IPG Media Lab
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IPG Media Lab

Vices Gone Digital

The pandemic has not only pushed the vice industries online, it has also accelerated the emergence of digital-native vices

Photo by Firmbee.com on Unsplash

Since we last wrote about it in late 2019, the vice economy has seen a significant shift in social acceptance and legal status in the U.S. Widespread legalization of marijanna and sports betting is lessening the stigma associated with weed and gambling, leading to booming new product categories. Our attitudes toward and laws about activities that have long been classified as vices are changing — and with it, the assumption that it’s the government’s role to police public morality. As a result, more underground sectors of the vice economy are stepping into the sun.

The pandemic has also pushed the vice economy to new heights by shining a new light on our attitudes towards mental health and addiction, as many turned to vices as an escape hutch during a difficult time. U.S. alcohol sales went up by 2% versus 2019, the biggest YoY increase since 2002. Relaxation in local liquor laws allowed many restaurants to sell to-go cocktails and other alcoholic beverages. Layoffs and economic uncertainty also prompted some to explore NSFW platforms like Onlyfans to make ends meet, which makes for another step towards destigmatising sex work. All things considered, most sectors of the vice economy have been thriving during our collective annus horribilis.

The convergence of social distancing measures and increasing demand for escape has accelerated the digitalization of many vice sectors. Not only have established vice industries quickly expanded to digital channels to reach customers stuck at home, digital-native vices are also starting to emerge, challenging our definition of “vice” itself.

New Digital Touch Points Increase Vice Accessibility

Vice industries have long been hampered in distribution by regulations. Legal vices like alcohol and tobacco have been limited to in-store sales in most states, and most behavioral vices like gambling have operated as in-person experiences confined by location and time. However, these conditions have started to fade over the last two years as more and more vices become accessible via online channels.

Drinks On Demand

Take alcohol for example. Delivery services for alcohol like Drizly have been operating in select states since 2013, and they received a significant boost in adoption throughout 2020 as many flocked to online grocery services. Online alcohol sales far outpaced in-store sales during the initial lockdown period, according to Nielsen tracking. Alcohol sales at U.S. liquor and grocery stores rose 22% for the week ending March 28, compared with a year prior, and online alcohol sales were up 243%. Between March and September 2020, there were $41.9 billion in liquor store sales, representing an increase of 20% over the same period in 2019, per a study by Columbia University. Contrast that with retail sales for food and drinking establishments, which decreased by 27% during the same seven-month period, it is not hard to see that people are getting more comfortable with the idea of buying alcoholic products online.

This accelerated shift in sales channels also gave rise to a new cottage industry of cocktail delivery services that aim to open a new revenue stream for restaurants and bars. Yet, the push-and-pull between regulation and distribution continues. As the temporary relaxation of liquor delivery lapsed as many states reopened, these services had to either suspend their operations or pivot to other types of delivery. For example, Ghost Bar was a virtual cocktail bar that delivered premium cocktails from local restaurants directly to your doorsteps. Currently operating in Manhattan, the service applied the ghost kitchen concept to the cocktail business. Due to New York State’s reinstatement of restrictions around alcohol deliveries, however, the service had no choice but to shutter its operation.

Low-Effort High Maintenance

Marijanna is another interesting case in online distribution. As the weed legalization movement continues to gain momentum across the nation, building out digital sales points is quickly becoming a new frontier for the industry to conquer. Forbes reports that legal sales of cannabis products in the US hit $17.5 billion in 2020, up 46% from 2019, and that’s not counting the iIllicit cannabis sales, which are estimated to be more than $100 billion per year.

Working within the confines of local regulations, cannabis sites like Emberz and Eaze utilize couriers for local deliveries, while weed dispensaries like The Botanist put a omnichannel retail spin on weed purchases in cities they are allowed to operate in. Even more interestingly, the recent boom in online cannabis sales have also birthed startups like Flowhub, which makes modern point-of-sale software and essentially functions as a Shopify equivalent for the cannabis makers.

Still, there are limitations to online sales of cannabis products. Today, most regulations tend to allow dispensaries to sell and ship products across state lines that are derived from hemp and contain less than 0.3% THC (that’s why many CBD products are okay to ship). But, any product derived from cannabis containing more than 0.3% THC is considered marijuana, thus making it illegal to ship across state lines.

Put Your Money Where Your Phone Is

Lottery and sports betting also offer a compelling case study for how digital access points interfere with the primarily geography-based regulations. When the NFL season began last month, fans in more than two dozen states and the District of Columbia were legally allowed to place bets on games. Five more states are projected to allow it by the end of the NFL season according to the American Gaming Association (AGA). As a result, an estimated 45.2 million people, representing over 17.5% of the U.S. adult population, plan to bet on the NFL this season, up 32% from the year before, per the estimates of the AGA.

Given its increasing popularity, it is no surprise that many sports betting platforms have sprung up to allow digital access. Whether it’s the ones that got their start in fantasy sports, such as FanDuel and DraftKings, or the ones sprung up by Vegas casino chains, like BetMGM and WynnBET, all of these sports betting platforms have to comply with local regulations, which are inconsistent regarding whether online betting is allowed.

But it is foolish to try to control online access via geography. As the following map from USA Today shows, online betting is legal in just 18 states as of August 2021. But that opens the door for sports fans from neighboring states to simply cross over the state lines to place a bet online. For example, since one can’t legally bet online in the New York state (though that is about to change) but can do so legally in New Jersey, some frustrated NFL bettors in New York City are taking bike rides over the George Washington Bridge to to place a bet on their phones once they cross the state line. Taking into the account the taxes these states are losing to neighboring states where online bettings are legal, loopholes like these only accentuate the inevitability of a federal-level legalization of online sports betting.

Via USA Today

Feeling Lucky? Follow The Money

As part of this shift, lotteries have also come online. Increasing numbers of states are moving to online sales of lottery tickets. Although the Federal Wire Act made it illegal to sell lottery tickets online, as states come under increasing financial stress despite ever-increasing taxes, policy makers are under increasing pressure to raise revenue without raising taxes, which opens the door for state-by-state sales of online lotto tickets. So far, only a few states have actually made the transition, but interest is growing. For example, New York Lottery launched a Jackpocket mobile app in January 2021, days after then-Governor Andrew Cuomo proposed the legalization of mobile sports betting, allowing NY residents to play Mega Millions, Powerball, and other lotto games via their phone or tablet, making the lottery more accessible and convenient to play.

A common thread behind the digital sales channel of vice industries is rooted in states’ desire to raise tax revenues. Loss in taxation on underground vice economies is acting as a key incentivization for the legalization of vices, as we have seen with weed and sports betting, and now it is leading to an expansion of their digital distributions.

As their digital touch points continue to expand and become more accessible, these previously vice economies are starting to compete with other leisure activities for discretionary spendings. While there may be some cannibalization effect happening between different vices, they are also competing with non-vice categories like soft drinks and video games. Naturally, some brands have been leaning into the rise of vice economies and developing new products that incorporate these newly legalized interests. For example, sports publisher Barstool recently expanded into sports betting with a Barstool Sportsbook app, and Molson Coors recently introduced its first CBD drink in Colorado.

The Rise of Digital-Native Vices

Changing cultural norms are giving rise to new vices while shifting previously acceptable behaviors into vice territories. As we spend more and more time online, it is only natural that the new vices are starting to emerge out of our digital-native behaviors.

The rise of meme-driven cryptocoins over the past two years has provided investors with interesting new opportunities to explore, but these alternative investment vehicles are starting to receive backlashes for their effective resemblance to gambling, thanks to the volatility of their prices. Horror stories abound as people lost their life savings over the crash of dogecoin prices, or missed a big pay day simply by selling one day too early. In addition to the volatility, a high volume of scams in the space also further blurs the line between investing and gambling. According to FTC data from May 2021, nearly 7,000 people have collectively reported more than $80 million of scams in the preceding 12 months alone. More recently, a scam crypto-token that capitalized on the global popularity of Netflix’s viral hit show Squid Game collapsed after developers made off with an estimated $3.38 million.

If meme-driven investments are providing a legal and widely accessible alternative to high-stake gambling, then our increasing screen time is perhaps amounting to a new form of vice that we feel neurologically compelled to pursue. Video game addictions and disorder have caused outsized moral panic among parents before, but during the pandemic, the concerns have surged as more kids are stuck at home with not much to do. The number of people (including children and young adults) in the UK being treated for gaming addictions and disorders tripled over the last year, following lockdowns, The Guardian reports. The Chinese government recently launched a campaign to restrict access to video games, especially mobile games, for kids and teens to just three hours a week, as it cautions against video game addiction.

That being said, some claims of gaming as a harmful addiction are severely overblown. It is estimated that 164 million Americans — roughly half of the U.S. population — play video games, and only between 0.3% and 1.0% of Americans might have a gaming disorder, per a 2017 study from the American Journal of Psychiatry. Though that percentage may have gone up since then, it’s hard to imagine it shoots past 5% of all gamers. By all accounts, it seems unlikely that playing video games would be considered by most people as a vice any time soon.

Compared to video games, our collective attitudes towards social media usage is turning sour at a much quicker rate. The reasons behind our deteriorating opinions on social media are two-fold. First, people are starting to hold social platforms responsible. As the type of platforms that tends to prioritize engagement over the emotional wellbeing of the users, the reputational damages that social media has suffered in recent years are moving the needle of public opinion. The recent revelations from the Facebook Papers underscored that one of the most dominant social media companies have been inflicting a net negative on users and societies at large.

Source: ThinkNow via Statista

Second, people are starting to recognize that the type of algorithmic-driven, short-form content that dominates social media today may be bad for our cognitive abilities. Researchers have studied how social content is rewiring our brains to favor a constant stream of dopamine bursts fueled soundbites and likes over long-form content that requires longer attention spans. The psychological impulses driving some people to “doom-scrolling” — devoting an excessive amount of screen time devoted to the absorption of negative news, usually through algorithmic news feeds on social platforms — point to a deeper danger that may shift the use of social media from a harmless hobby into a vice, especially if this is backed up by regulatory actions.

To their credits, social media companies have been taking some proactive measures to minimize their negative impact. In April, TikTok launched a ‘Wellness Hub’ to connect users to tips and resources on physical and mental health content within the app. Snapchat partnered with meditation app Calm to develop a mini-app that will help Snapchat users practice mindfulness. Last week, Instagram started testing a new “take a break” feature that enables users to receive break reminders in-app after a duration of their choosing.

For brands, the souring public opinion on social media usage provides a cautionary tale on leveraging social channels to reach consumers. As we noted in our 2021 Outlook trend report, the social context is being remade online, with more and more users choosing to retreat from the toxicity of public-facing social platforms to more niche communities and groups based on shared interests. As consumer attention moves to these smaller groups, the way brands reach them online must change as well, evolving from an identity-based targeting model to one that is more contextually aware and interest-driven.

Want to Learn More?

Overall, going digital has had an interesting double-edged effect on vices, and as the established vices grow in legality and social acceptance, new digital-native vices start to form to fuel another cycle of vice economies.

The Lab is closely monitoring the coming disruptions and charting the developments in the various vice sectors. If you wish to start a conversation around the key trends shaping the future of the vice economy, and discuss how your brand can leverage these opportunities, please reach out to our Group Director Josh Mallalieu at josh@ipglab.com.

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The media futures agency of IPG Mediabrands

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Richard Yao

Richard Yao

Manager of Strategy & Content, IPG Media Lab

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