Loot box

In video games, a loot box (sometimes loot crate or prize crate, among other names) is a consumable virtual item which can be redeemed to receive a randomised selection of further virtual items, ranging from simple customization options for a player's avatar or character, to game-changing equipment such as weapons and armor. A loot box is typically a form of monetization, with players either buying the boxes directly or receiving the boxes during play and later buying "keys" with which to redeem them. These systems may also be known as gacha (based on gashapon - capsule toys) and integrated into gacha games.

Loot box concepts originated from loot systems in massively multiplayer online role-playing games, and from the monetization of free-to-play mobile gaming. They first appeared in 2004 through 2007, and have appeared in many free-to-play games and in some full-priced titles since then. They are seen by developers and publishers of video games not only to help generate ongoing revenue for games while avoiding drawbacks of paid downloadable content or game subscriptions, but to also keep player interest within games by offering new content and cosmetics through loot box reward systems.

Loot box systems were made highly visible through the popularity of Overwatch (2016), but several games that followed in 2017 expanded approaches to loot boxes that caused loot box systems to be highly criticised by the second half of 2017, in particular Star Wars Battlefront II. Such criticism includes fear of gambling addiction particularly for younger players, "pay to win" gameplay systems that favor those that spend money on loot boxes, and negative effects on gameplay systems to accommodate loot boxes. They have been criticised as being anti-consumer when implemented in full-priced games. Loot box also serve as a source of the virtual items used in gray-market skin gambling.

Due to fears related to gambling, loot boxes have become regulated under gambling law in China, Japan, Australia, The Netherlands, Belgium, and the Isle of Man. Since November 2017, loot boxes are the subject of investigations by the gambling regulators of several more countries.

Design

The opening of a loot box from Overwatch. Elements such as the box shaking, the flying discs with rarity indicated by color, and the final reveal, are designed to heighten the appeal of opening loot boxes. Once the process is done, the player is presented with a button to take them to the shop to buy more boxes.

A "loot box" can be named several different ways, usually related to the type of game that it appears in. A "loot box", "loot crate" or "lockbox" is often applied to shooter games since one obtains new equipable outfits or gear from it. Digital card games may use the term "booster pack" following from collectible card game roots.[1]

Loot boxes are often given to players during play, for instance as rewards for leveling up their character or completing a multiplayer game without quitting.[2][3] Loot boxes may also be given out through promotions outside of gameplay, such as watching certain streaming events.[4][5] Players can also buy them directly, most often with real-world funds but also through in-game currency.[6] Some loot boxes can be redeemed immediately, while redeeming others requires further consumable items dressed as "keys".[7]

Loot boxes are generally redeemed through an in-game interface which dresses the process with appealing visual and audio effects.[2][8] Some such interfaces are explicitly modelled on slot machines or roulette wheels.[8] When the player runs out of loot boxes or keys, a prominent button may be displayed with which they can buy more.[9]

The items that can be granted by a loot box are usually graded by "rarity", with the probability of receiving an item decreasing rapidly with each grade. While the set of items given are randomly selected it can come with certain guarantees, for instance that it will contain at least one item of a certain rarity or above.[10] In some redemption processes, yet-revealed items are presented with a color that corresponds to its rarity level, further heightening the excitement of revealing the items.[8]

The player's inventory is managed in server databases run by the game's developers or publishers. This may allow for players to view the inventory of other players and arrange for trades with them.[7] Items obtained from loot boxes and equipped or used by the player's character are nearly always visible to all other players during the course of a game, such as seeing a character skin or hearing a voice line.[9]

Most loot box systems grant items without regard for what the player already owns. Means are provided to dispose of these duplicates, often involving trading them with other players or converting them into an in-game currency. Some loot box systems allow players to then use this currency to directly purchase specific items they do not have.[3][11]

Some loot box systems, primarily from Asian developers, use an approach adapted from gashapon (capsule toy) vending machines.[12] These gacha games offer "spins" (analogous to turning the crank of a capsule machine) to get a random item, character, or other virtual good. One form of gacha called "complete gacha" allows players to combine common items in a set in order to form a rarer item.[13] The first few items in a set can be rapidly acquired but as the number of missing items decreases it becomes increasingly unlikely that redeeming a loot box will complete the set. This is particularly true if there are a large number of common items in the game, since eventually one single, specific item is required.[13] This particular practice was banned in Japan by the Consumer Affairs Agency in 2012, though gacha games at large remain.[13]

Some games may include seasonal or special event loot boxes which include specific items only available during the time of that event.[14] In the case of digital collectible card games which rotate expansions in and out as part of keeping a viable meta-game, booster packs of a certain expansion may only be purchasable while that expansion is considered in standard play, and once it is "retired", these cards can no longer be earned in packs, though still may be gained from the use of in-game currency and used outside standard play.[15]

History

An array of Gachapon (capsule toy) machines in Hong Kong. Loot boxes were inspired by the random distribution of gachapon one could acquire through these machines.

Loot boxes are an extension of randomised loot drop systems from earlier video games, frequently used to give out randomized rewards in massively multiplayer online role-playing games (MMO or MMORPG) or similar games.[1][16] Loot boxes took this approach and formulated a monetization approach used by free-to-play games in mobile gaming.[1] Loot boxes also incorporate elements of the randomness of acquiring gachapon capsule toys.[12]

The first known instance of a loot box system is believed to be an item called "Gachapon ticket" which was introduced in the Japanese version of MapleStory, a side-scrolling MMORPG, in June 2004. Such tickets were sold at the price of 100 Japanese yen per ticket. Like real-life gachapon machines, players attained randomly chosen game items when they used the ticket on "Gachapon", an in-game booth that was distributed across the game world.[17]

The Chinese free-to-play game ZT Online (or simply Zhengtu) which was released in 2007 by the Zhengtu Network is also considered as one of the early examples of video games that contained loot boxes as a part of its game system.[8] Players in Asian countries typically do not have the funds to purchase full-cost titles, and use Internet cafes or PC bangs to play the game for free, or resort to copyright infringement to obtain copies of games for free. Instead of trying to change this approach, Asian games like ZT Online introduced loot boxes as a means to assure monetization from a game that they would otherwise not receive revenue from the base sale.[18] Within a year, Zhengtu Network reported monthly revenue from ZT Online exceeding US$15 million, justifying the profitability of this scheme.[19][20] This led to the approach of releasing games as free-to-play with microtransactions atop the title.[18] Many free-to-play mobile games in Asian regions would offer loot box approaches, most notably Puzzle & Dragons, released in 2011, which used its gacha approach to be the first mobile game to earn more than US$1 billion from its monetization scheme.[12]

In Western regions (North America and Europe) around 2009, the video game industry saw the success of Zynga and other large publishers of social-network games that offered the games for free on sites like Facebook but included microtransactions to accelerate one's progress in the game, providing that publishers could depend on revenue from post-sale transactions rather than initial sale.[18] The first appearances of loot boxes in these regions was with Team Fortress 2 in September 2010, when Valve Corporation added the ability to earn random "crates" to be opened with purchased keys.[9] Valve's Robin Walker stated that the intent was to create "network effects" that would draw more players to the game, so that there would be more players to obtain revenue from the keys to unlock crates.[18] Valve later transitioned to a free-to-play model, reporting an increase in player count of over 12 times after the transition,[20] and hired Yanis Varoufakis to research virtual economies. Over the next few years many MMOs and multiplayer online battle arena games (MOBAs) also transitioned to a free-to-play business model to help grow out their player base, many adding loot box monetization in the process,[20][21] with the first two being both Star Trek Online[22] and The Lord of the Rings Online in December 2011.

Separately, the FIFA series from Electronic Arts (EA) included a "FIFA Ultimate Team Mode" that allowed players to use virtual trading cards to build a team. Initially released as downloadable content, the "FIFA Ultimate Team Mode" transitioned to a free add-on to the base game with the 2010 release, with the ability to buy card packs as a means to generate revenue for the game.[18] EA took the success of this transition for Mass Effect 3, which is the considered the first packaged game to offer a form of loot box at its launch, in March 2012. Mass Effect 3 offered "packs" that would offer gear otherwise obtainable by grinding through online gameplay as a means to offset the cost of running the multiplayer services. The Mass Effect 3 team worked closely with the FIFA team to get the rollout of these packs right, which developer Jesse Houston compared to opening a Magic: The Gathering booster card pack to make a player feel like they were always getting value from the pack.[18][23]

Other early examples of packaged games with loot boxes included Counter-Strike: Global Offensive in August 2013, adding "weapon cases" in an update,[24] and Battlefield 4 in October 2013, adding with "battlepacks", though they did not become purchasable until May 2014 and never granted duplicate items.[25][3]

With the financial success of Overwatch and its loot box systems, several games in 2016 and 2017 included the mechanic as part of its meta-game,[26] including Call of Duty, Halo 5: Guardians, Battlefield, League of Legends,[27] Paragon, Gears of War 4, and FIFA 17. By late 2017, a large number of core AAA games from key franchises released near this time, including Middle-earth: Shadow of War, Forza Motorsport 7 and NBA 2K18, with varying mechanics in their loot box systems, led to critical review of the practice starting in October 2017.[28][29][30] In particular, the highly-visible Star Wars Battlefront II, released amid criticism of its loot box systems in November 2017, led to renewed discussions at various government levels related to the legality of these systems.[31][32] The review aggregator OpenCritic announced plans to include a "business model intrusiveness" for games that provide a metric on how much a game's loot and DLC system can impact the game.[33] The reaction to loot boxes in the last half of 2017 was considered one of the major trends in the video game industry in 2017.[34][35][36]

Criticism

Loot boxes are considered part of the compulsion loop of game design to keep players invested in a game.[8] Such compulsion loops are known to contribute towards video game addiction and are frequently compared to gambling addiction.[1][8][37] This is in part due to the use of a "variable-rate reinforcement schedule" similar to how slot machines dole out prizes.[38] While many players may never invest real money in a loot box system, such addictive systems can bring large monetary investments from "whales", players who are willing to spend large amounts of money on virtual items.[29] Gambling concerns are heightened in games that offer loot boxes and are known to be played by children.[39] Video games have generally been considered games of skill rather than games of chance and thus are unregulated under most gambling laws, but researchers from New Zealand and Australia, writing in Nature Human Behaviour, concluded that "loot boxes are psychologically akin to gambling".[40]

Some loot box systems within free games are criticized as "pay-to-win" systems, and may be derogatorily referred to as "pay-to-loot". In these cases, the contents of the loot box contain items beyond customization options that affect gameplay, such as booster packs for a digital collectible card game, and with the impact on gameplay proportional to the item's rarity. This can tie the quality of a player's ability to compete with others to the random generation systems of the loot pack, and may drive players into paying for additional loot boxes to obtain high-rarity items to fairly compete with others.[1] Blizzard's digital card game Hearthstone, released in 2014, is frequently considered to require financial investment in booster packs to be a successful player.[41]

Some commentators expressed concern that for these types of loot box models to be successful for the publishers, the game itself has to be designed around promoting and encouraging the player to purchase loot boxes, which fundamentally impacts core game design principles and may weaken the underlying game mechanics.[42][43] This may include the use of loot boxes as a means to bypass the need to grind missions repeatedly to get gameplay-changing items that significantly help towards completing a single-player game, which drives players to use real money to purchase these to avoid the time sink. For example, Middle-earth: Shadow of War has a second, true ending requiring the player to gain many more stronger allies to meet its higher difficulty. While the developers playtested the balance of the game without the loot box system activated, assuring the game could be completed without additional monetization, reviewers found that the game required a great deal of time needed to complete numerous additional missions for the chance to acquire stronger allies, and with the consistent presence of the in-game market for loot boxes, made it difficult to avoid the allure of paying real-world money to bypass this grinding, creating a negative on the overall experience.[44][45] The presentation of a storefront within a game which allows one to use real-world funds to purchase loot boxes or other equipment can also impact the sense of immersion a player has with a game.[46] By July 2018, the developers of Shadow of War had released patches that completely removed the in-game storefront and loot box system.[47][48]

The implementation of some loot box systems are considered anti-consumer by some players and commentators. Full-priced games which already provide downloadable content and then include a loot box system have been heavily criticized by players.[28] Some journalists identify the inclusion of loot boxes in multiplayer games as justified as part of the publisher's cost for maintaining the game servers, but see their use in single player games as only a means for the publishers to profit.[43]

Developers and publishers consider loot boxes as part of a necessary means to monetise AAA video games beyond their initial sale. Publishers have been hesitant of raising the base price of AAA games beyond US$60 (as of 2017) for fear of immediately losing sales,[49] and instead seek post-release revenue streams to cover the increased costs and pace of the development process, the stagnation in growth in video game audiences, and the shorter time they perceive to have to gain full-price sales of their games after release. Monetization schemes like loot boxes can help serve for long tail revenues well after the release of the game.[43][50][51][52][53][54] Post-release monetization is believed by publishers to be necessary to compete with the mobile gaming sector, which predominately uses free-to-play monetization schemes.[55] An analyst for KeyBanc Capital Markets, in the wake of the Star Wars Battlefront II controversy, said that the price of video games, even with added purchases for loot boxes and microtransactions, remains lower than other forms of media on a per-hour basis, and that games are generally underpriced for what value they give.[56]

Developers noted that the decision to include loot boxes in a game, and how they will be priced in real-world funds, may come from their publisher or upper management, but the implementation of their mechanics, including what they include, how they are doled out, and the like, are frequently set by the developers themselves.[55] Some developers argue that the loot box approach can mesh well with certain types of games, as long as they are not implemented to be a predatory manner towards consumers, and the decision to implement loot boxes within a game may be chosen by the developers rather than a mandate from the publisher.[57] When the loot box systems are used principally as a means to gain post-sales revenues rather than as an incentive to continuing playing the game, developers feel this requires them to significantly alter the game design away from challenge in gameplay and onto getting players to spend money.[55] They found that games where the baseline gameplay does not encourage or require spending money for loot boxes, the addition of new content obtained from loot boxes is generally celebrated within that community and may gain brief revenue from that.[55] Further, loot box systems are generally better handled when their use is determined early in development so the developers can design around it, rather than a last-minute addition.[55] Developers found that the mechanics of loot boxes are more accepted by non-Western audiences and younger Western audiences, where these groups have developed different consumption patterns than older Western players, particularly as a result of growing up playing free-to-play mobile titles.[20][57]

Proponents for the use of loot boxes have refuted complaints that they are gambling systems by likening them to opening booster packs from physical collectible card games (CCGs) like Magic: the Gathering. In the United States CCGs have been subject to previous legal challenges related to if they are a form of gambling, but were not found liable.[58] Some countries like Belgium have specifically exempted CCGs from gambling legislation because these games do not offer any type of gambling element.[59] However, opponents of loot boxes address the fact that the process of opening a digital loot box is designed around a sensory experience and immediate return that can affect those that may be prone to gambling, a factor that does not exist with physical booster packs.[58]

Some have argued the increased use of loot boxes in games since Overwatch was due to the perception that the act of opening loot boxes is an exciting element for a game for both the player, and those watching the player either on YouTube videos or through live streaming, creating a number of multi-million subscriber video streams solely dedicated to opening loot boxes.[60] NPD Group, which tracks video game sales, says that for games released through September 2017, there was no sign of consumer purchase change, positively or negatively, on games that included loot boxes.[61] NPD reported that NBA 2K18, which had been criticized by players for its loot box system at its September 2017 launch, ended up as the best-selling game in North America for that month.[62] Juniper Research estimated that the global video game market, worth around US$117 billion in 2017, is set to grow to about US$160 billion by 2022, buoyed by the increased use of loot boxes, particularly within China.[63]

Distinct from these issues of loot boxes, games with randomized in-game rewards, including those from loot boxes, and which offer the means to trade these items with other players, are known to attract the use of skin gambling. In skin gambling, these customization items, "skins", become a black market virtual currency among players and operators of websites that allow players to trade the items for real-world funds, or to use those items to gamble on eSports or other games of chance; subsequently these activities have been identified as gambling by legal authorities, and several legal challenges arose in the last half of 2016 to stop this practice. Valve's Counter-Strike: Global Offensive, updated in 2013 to include randomized loot drops from in-games, has been the most visible example of skin gambling by mid-2016.[64] Several games which followed in 2016 and onward that used loot boxes or other randomized rewards, including Rocket League and PlayerUnknown's Battlegrounds, did not include the ability to trade items or placed limits on trades, thus eliminating skin gambling from these games.[65][66]

Specific examples

Overwatch

Not all loot box systems are taken critically. Blizzard Entertainment's Overwatch's system is considered a harmless use of loot boxes despite some of its implementation flaws.[67][68][69] All items are cosmetic and have no influence on gameplay, with a high degree of quality and visual appeal to make them very desirable by players. Players are able to earn in-game currency from duplicates or random drops that can be used to purchase items, avoiding the need to purchase many loot boxes to get one specific item.[70][71] The Overwatch approach for loot boxes is also considered a good way of introducing its new content, released for free to all players, as part of special events, and a fair means for Blizzard to obtain revenue as part of their "games as a service" model for Overwatch.[42] Blizzard has also listened to feedback on its loot box system and made adjustments to it. For example, in June 2017 in response to long-time player criticism, Blizzard released changes to Overwatch loot box system to reduce the frequency of obtaining duplicate items from loot boxes while trying to keep the same in-game currency earning rate by increasing the value of in-game coin rewards from loot boxes.[72] Blizzard's CEO Mike Morhaime said that with Overwatch's loot boxes, they avoided inclusion of pay-to-win, gameplay-changing elements and the ability to convert rewards from loot boxes back into real-world money, and thus "[doesn't] think Overwatch belongs in that [loot box] controversy".[73] Overwatch' producer Jeff Kaplan also added that in their design of loot boxes, they wanted to make sure players had a way to obtain cosmetic items they wanted that did not rely on in-game skill or random luck, adding the option of using in-game coins to purchase such cosmetic items directly.[74] Industry analyst Michael Pachter speculated that the loot box model of Overwatch that uses only cosmetic items will become the more preferred method of offering this monitization in the future.[75] Despite this, Overwatch's system still does not allow players to directly use real-world funds to purchase a specific cosmetic item, and the rate which they earn in-game currency towards loot boxes can be slow, both aspects which contribute towards in-game spending and the potential for gambling.[67][68]

Star Wars Battlefront II

Conversely, Electronic Arts' Star Wars Battlefront II, developed by Electronic Arts' DICE studio and released in November 2017, received heightened attention in the wake of the October 2017 loot box criticism. Principally an online multiplayer shooter, Battlefront II was developed to eliminate the "season pass" approach that the original 2015 game had used, which was found to have split the player base over those that paid for the added content and those that did not.[49] Instead, Battlefront II brought in other microtransaction schemes that would still allow all players to play together but provided the desired revenue streams for EA. These schemes include a loot box system providing, among other rewards, "Star Cards" that provide boosts to a specific character class, and which have tiered levels tied to rarity that provide greater boosts. Because these higher-tier Star Cards give direct advantages to players willing to acquire lots of loot boxes with real-world money than at the rate one would obtain simply playing the game, its loot box system at the time of its open beta period had been described as one of the more egregious "pay-to-win" systems for a full-price game.[71][76][51] EA did re-evaluate this approach in response to criticism, and prior to full release, reworked the loot box system so that some items still offered in loot boxes like Star Cards could also be earned through other routes such as in-game achievements, in-game currency, or through direct monetary purchase.[77][78] Just prior to release, members of EA Access that had early access to the release version of Battlefront discovered that its other in-game currency and microtransaction systems required players to spend numerous hours in game matches to earn credits at a sufficient rate to unlock special hero characters, or alternatively spend real-world funds to buy in-game currency or loot boxes that offered that currency as a possible reward. This drew even more criticism of the combined loot box/microtransaction systems, all elements of "pay to win" schemes. Just hours before the game's official launch, EA and DICE temporarily disabled all microtransaction purchases until they figured out a way to offer these systems in a favorable manner for consumers; DICE stated: "We will now spend more time listening, adjusting, balancing, and tuning" before they are reintroduced.[79] According to The Wall Street Journal, the decision to remove the microtransactions just before launch was demanded by Disney, which owns the Star Wars properties. Disney, knowing the franchise draws in younger players, feared the loot box systems would contribute towards gambling behavior in children.[80][39] EA later affirmed its revamped approach to microtransactions within the game to be released in March 2018, eliminating any pay-to-win elements like Star Cards as potential rewards from loot boxes: Star Cards would otherwise only be earned by an experience point-based progression in the game, while loot crates would be limited to only cosmetic items or in-game credits to buy these items.[81]

The player reaction to Battlefront's loot box system led to the Belgian Gambling Commission to evaluate the nature of loot boxes specifically in Battlefront, and discussion towards a potential sales ban within state of Hawaii and others within the United States.[82] EA has stated that they do not consider the approach of loot boxes in Battlefront as gambling as it is strictly an optional feature.[83] The reaction and change to the loot box/monetization scheme caused sales of Battlefront to fall from expectations, and EA's stock lost 8% of its value a week after its release (equal to about US$3 billion). Analysts expect that EA will have to re-evaluate how they monetise games in the future to avoid similar backlash, which may further reduce future revenues.[84] In its fiscal quarter results following the release of Battlefront II, EA reported missing their sales mark of 10 million units by about 10%, which EA CFO Blake Jorgensen attributed to the loot box controversy over the game. This, coupled with the removal of microtransactions in the game while they readdressed the loot box approach, led to the game missing EA's revenue projections for that quarter.[85] In April 2018, EA's Patrick Söderlund stated that the loot box situation over Battlefront impacted the company significantly, which included a reorganization of executive positions, and that "For games that come next, for Battlefield or for Anthem, [players have] made it very clear that we can’t afford to make similar mistakes. And we won’t."[86]

Regulation and legislation

Because of their use of random chance to gain items after committing real-world funds, games using loot boxes may be considered a form of gambling.[21] Games with loot box systems have become subject to regulation in several Asian countries, while questions of the legality of loot boxes are under considerations in Western ones. Steven Wright for PC Gamer observed that several of the concerns for loot boxes related to gambling had been previously experienced through lawsuits in the 1990s against the baseball card industry as well as with the physical Pokémon Trading Card Game, but these cases did not impact either arena to a significant degree.[87]

Asia & Oceania

China

In December 2016, China's Ministry of Culture announced legislation which required "online game publishers" to publicly release from May 2017 onwards the "draw probability of all virtual items and services".[88] When the law came into effect publishers complied, resulting in a variety of statistics being released which quantified the odds of Chinese players receiving different categories of item from each loot box, some of which were as low as 0.1%.[89]

The law also banned game publishers from directly selling "lottery tickets" such as loot boxes. In June 2017, Blizzard Entertainment announced that, "in line with the new laws and regulations", loot boxes in their game Overwatch would no longer be available for purchase in China. Players would instead buy in-game currency and receive loot boxes as a "gift" for making the purchase.[90]

Japan

Following the success of the gacha model from Puzzle & Dragons in 2011, it became recognized in Japan that the system was essentially gambling, particularly for younger players.[12] By May 2012, Japan's Consumer Affairs Agency banned the practice of "complete gacha", in which a predetermined set of items gained from loot boxes would combine once completed to form a rarer and thus more valuable item. This was done not by introducing any new legislation, but by issuing a legal opinion that virtual items could be considered "prizes" under existing legislation written in 1977 to prevent the complete gacha practice in the context of baseball trading cards. Within a month of the opinion being issued, all major Japanese game publishers had removed complete gacha rules from their games, though many developers found ways around these rules.[13][12] Japanese mobile game developers, including GREE and DeNA, worked to establish a self-regulating industry group, the Japan Social Game Association, which was an attempt to coerce developers from these models, but it did not prove successful, and the Association was disbanded by 2015.[12]

South Korea

In March 2015, members of South Korea's National Assembly, led by the Liberty Korea Party, proposed amendments to the country's existing games industry regulation that would require games companies to release "information on the type, composition ratio, and acquisition probability" of items granted by loot boxes.[91] Though the amendment did not pass, it led to attempts by the South Korean games industry to self-regulate.[92] This has not convinced assembly members, who have continued to propose statutory regulation.[91]. However, there have been several revisions to the self-regulation (most recently, in July 2018), which now require all loot boxes to clearly display the probability of the items to the player.[93] There also plans in the near future to expand the scope of this regulation to include other in-game purchases, such as materials purchased to improve items.[94]

The Fair Trade Commission still oversees consumer issues related to loot boxes and video games; in April 2018, it issued a US$875,000 fine against Nexon related to its game Sudden Attack for deceptive loot box practices, as well as two smaller fines to other companies.[95]

Singapore

In October 2014, Singapore's parliament passed The Remote Gambling Act, which introduced a ban on unlicensed gambling websites and fines for anyone violating it. The law's definition of gambling included staking "virtual credits, virtual coins, virtual tokens, virtual objects or any similar thing that is purchased...in relation to a game of chance",[96] leading to concerns that it would require producers of any game in which players paid money and received a randomised outcome to seek a license to operate from the government.[97]

In response to games industry lobbying home affairs minister S. Iswaran clarified the law in parliament, stating that "the Bill does not intend to cover social games in which players do not play to acquire a chance of winning money and where the game design does not allow the player to convert in-game credits to money or real merchandise outside the game". The minister also specifically excluded platforms which offered "virtual currencies which can be used to buy or redeem other entertainment products", such as Steam, from the provisions of the bill.[98]

However the minister also said:

The fact is that the line between social gaming and gambling is increasingly becoming blurred. What may appear benign today can quickly morph into something a lot more sinister tomorrow in response to market opportunities and consumer trends. That is why the legislation is cast broadly.

Australia

Within Australia, games with loot boxes would fall under gambling restrictions if they can be played "for money or anything else of value"; the question remains if items that only exist within game have "value" that can be quantified, even if this is related to an item's prestige.[99] The Victorian Commission for Gambling and Liquor Regulation has stated that it considers loot boxes to be gambling, but does not have the authority to prosecute companies registered overseas. The commission has suggested "an immediate R rating" for any games which feature loot boxes as a solution to this limitation.[100] In March 2018, the Australian Office of eSafety published a list of safety guidelines on the dangers of online loot boxes.[101]

The Australian Senate passed a motion, led by Jordon Steele-John, in June 2018 directing the Environment and Communications References Committee investigate loot boxes and report back to the Senate in September 2018. The investigation, which started in August 2018, evaluated the use of loot boxes in video games and considered them under issues related to gambling and effects on children.[102][99] The report, released in mid-September 2018, found that loot boxes are "psychologically akin to gambling", and that games with loot boxes are potentially "exploiting gambling disorders among their customers". The Committee recommended that games with loot boxes be labeled to warn of parental guidance and indicate that they contain "in-game gambling content" and suggest that such games be rated to represent the legal gambling age in the country.[103]

New Zealand

The Gambling Commission within the Department of Internal Affairs for New Zealand stated, in response to a citizen's email, that currently in their view "loot boxes do not meet the legal definition of gambling", but are reviewing the situation as it progresses.[104]

Europe

United Kingdom

In March 2017, the UK's Gambling Commission issued a position paper "Virtual currencies, eSports and social casino gaming".[7] The paper took the position that virtual items are "prizes", and that, in general "Where prizes are successfully restricted for use solely within the game, such in-game features would not be licensable gambling".[7][31] However, the paper continues that:[31]

In our view, the ability to convert in-game items into cash, or to trade them (for other items of value), means they attain a real world value and become articles of money or money’s worth. Where facilities for gambling are offered using such items, a licence is required in exactly the same manner as would be expected in circumstances where somebody uses or receives casino chips as a method of payment for gambling, which can later be exchanged for cash.[7]

In August 2017, the commission opened an investigation into skin gambling.[105] Later, in November, the commission's executive director Tim Miller was interviewed on BBC Radio 4 where he confirmed that the commission had also been investigating loot boxes and suggested self-regulation of the games industry.[106] The Commission issued a statement that month recognising that they cannot make the determination when loot boxes crosses over into gambling, as that they can only enforce what Parliament has issued as the law for gambling, and restating the legal definition of gambling in this regards from their earlier position paper.[107] Miller said while they cannot take action toward loot boxes until Parliament changes the law, they can raise awareness of issues with loot boxes that might affect children and their parents, and are trying to evaluate the risks and issues associated with that as part of their August 2017 skin gambling investigation. Miller further stated that even if other countries were to pass laws or regulate loot boxes, the Commission would still need to follow UK's laws.[108]

In October 2017, a month prior to the Battlefront II controversy, MP Daniel Zeichner of Cambridge, on behalf of a constituent, submitted a written parliamentary question "to ask the Secretary of State for Digital, Culture, Media and Sport, what steps she plans to take to help protect vulnerable adults and children from illegal gambling, in-game gambling and loot boxes within computer games".[109] In response, MP Tracey Crouch, Parliamentary Under-Secretary for the Department, referred back to the stance of the Gambling Commission's position paper, and said that:

The government recognises the risks that come from increasing convergence between gambling and video games. The Gambling Commission is keeping this matter under review and will continue to monitor developments in the market.[110]

Separately, over 10,000 UK citizens signed a petition requesting that the UK government "adapt gambling laws to include gambling in video games which targets children", which includes issues over loot boxes.[109] The government's response stated that the Video Standards Council is in discussions with Pan European Game Information (PEGI) to determine if there are any changes needed in the PEGI standards in relationship to gambling in games, and that the Gambling Commission is also considering the interaction between these games and younger players. The response also referenced the Consumer Protection from Unfair Trading Regulations 2008 law which, according to the response "includes a requirement on businesses not to subject anyone to misleading or aggressive marketing practices, or, for example, direct exhortation to buy products, such as games content, including in-game purchases such as loot boxes".[111]

In March 2018 MP Anna Turley of Redcar asked the government to "bring forward legislative proposals to regulate the game mechanics of loot boxes". In response Minister of State MP Margot James said that "PEGI informs consumers purchasing products from major app stores if they contain further purchases and are considering the possibility of placing these notifications on boxed products", and that "regulators such as PEGI and the Gambling Commission are speaking to industry to ensure that those who purchase and play video games are informed and protected".[112]

Isle of Man

In February 2017, the Isle of Man's Gambling Supervision Commission updated their regulations to explicitly define virtual items as being "money's worth" even when not convertible into cash, explicitly bringing loot boxes under statutory regulation.[113][114]

Netherlands

In April 2018, the Dutch Gaming Authority issued a legal opinion that games which both sell loot boxes and permit the "transfer" of yielded items are illegal. In its report "Study into loot boxes: A treasure or a burden?", the authority stated that four games of the ten it studied violated gambling law in this way. It concluded that while the loot box systems in the six remaining games did not meet the threshold for legal action, they "nevertheless foster[ed] the development of addiction" and were "at odds" with the authority's objectives.[115]

The authority gave the developers of the four unnamed games eight weeks to correct their loot box system or face fines and potential bans on sales of the games in the Netherlands..[116] Valve disabled the ability for players to trade in-game items from Counter-Strike: Global Offensive and Dota 2, stating that they were told by the Dutch Gaming Authority that they had until June 20, 2018 to remedy the loot box situations within these games.[117] On 11 July, 2018 Valve re-enabled the ability for players to trade in-game items from Counter-Strike: Global Offensive, but restricted customers from the Netherlands and Belgium from opening loot boxes.[118][119]

The authority's investigation was opened following a parliamentary question tabled by MP Michiel van Nispen in November 2017. Announcing the investigation, the regulator warned of the "possible dangers" of "addiction and large financial expenses".[120][121]

Following its April announcement, the Gaming Authority began to solicit other European Union countries to help harmonize their ruling on loot boxes among the Union.[122]

Belgium

Belgium's Minister of Justice Koen Geens has led some of the country's decisions on restricting loot boxes and seeks to extend Belgium's approach to all of Europe.

In April 2018, shortly after the Netherlands' decision on loot boxes, the Belgian Gaming Commission completed its study of loot box systems in four games, FIFA 18, Overwatch, Counter-Strike: Global Offensive and Star Wars Battlefront II, and determined that the loot box systems in FIFA 18, Overwatch, and Counter-Strike: Global Offensive were considered games of chance and subject to Belgium's gambling laws. The Commission stated that for loot boxes in Overwatch, the action of opening a loot box is a game of chance to receive items of some perceived value to players, and there is no means to directly purchase in-game currency to obtain a specific item, while games like FIFA 18 merge reality and fantasy by using real-life athletes to promote the loot box system.[59] Belgium's Minister of Justice Koen Geens stated in these findings that “A dialogue with the sector is necessary" and that "It is often children who come into contact with such [loot box] systems and we can not allow that".[54] The study was conducted starting in November 2017,[82] during which Battlefront II had temporarily removed loot boxes, so was not considered in violation. The Commission ordered that the loot box systems from these three games be removed, or otherwise the publishers could face criminal offenses and fines up to €800,000.[123]

In response to the announcement, several companies made modifications to games that used loot boxes:

  • Valve said that they were "happy to engage with the Belgian Gambling Commission and answer any questions they may have". EA and Activision Blizzard declined to comment.[54] As described above for the Netherlands, a patch to CounterStrike: Global Offensive in July 2018 prevented players from Belgium or the Netherlands from opening loot boxes.[119]
  • 2K Games modified NBA 2K to comply with the ruling by removing the ability to buy MyTeam random card packs with real-world funds for Belgian players, though they can still be purchased through in-game currency.[124] 2K still asserted that loot boxes did not violate Belgium's gambling laws, and encouraged players to contact their local representatives regarding these removals.[125]
  • Blizzard Entertainment will block Belgian players of Overwatch and Heroes of the Storm from buying loot boxes, though they can still earn these through in-game rewards.[126]
  • ArenaNet disabled Belgium users from purchasing in-game currency with real world funds from Guild Wars 2. While the game does not have loot boxes, it does have have "Ecto Gambling" that allows players to use in-game currency to obtain random selections of items, which would run similarly run afoul of Belgium gambling laws as they found for loot boxes.[127]

Electronc Arts' games FIFA 18 and FIFA 19 were also called out by the Commission, however, EA did not make any modifications to these games; EA had previously stated in May 2018 that it did not believe the implementation of loot boxes in their games constituted gambling.[128] As such, the Commission has started actions with the Belgian courts to initiate legal action against EA by September 10, 2018, though whether such action is possible will be a decision of the public prosecutor’s office.[129]

Geens has called for a European Union-wide ban of loot boxes, saying that "mixing gambling and gaming, especially at a young age, is dangerous for the mental health of the child."[130]

In September 15-16th, Finland has announced that it is joining Belgium's investigation team in investigating the use of loot boxes of EA.[131]

France

Following the controversy on loot boxes and microtransactions on release of Star Wars Battlefront II, French Senator Jérôme Durain wrote to ARJEL, a government-mandated authority that oversees online gambling, to ask them to investigate the situation with pay-to-win loot boxes. Durain's letter stated his concerns that "some observers point to a convergence of the video game world and practices specific to gambling" in his request.[132] ARJEL's report, released in June 2018, does not immediately consider loot boxes as gambling, but does address the need to continue to investigate them further following a planned report to be published by the Gaming Regulators European Forum. ARJEL noted that items from loot boxes do not normally have monetary value, and even when they are traded through skin gambling, the publisher of such games do not participate in that arena, thus distancing loot boxes from other forms of gambling.[133]

Germany

In February 2018 Germany's Commission for Youth Protection announced research into loot boxes undertaken at the University of Hamburg which concluded that they present features "typical of gambling markets". Commission head Wolfgang Kreißig said that it was "conceivable that loot boxes could violate the ban on advertising to children and adolescents".[134][135] The Commission concluded in March 2018 that loot boxes can possibly violate the prohibition of direct advertisement appeals to buy products directed towards minors, however, the games that they studied were rated for players of at least 16 years old, and thus were not targeted to be played by minors. The Commission remained open on hearing complaints towards loot boxes on specific games, though have no legal authority to enact any fines or penalties should they be found to be against law.[136]

Sweden

Also in February 2018, Ardalan Shekarabi, the Swedish Minister for Public Administration, stated that he was "ready to ask [the] authorities to take a closer look at the phenomenon of loot boxes and see if there is a need to change legislation in order to strengthen consumer protection." He raised the prospect of loot boxes being classified as a lottery by 2019.[137]

North America

United States

There are presently no laws in the United States targeting loot boxes, though the renewed interest in the issues with skin gambling from mid-2016 highlighted several concerns with using virtual items for gambling purposes.[138] In past case law, courts have ruled that gambling with virtual currency within a video game is not illegal as long as there are no ties to real money, steps Blizzard Entertainment and Riot Games have done with their titles.[139] Further, most states define gambling laws based on receiving something of value from paying for a game of chance, and traditionally, in-game items are considered to have no value in previous case law. However, with more technically-literate court judges that may consider "value" more than just a financial value, alongside new perception of how much value in-game items can have resulting from the skin gambling situation, could change how the framework in the United States would classify loot boxes.[140]

Hawaii state representatives Chris Lee and Sean Quinlan issued a statement in November 2017 taking a stance against loot boxes. "These kinds of lootboxes and microtransactions are explicitly designed to prey upon and exploit human psychology in the same way casino games are so designed." They plan to introduce legislation in the State of Hawaii, specifically to block sale of Star Wars Battlefront II, and that they have spoken to lawmakers from other states to enact similar laws, such that federal legislation could be possible if enough states take action.[141][142] Quinlan stated:

I realized just how bad it has gotten. We’ve been on this path for 15 years with day-one DLC, subscription passes, pay-to-win. We as consumers kept accepting that, kept buying those games. Now we’re at a place where we need to consider, do we need to legislate? Does the ESRB have to consider a new rating that could deal with gambling and addictive mechanics?[143]

Rather than passing legislation that could have a slippery slope of harmful effects on the industry, Quinlan stated he would prefer to see the industry self-regulate itself, either by excluding gambling-like mechanics in games marketed to children, or have the industry rate games with these mechanics for more mature audiences which would affect how they would be sold and marketed.[143] Lee later outline how he would present a law, which would ban the sale of games to anyone under 21 if it contained a gambling element, defined if real-world funds are used to provide a "percentage chance" of receiving a specific in-game item rather than the item directly, applied both at retail and at digital distribution.[144] By February 2018, two separate bills were introduced in Hawaii's Congress: one bill would require retail games featuring loot box mechanisms to have clear labeling stating "Warning: contains in-game purchases and gambling-like mechanisms which may be harmful or addictive.", while a second bill would regulate sale of these games to only those 21 years of age or older, the minimum age for gambling within the state.[145] However, by March 2018, the bills failed to meet necessary requirements to be considered in the legislation, and were dropped.[146]

In January 2018, three senators in Washington state introduced Senate Bill 6266 (S-3638.1)[147] which, if enacted, would order the Washington State Gambling Commission to investigate loot boxes with specific weight on if they enable underage gambling.[148][149]

Minnesota introduced a bill in April 2018 that would prohibit sale of games with loot box systems to children under 18 years of age, and require specific labelling on these games to alert consumers to the loot box system.[58]

Multi-national

In September 2018, members from the gambling commissions from fifteen European nations, including Austria, the Czech Republic, France, Gibraltar, Ireland, Isle of Man, Jersey, Latvia, Malta, the Netherlands, Norway, Poland, Portugal, Spain, UK, as well as the state of Washington from the United States, announced a collaborative effort to "address the risks created by the blurring of lines between gaming and gambling". While the group's specific focus will be on skin gambling sites, their will be looking to "ensure that features within games, such as loot boxes, do not constitute gambling under national laws".[150]

Self-regulation

Video game industry bodies have generally stated that they cannot regulate loot boxes as gambling unless the law of their countries specify what counts as gambling within games.[31]

Europe

In many European countries, voluntary ratings for video games are provided by PEGI. PEGI has stated that a game having a loot box system will not automatically require its "gambling content" descriptor. PEGI further stated that "It's not up to PEGI to decide whether something is considered gambling or not – this is defined by national gambling laws".[31]

Parliamentary questions in the United Kingdom revealed in March 2018 that PEGI is "considering the possibility of placing [in-game purchase] notifications on boxed products".[112]

Japan

Before the disband of the Japan Social Game Association (JSGA) in 2015, it issued 2 self-regulatory guidelines for in-game gacha: provide a minimum 1% payout rate and establish a payment ceiling. For example, if a player has poured certain amount of money in gacha, the player is given a chance to choose whatever reward they want from the gacha pool freely. The association recommended a 50,000 yen ceiling.[151]

The Japan Online Game Association (JOGA), which now serves as the Japanese video game industry's self-regulatory body in lieu of JSGA, also issued similar guidelines with further specifications such as "listing all available rewards from the lootbox and payout rates of all rewards" and "listing changes to all available rewards and payout rates upon software revision, specifically during festive campaign with a deadline".[152]

United Kingdom

UKIE, the video game industry trade organization for the United Kingdom, asserted its stance that loot boxes do not constitute gambling and are "already covered by and fully compliant with existing relevant UK regulations".[31]

United States

The Entertainment Software Ratings Board (ESRB), like PEGI, provides voluntary video game content ratings for games in the United States. ESRB does not consider loot boxes as a form of gambling, and will not rate such games with their "Real Gambling" content descriptions. ESRB considers that loot boxes are equivalent to collectible card game booster packs, and that the player is always receiving something of value with opening a loot box purchase, even if it is not something the player desires. The Board further stated that games that are labelled with "Real Gambling" will likely be then rated "A-O" (Adults Only), to comply with gambling laws; retailers typically do not stock such games, and would thus harm a publisher.[153]

The Entertainment Software Association, the parent organization of the ESRB, asserted loot boxes are not a form of gambling, stressing that they are a voluntary and optional aspect in these games.[154] Major publishers Electronic Arts[83] and Take-Two Interactive[155] have also stated they do not see loot boxes as gambling due to their voluntary nature. Electronic Arts' CEO Andrew Wilson stated in May 2018 that they will continue to include loot boxes in their games, and "While we forbid the transfer of items of in-the-game currency outside, we're also actively seeking to eliminate that where it's going on in an illegal environment, and we're working with regulators in various jurisdictions to achieve that".[156]

In the wake of the criticism over Star Wars Battlefront II, financial analysts suggested that the video game industry will need to develop self-regulating principles to better handle monetization and loot box schemes to avoid government intervention into the industry.[84]

Sen. Maggie Hassan urged the ESRB to self-regulate the industry with respect to loot boxes in February 2018.

In February 2018, Senator Maggie Hassan brought up the issue of loot boxes during a hearing of the Senate Commerce, Science and Transportation Committee to four Federal Trade Commission nominees, which the Commission oversees. She asked the nominees if "that children being addicted to gaming - and activities like loot boxes that might make them more susceptible to addiction - is a problem that merits attention?"; all four nominees agreed attention would be necessary.[157] The same day, Hassan authored a letter to the ESRB "to review the completeness of the board's ratings process and policies as they relate to loot boxes, and to take into account the potential harm these types of micro-transactions may have on children" and "to examine whether the design and marketing approach to loot boxes in games geared toward children is being conducted in an ethical and transparent way that adequately protects the developing minds of young children from predatory practices." Though neither the hearing nor the letter called for regulation, Brian Crecente of Glixel considered these as pretense to get the ESRB to act on its own before Congress would be forced to take legislative action.[157]

In response to Hassan's letter, the ESRB announced in February 2018 that it would require any rated game that offers any type of in-game purchase with real-world funds, encompassing loot boxes, would be required to be labeled as such. ESRB stated the labeling was primarily meant to help parents watch for games for their children, and because of the brevity of space they have on retail packaging, did not opt to required publishers to identify the specific form of microtransaction. However, the board still asserted that they still do not believe loot boxes themselves are a form of gambling.[158][159] While Sen. Hassan called the ESRB's decision a "step forward", she still remained concerned of "the ESRB's skepticism regarding the potentially addictive nature of loot boxes and microtransactions in video games", and stated "I will work with all relevant stakeholders to continue oversight on these issues and ensure that meaningful improvements are made to increase transparency and consumer protections."[160]

Worldwide

Apple implemented changes to the iOS App Store in December 2017, requiring developers that publish games to the Store that include monetised loot boxes or other similar mechanisms that provide random items in exchange for real-world funds, to publish the odds of items that can be received from these mechanisms prior to the player spending funds on the game.[161]

Impact

As a result of the heightened criticism towards loot boxes in October 2017, Phoenix Labs opted to remove their equivalent of loot boxes from Dauntless, instead replacing the system with the ability to directly purchase customization items players want through in-game currency or real-world funds allowing them to achieve the necessary monetization for the game.[162] Playsaurus, the developers of the free-to-play Clicker Heroes, announced in November 2017 that the game's sequel Clicker Heroes 2 will not be free-to-play, citing ethical concerns of offering loot box-type systems that could encourage gambling-type behavior.[163]

See also

References

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