“Loot Boxes” in Gaming: Is it Gambling and What Comes Next?

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In late 2017, Electronic Arts released Star Wars Battlefront II, a highly anticipated sequel in its blockbuster Star Wars gaming franchise. Within several months of launch, the game missed its projected sales target by over 1 million games and missed in-game revenue targets so horridly that Electronic Arts took a $3 billion hit to its market capitalization at the time. This was all due to what in hindsight was the poor implementation of in-game “loot boxes”.

What are “Loot boxes”?

Loot boxes are digital random chance grab bags where players spend real or in-game currency to receive a random selection of usually cosmetic items such as “skins” (costumes), characters and other features. They have been used in the majority of the world’s most popular eSports franchises including PUBG, Overwatch, Apex Legends and Fortnite. With Battlefront II, Electronic Arts made rare characters, costumes and features exclusively reserved to their loot box system, forcing users to “pay-to-win” and spend money for the chance to get rare content, which did not go over well with reviewers and players of the game.

Why are they Important?

Loot boxes are a form of in-game “microtransaction”, where a user can purchase within a game virtual features, characters or content with the price typically ranging from $0.99 to $99. There are different forms of microtransactions, the most common ones being for the purchase of virtual content, in-game virtual currencies and loot boxes. While much of the focus on the business of gaming relates to eSports, microtransactions have been a more lucrative area. In 2018, over half of Overwatch League’s parent company Activision Blizzard’s revenue (roughly $4billion) came from microtransactions. According to Juniper Research, loot boxes, in conjunction with “skins gambling” currently make up a $30billion industry with strong growth expected to continue. This has become one of the most effective ways video game developers have been able to monetize their games.

What is the Controversy?

There is currently a debate over whether loot boxes represent a form of gambling. According to the Entertainment Software Rating Board (ESRB), the self-regulatory body for the video games industry, it considers loot boxes to be similar to collectible trading cards. They feel that while there is an element of chance in whether a player receives the rare in-game item they want or another item they do not want, they are guaranteed to receive in-game content. This differs from gambling where there is the risk that you pay money and end up with nothing. There is currently no legislation in Canada that regulates the use of loot boxes

Internationally, the video game industry has started to take notice of the pushback against loot boxes. In response to the fallout of Battlefront II, the Belgium Gaming Commission investigated and subsequently found that some, but not all loot boxes contravene existing European gambling laws. The UK Parliament’s Digital, Culture, Media and Sport Committee followed Belgium’s view that some loot boxes constitute gambling, but called on the government to determine whether they should all be considered gambling and banned for youth. In the US, a Senate bill was introduced proposing to ban loot boxes for games that target children under the age of 18. Many of the console manufacturers, such as Microsoft, Nintendo and Sony are requiring video game companies to disclose to players the probability of receiving random items from a paid loot box and the rarity of different items. Implementation for this expected to begin in 2020. As well, many video game companies are already starting to voluntarily disclose these odds to address some potential concerns.

Industry Solution: Battle Passes

Battle Pass monetization is the newest Gaming-as-a-Service trend that allows for developers to monetize their users by charging them one-off or recurring fees to access unlockable in-game content such as skins and weapon upgrades for a set period. Different games have experimented with this including utilizing a tiered approach and incorporating loot box features. Fortnite, Apex Legends, Call of Duty and Assassin’s Creed Origins have all transitioned to a Battle Pass approach. The main benefit of using Battle Passes is that, unlike loot boxes, there is no element of chance that dictates whether a player purchases a Battle Pass and ends up with undesirable content. Due to the transparency of what is provided to the purchaser and guarantee of receiving consideration for payment, this relatively new method of monetization is allowing companies to proactively avoid the growing legal scrutiny looming over loot boxes while continuing to monetize their game.