Is it time to give loot boxes the boot?

With annual revenue from loot boxes tipped to reach $50 billion by 2022, these in-game transactions are facing increasing scrutiny. Classifying them as gambling, politicians from the US to the UK are calling for them to be banned or at least regulated. But they’re being met in some cases by a stubborn reaction from gaming companies. As a record-breaking 2019 for gaming industry revenues draws to a close, is it time to give loot boxes the boot? And, if not, who is responsible for regulating them?

When the fun stops

Loot boxes have been used in premium AAA console titles for several years, partly as a response to rising costs for game developers: technology has advanced and teams and salaries increased in turn, but game prices and sales never rose along with it. But it was the free-to-play revolution for mobile games, with monetization mechanics like in-app purchases and ads now integrated into the core loops of games, that really catalyzed the prevalence and, later, scrutiny of loot boxes.

Some companies have ruthlessly optimized their implementation to squeeze as much money out of users as possible. $30 billion was generated in 2018 alone from loot boxes. One could argue such revenues are the goal of any business, however it’s clear a line needs to be drawn when this causes damage to people. The mobile gaming industry has adopted the F2P model, and going forward it needs to find a way to make free content creation financially sustainable and at the same time ethical in terms of how users are treated. That’s where the core of this debate lies.

Gunna Gacha

The fear that gamers, in particular children, are being exploited by loot boxes has led to a global push for regulation. Belgium outright banned them, forcing Nintendo to pull two games from the country, and the Netherlands did the same. Australian regulators recommended making games that include loot boxes rated R; in the U.S., Republican Senator Josh Hawley introduced a bill that would ban the sale of loot boxes altogether to minors. In the UK, following a nine month inquiry into immersive and addictive technologies, a parliamentary committee concluded that loot boxes should be regulated under gambling law and banned from being sold to minors. So far, regulation has been focused on console games, but mobile games are likely to get caught up in the backlash.

A study published by The Royal Society found a correlation between loot boxes and problem gambling: of 1,155 gamers surveyed, teens who showed signs of gambling addiction spent five times as much on loot boxes than those who showed no signs of gambling issues. Lia Nower, the director of the Center for Gambling Studies at Rutgers University, also studied this correlation. Her team found 46% of video game players spend money on loot boxes, and that these gamers were significantly more likely to also have addiction problems in both gambling and gaming.

Adding to that, similarities have been found in the psychological motivations of people who spend on loot boxes and people who gamble, such as the rush, excitement and escapism. This was supported by another study that concluded loot boxes have “important structural and psychological similarities with gambling”, and “allow for (if not actively encourage) underage players to engage with these systems”.

Not black and white

Despite a growing consensus in mainstream media that loot boxes are a negative thing, the issue isn’t black and white. While the pernicious usage by certain companies should be curbed, loot boxes are not inherently bad. In fact, for many players they are an exciting and enjoyable part of games, provided they can afford it.

What is problematic is the combination of a lack of age restrictions and various psychological tricks, or compulsion loops developers use to draw the user in and get them to spend more money than they’d have liked. Gaming companies need to explicitly distance themselves from these tactics, for the sake of the long term sustainability and reputation of industry, and show the public that they acknowledge their responsibility to be fair to their users.

Thinking outside the loot box

There are several ways gaming companies can do this without removing loot boxes from games entirely. As proposed by the U.K committee, a good starting point would be a daily maximum spending limit, and parental controls to enable parents to stop their children being exposed to loot boxes.

From a design perspective, developers should remove the gambling-like feel of loot boxes and make the process more transparent, so the gamer knows exactly what they’re receiving in the box. The monetization aspect could, in fact, be removed entirely, with developers letting gamers unlock loot boxes through credits earned by in-game achievements, rather than real-life currency. This could be a boon for retention, potentially leading to future monetization through other, less controversial IAPs like bundles or cosmetics.

Gaming companies have hardly been receptive to the idea of self-regulating, but there’s been a few concessions. EA removed loot boxes from Star Wars: Battlefront II, and in August 2019, Epic Games vowed to increase transparency for loot boxes in its games, like showing players exactly what they’ll receive before making a purchase. Meanwhile, Apple changed its guidelines in 2017 to make developers with games in the App Store disclose loot box odds to customers before they make a purchase. Google Play has not (yet) followed suit.

However, some gaming companies have been “wilfully obtuse” when challenged on the matter. EA is one of the companies at the heart of the scrutiny, particularly for its FIFA franchise and “Ultimate Team” mode. Despite pulling loot boxes from Star Wars, CEO Andrew Wilson said in a press conference last year: “we don’t believe that FIFA Ultimate Team or loot boxes are gambling firstly because players always receive a specified number of items in each pack, and secondly we don’t provide or authorize any way to cash out or sell items or virtual currency for real money”.

His stance is echoed by the UK’s Digital Minister, Margot James, who said in front of the British parliament: “Loot boxes are a means of people purchasing items, skins, to enhance their gaming experience, not through an expectation of an additional financial reward. And also, more importantly, they can’t be traded offline for money. So I think there are big differences, and I don’t think…it is true to say loot boxes are gambling.” She adds, however, that there’s a need for more research into the matter before regulations are implemented.

The cards are on the table

Ultimately, the loot box debate circles back to the question of whose job it is among gaming companies, app stores, and governments to regulate the gaming market. If it is to be the latter, as seen in Belgium and the Netherlands, the question then becomes, ‘where do you draw the line?’ We need look no further than China to see how government intervention can sometimes lead to censorship. Perhaps the responsibility for regulating mobile game loot boxes should be shared between app stores and developers.

Gaming companies have an opportunity to prove that there doesn’t need to be a trade off between the ethical treatment of users and the long term sustainability of the F2P model. Reducing the gambling-like design of loot boxes may damage bottom line profits in the short term, however there are numerous monetization alternatives, from ads to IAPs and subscriptions, that can be doubled down on to compensate for this. Although it seems like the industry is the one hooked on loot boxes, hopefully a consensus about self-regulation will be reached before its taken out of our hands.