Loot Boxes: what's in the box?
On 12 September 2019 the House of Commons Digital, Culture, Media and Sport Committee (DCMS) released its report into what it calls "immersive and addictive technologies".
The report made several recommendations in relation to "loot boxes", which could prove to be hugely significant for the gaming industry. For the uninitiated, loot boxes are explained below.
The report highlights rising public concerns that loot boxes are addictive, costly, unregulated gambling-substitutes, which are widely accessible to children. There are already signs of potential action - the Government stated in a Background Briefing to the Queen’s Speech of 19 December 2019 that it will conduct a review of the Gambling Act, with a particular focus on loot boxes.
What are loot boxes?
The report defines loot boxes as "items in video games that may be bought for real-world money, but which provide players with a randomised reward of uncertain value".
The rewards are virtual items which can be used in-game, such as outfits, characters, or weapons. Some of these have an impact on gameplay, such as unlocking a top-tier footballer in FIFA, whereas others are purely cosmetic. In some games rolling the dice on a loot box can result in a windfall - very rare items can command eye-watering (and often baffling) price tags. In 2013, an anonymous Dota 2 player paid $38,000 for a flaming pink "war dog" to carry items around the in-game battlefield. The function is normally performed (just as capably) by a digital donkey. In 2018 a "Dragon Lore" weapon skin in Counter Strike: Global Offensive (effectively a digital sticker for one of the in-game guns) sold for more than $61,000.
Both of these games featured developer-run marketplaces where players could trade their items. In many other games, however, items cannot be freely traded with other players (either because of technical barriers or restrictions in user terms).
What's the potential harm?
The key concern being raised in relation to loot boxes is whether they effectively constitute a form of unregulated gambling.
In 2017 a petition asking the UK Government to review the subject attracted just under 17,000 signatures. A report by the Children's Commissioner concluded that "monetisation of gaming brings children closer to gambling". Commentators (including the Church of England) have described loot boxes as a "gateway for gambling", with deliberately addictive designs that mimic the feeling of online gambling, including through the use of bright colours and surprise mechanics.
The money involved can be significant and unexpected (one teenager in Ontario, Canada spent almost $8,000 on FIFA Ultimate Team packs in one month – on his father's credit card).
Gambling is regulated in Great Britain by the Gambling Act 2005, which defines gaming as a "game of chance played for a prize". Generally, a prize means "money or money's worth". The Gambling Commission stated in a November 2017 statement that in-game items obtained via loot boxes are unlikely to constitute a prize for money or money's worth as these are generally confined to the game and cannot be cashed out. The result is that loot boxes are currently unlikely to be held to be a licensable gambling activity, therefore falling outside the Gambling Commission's remit.
The DCMS Committee report criticised the law's focus on real-world monetary value. It considered that approach to be a failure to keep up with modern digital economies, creating a loop hole for loot boxes. This focus, DCMS argues, ignores the subjective value created for players in the in-game environment, and the reality that in fact these in-game items can be, and often are, cashed out in real-world trades. It is worth noting that gambling regulators in Belgium and the Netherlands have found that some loot boxes violated their gambling laws.
The DCMS Committee report concluded that loot boxes bought with real-world money that do not reveal their contents in advance to be games of chance played for money's worth. It recommended that the Government brings forward regulations to that effect.
Key take-aways
Loot boxes are big business. In 2016 FIFA developer Electronic Arts reported $650 million in revenue from its the game's Ultimate Team mode, and industry analysts have predicted that the industry may be worth $50 billion by 2022. It is therefore critical for any companies in this space to consider their approach and "get loot boxes right".
Prudent developers will no doubt be looking at ways to take the heat out of the situation and possibly reduce the chances of new regulation, for example by limiting or removing any addictive element of chance (which can see players chasing rare items indefinitely) and/or the potential for exorbitant expenditure. However, if the UK government does reclassify loot boxes as gambling, game developers using loot boxes will need to obtain an operating licence and comply with an extensive (and costly) set of regulatory obligations.