[co-author: Patrick Waldrop]
How many times have you felt the thrill of buying a lottery ticket? What about the excitement before opening a sealed pack of baseball cards or the curiosity before diving for a mystery prize in a cereal box? Now imagine digitalized versions of all these items – in your favorite video game – and they’re up for grabs, at least, for a price. Whether it is real money, game time, or in-game currency, you’re asked to pay for these digital mystery boxes, otherwise known as “loot boxes.” For most of these loot boxes, what you get is a surprise. For others, you can guess what you might get. But is this gambling?
Recently, the Federal Trade Commission (FTC), a regulator with the power to investigate and enforce against unfair and deceptive business practices, held a live workshop on loot boxes, their implications, and possible legal issues and regulatory solutions. The workshop featured panels of industry leaders, academics, researchers, and members of consumer groups.
Among the concerns about loot boxes are that they constitute or incite gambling or video game addiction; deceive consumers, as the odds or rarity of obtaining specific items may not be properly disclosed; warp children’s perceptions of the value of digital items; and serve as a vehicle to exploit the personal information of gamers.
The panels discussed practices such as dynamic pricing or dynamic odds of loot boxes based on gameplay data and using loot boxes as a way to deliver personalized ads to gamers. Such practices include raising prices or offering specific digital items to gamers who demonstrate interest in enhanced gameplay. Panelists distinguished between consumable (one use only) and non-consumable (permanent or customization-oriented) loot box items. Panelists also distinguished between battle pass purchases (which allow access to advertised content) and season pass purchases (which allow access to unknown future content). Such distinctions should be assessed by video game companies to better understand the risks of each product type being interpreted as gambling. Loot boxes’ effects on children, including how children perceive owning certain rare loot box items as status-changing among their friends and communities, was also a hot topic, along with broad conversations about microtransactions.
Arguments against regulation included reminding consumers that loot boxes do not need to be purchased in order to play a game, and that loot boxes bear a striking resemblance – albeit a digital one – to noncontroversial products in the marketplace such as baseball cards. Countering arguments include distinguishing baseball cards, which are offline paper products, from digital products that aid video game companies in tracking gamers’ behaviors.
Panelists also noted the rising cost of developing major video games compared with selling such games to consumers at stagnant or decreasing prices. Panelists discussed loot boxes providing developers an easy way to keep prices down while still delivering the high-quality content consumers expect. Panelists in favor of limiting regulation pointed out that parents typically have options – think password requirements, dollar limits, or uninstallation – to control their children’s in-game spending.
Regardless of how the FTC will perceive the information discussed at the workshop, video game developers should take heed of the potential business and legal implications of loot boxes. In fact, the Entertainment Software Association announced during the workshop that several video game platforms have agreed to require developers to disclose loot box odds in order to publish games on their respective platforms.
Regulators throughout the country and around the globe continue to push forward with regulatory proposals. More recently, a British parliamentary inquiry concluded almost nine months of evidence gathering with a report recommending that loot boxes be regulated under gambling law and banned altogether when it comes to minors. A Belgian investigation reaching the same conclusion prompted Belgium to ban loot boxes last year. Also note that this year, Sens. Hawley, Markey, and Blumenthal formally introduced the Protecting Children from Abusive Games Act, which would prohibit publishing video games featuring loot boxes if they are shown to be “minor-oriented” or that publishers had “constructive knowledge” that some players were under 18. Minnesota legislators also reintroduced a bill that would ban the sale of video games containing loot boxes to minors earlier this year.
Video game developers should be aware that the open period for public comments to the FTC closes today. Comments can be submitted here.
