4/8/2022 The video game industry has grown into one of the largest entertainment industries in the world. In 2021, it generated around 180 billion USD in worldwide revenue, surpassing Hollywood and the music industry combined. This meteoric rise has seen the development of large, complex, and immersive games that belonged to the realm of science fiction merely fifty years ago. However, the industries evolution is not limited to gaming content. Over the past twenty years, we have seen new business models emerge from the industry in addition to traditional game sales. In-game purchases have become the choice model for many developers, particularly in mobile gaming. Electronic Arts, the studio responsible for many of the industry’s most successful sports game franchises, generated more than 1.6 billion USD from in-game purchases through their FIFA 21 game alone. Despite their commercial success, certain methods of in-game purchases have come under heavy criticism for their deceptive and sometimes predatory designs. Loot boxes are a prime example, as shall be explained below.
What are loot boxes?
Loot boxes can be understood as surprise packages or mystery boxes of digital content within a video game. Consumers spend real money on a mystery box consisting of random in-game content that will either give them a cosmetic item (such as an avatar skin) or affords them some type of in-game advantage within the context of that game. Purchasing loot boxes has been associated heavily with gambling due to its element of chance. Unlike other in-game purchases, consumers don’t know what they are buying; instead, they are paying to stand a chance of receiving some item of rarity, similar to a raffle or lottery.
Regulating loot boxes as a form of gambling
Currently, most legislative attempts to mitigate the harmful effects (which will be addressed below) of loot boxes focused on whether or not they should be regulated as a form of gambling. In Europe, gambling is regulated at the national level. As a result, there is a complete lack of uniformity on how loot boxes are governed across European countries. For example, the Belgian Gaming Commission found that loot boxes sold for real currency constitute gambling and are subject to all gambling regulations and controls. As a result, companies can face criminal prosecution for selling loot boxes in their games without a license. Conversely, under Dutch gambling laws, gambling controls only apply if a ‘game of chance’ is a standalone aspect like a slot machine. In this context, loot boxes would not be considered gambling as they are a single element of a larger game of skill; thus, they escape regulation.
Why are they controversial?
Beyond its association with gambling, opponents have described the sale of loot boxes as predatory and exploitative against consumers. Earlier this year, the Norwegian Consumer Council (NCC) released a comprehensive report whereby they accused game developers engaged in loot box sales of exploiting consumers by:
- Exploiting cognitive biases and vulnerabilities through deceptive design
- Using aggressive marketing practices to push sales at every opportunity
- Providing misleading transparency disclosures about the probability of winning (likelihood of receiving a virtual item with in-game value as opposed to receiving a virtual item with generic or no in-game value)
- The use of skewed algorithms and probabilities
- Using layers of virtual currencies to mask the real-world monetary costs
- Targeting minors
The NCCs report has refreshed calls for regulation on the sale of loot boxes. Notably, twenty consumer groups representing consumers from eighteen European countries have joined the NCC in a coordinated campaign to drive this legislative change. What’s interesting is the fact that these proposed legislative changes are based on a consumer protection law framework rather than gambling. Unlike gambling, consumer protection is regulated at the EU level and could provide a more realistic avenue to a coherent European regulatory framework to govern loot box sales. It has been suggested that the Unfair Commercial Practices Directive or the Consumer Rights Directive could provide a basis for loot box sale regulation. However, it is too early to say with finality if this will be the case.
Additionally, the meteoric rise of the gaming industry has resulted in a call for regulation. There may be new EU initiatives in the coming years that deal with these gaming industry controversies specifically. At Considerati, we are paying close attention to these developments. Please reach out to us if you want more information.