credit card and paid for in real money, this principle can be far less clear to children. A youngster faced with the choice of waiting a half-hour to obtain one “life” or of buying “diamonds” that provide 10 lives straight away is extremely likely to be tempted by the latter. Children do not necessarily have the maturity or consumer savvy to assess the value of the purchase or even grasp that real money is involved.

There have been all too many cases of children racking up bills worth hundreds of dollars in a matter of minutes through in-app purchases. Although the problem lies in part with app store billing practices, apps must still reimburse “unauthorized purchases” at the request of the cardholder — i.e. the parent.

1.4 The child/user and parent/payer dynamic

A youth platform is aimed at both children and parents: each has their own expectations and objectives, but both have a say in the purchase. This mechanism creates substantial challenges in terms of monetization, especially in the digital environment where in the vast majority of cases, the parent is the one providing the payment. Unless they have an iTunes-type prepaid card, children wishing to use a paid app must ask their parents to pay for it with their credit card.

You are responsible for taking reasonable measures to ensure that parents/cardholders provide their express and informed consent for each purchase.

1.5 After-sales services and technical support

For paid services — even low-priced services — user expectations about customer service are usually higher than for freemium or F2P services. Whether for billing inquiries, subscription renewals or installation issues, after-sales support is a vital aspect of product quality. Users should be able to easily reach customer service at all times.

Monetization models are subject to e-commerce and consumer protection laws. The concept of online payment entails the collection of personal information. For more information, consult backgrounders Collection of Personal Information and E-commerce Platforms.

CANADA

1. Competition Act

Federal law governing commercial practices on all media platforms; includes a provision prohibiting deceptive marketing practices. The Act applies to all companies doing business in Canada. It has no special provisions for children.

2. Consumer Protection Act

Provincial legislation governing commercial practices, including e-commerce.

Additional information:

• Competition Bureau, Application of the Competition Act to Representations on the Internet
• Provincial/territorial legislation

***QUEBEC***

Consumer Protection Act

Québec’s Consumer Protection Act prohibits commercial advertising directed at children under 13 years of age on all media platforms, barring certain exceptions prescribed by regulation. The ban applies to messages addressed to children in Québec, even for companies based outside the province.

Additional information:

Office de la protection du consommateur, Advertising Directed at Children under 13 Years of Age

UNITED STATES

Federal Trade Commission Act

Federal law stating that advertising should not be misleading or deceptive. This law covers e-commerce and indicates that, to be authorized, all transactions must be based on the cardholder’s informed consent.

For more information, visit the Federal Trade Commission online. Advertising and Marketing on the Internet: Rules of the Road

EUROPEAN UNION & FRANCE

Directive on Consumer Rights

This Directive covers online sales and has specific provisions imposing obligations on virtual goods. Producers must provide the following information:

• Product description: system requirements and technical restrictions, details on basic features, known limitations (e.g. not PC-compatible), price (including future subscription costs), information on in-app purchases
• Terms and conditions: withdrawal period, returns and reimbursement, shipping and delivery
• Company details: name and geographical address, contact information (email and phone)

This information should be available on the product description page; sent by email at time of purchase; and readily available at all times on the platform. Furthermore, the Directive grants consumers the right to withdraw from the contract (a.k.a. the right of return) within 14 days of the transaction. To avoid an excessive number of refund requests, producers can ask consumers to waive their right of withdrawal by checking a box marked “Order with obligation to pay,” which serves as express consent.

EU member states, in association with the Directive on Consumer Rights, have drafted a Common Position on freemium games:

• Games advertised as “free” must not mislead the consumer as to the real costs entailed.

• Games must not directly encourage children to either make in-app purchases or try to convince an adult to make the purchase for them.

• Consumers must be clearly informed about payment arrangements for in-app purchases, and the default setting for payments should not allow purchases to be made without the consumer’s express consent.

• Consumers should be clearly provided with the vendor’s email address for any queries or complaints.

Unfair Commercial Practices Directive

This Directive prohibits misleading, aggressive and rogue business-to-consumer practices. It states that “[d]escribing a product as ‘gratis’, ‘free’, ‘without charge’ or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item” as a misleading practice. The Directive also presents a series of commercial practices to avoid, including a provision for children whereby it is unlawful to include “in an advertisement, a direct exhortation to children to buy advertised products or persuade their parents or other adults to buy advertised products for them.”

E-Commerce Directive

This directive targets operators established in the EU for online services, electronic transactions and other online activities, entertainment services (video on demand), marketing, direct advertising and access to internet services.

The directive repeatedly underscores the importance of protecting minors. For instance, with regard to unfair practices, the Directive states that mobile app stores must remove any apps that directly prompt children to make in-app purchases. It also states that companies must provide the consumer with all essential information and that purchases can only be made with the consumer’s express consent.

Additional information:

• Common position on “free” online games (Common position of national authorities within the CPC)
• The Directive on Consumer Rights
• European Parliament, Consumer protection measures

AUSTRALIA
Australian Consumer Law
Federal law that prohibits misleading commercial practices. The Australian Competition and Consumer Commission — the organization responsible for enforcing it — has issued recommendations for mobile apps with in-app purchases such as: “App stores [should] develop clear, publicly-available, age-appropriate rating systems which include consideration of in-app purchases and any encouragements to spend money.”

Additional information:

Australian Competition and Consumer Commission

Australian Communications Consumer Action Network, App purchases by Australian consumers

App stores must obtain parents’ express and informed consent before billing for in-app purchases. This entails:

• Features for blocking in-app purchases
• Indicating the presence of in-app purchases in the app description
• Making a password obligatory for each app purchase

Amazon, Apple and Google state that in-app purchases are for the sale of virtual goods only: they cannot be used to sell products or services that will be supplied or used outside of the application.

Apple App Store

• Apps in the Kids Category must obtain parental consent or use a parental gate before allowing the user to make a purchase.
• The In-App Purchase (IAP) system is the only one permitted for the sale of virtual goods in an application: external shopping mechanisms (e.g. a “Buy” link) are inacceptable.
• Automatic subscription renewal is acceptable only for periodical apps (e.g. newspapers, journals, magazines), business apps (ex. Cloud storage services) and media content (video and audio).

Additional information:

• Apple App Store
• Amazon Appstore
• Google Play

Canadian Code of Practice for Consumer Protection in Electronic Commerce

The Code establishes good business practice benchmarks for merchants who conduct commercial activities with consumers online. Among its eight (8) key principles are statements to the effect that vendors:

• Cannot hold consumers liable for any charges related to a transaction to which the consumer has not consented
• Must take all reasonable steps to prevent monetary transactions with children

To consult the Code

Canadian Marketing Association (CMA) Code of Ethics and Standards of Practice

This code lays out the best practices and key principles for ethical marketing in Canada and applies to all CMA member organizations. It includes a section dedicated to the question of children that recommends against:

• Knowingly accepting an order from a child without the parent’s express consent
• Pressuring children to urge their parents or guardians to purchase a product or service

For more information, consult the Code online

• In freemium and F2P models, be careful about how you promote purchases. Never directly exhort children to buy virtual goods or subscriptions; instead, provide clear and accurate information as objectively as possible. For example, when the child exhausts her virtual currency, rather than saying, “You’re out of diamonds. Buy some diamonds NOW!” (with a clickable “Buy” link), adopt an informative tone: “You have no more diamonds. You can buy more diamonds at the store for real money. Or you can earn some by successfully completing challenges.” Either way, ensure that the parent remains responsible for completing or authorizing the transaction by making the necessary arrangements (described below).

• Keep your audience in mind when incorporating in-app purchases into your platform:
  • Avoid game mechanisms that require children to seek help from friends on social networks — for example, “Ask your Facebook friends for some lives!”
  • Avoid formulations that exploit children’s inexperience. For instance: “Your rabbit’s starving! Quick, get some carrots at the store!” Or: “Buy this new car to boost your popularity right now!”
  • Provide a detailed explanation of the full costs associated with your platform before the user downloads, subscribes or makes a payment:
    • The initial cost of the registration, subscription, download or purchase
    • Subsequent and unavoidable costs to continue to use the platform (e.g. a monthly subscription fee of $2.99)
    • Optional extras, e.g. in-app purchases

• Implement parental control tools to prevent purchases without the parent’s explicit consent. Place in-app purchases behind a parental gate adapted to your users’ age range (e.g. something beyond a child’s abilities, like an algebraic equation or touching all four corners of a tablet computer at the same time). Make it possible to disable in-app purchases or place them in a section accessible only to parents.

• Ensure that your communications are as accurate as possible with regard to the suggested transactions:
• In-app purchases
  • Why are they being offered?
  • What’s the price range?
  • Is this a recurring fee?
  • How are they presented in the product?
  • What actions are required to authorize/prevent this type of transaction?
  • How is prevention implemented?
  • What is your reimbursement policy in the event of unauthorized purchases?

• Subscriptions
  • How often is new content added?
  • When is the subscription billed?
  • How long is the content available for?
  • Is renewal automatic?
  • How can a subscription be cancelled?
  • Is the content still available after the subscription expires?

• Provide all the information about your platform’s specs needed to make an informed purchasing decision:
  • A short product description
  • A reminder of the key points in the terms of use
  • A list of the personal information collected and a link to the privacy policy
  • Customer service contact information
  • Details about the content (e.g. available languages, duration, resolution, regional restrictions, etc.)
  • Hardware/operating system compatibility information
  • The presence of marketing
  • The presence of social features

• Help parents set parental controls. For example, in the parents’ section, explain the procedure for changing the device’s security settings.

• Customer service contact information should be updated as needed and easily accessible at all times. It’s also preferable to include more than one option for reaching your customer service (e.g. a phone number and an email address).