REGULATING THE TREND OF LOOT-BOXES AND MICROTRANSACTIONS
Updated: Apr 23, 2021
This post is the winning entry in the RFMLR RGNUL Freshers' Article Writing Competition, 2020, submitted by Kanav Aggarwal and Aditya Srivastava, first-year students at the Rajiv Gandhi National University of Law, Punjab.
Image Credits: Shutterstock
From its commercial conception in a science fair in the 1950s, video games and gaming in general, have evolved from being primarily a source of entertainment to a multi-billion-dollar venture possessing immense potential. Evolving from arcade games to the personalised idea of multiplayer and console gaming, the scope of the gaming industry has witnessed exponential growth and it now boasts of a global presence.
The nature of games was such that it capitalized on the competition between players who could record their high scores and were propelled by the rush to see their names on top of the high-score lists. The adrenaline rush so achieved, was further exploited by the video-game designers to incorporate such mechanisms having the dual effect of monetization and increased engagement. The internet boom catalysed the gaming industry and recently, the advent of mobile gaming has made it an inalienable part of modern-age life. Paralleling the innovative and exponential growth in video games, the monetization of the medium has had significant leaps, enticing the players to spend more to satisfy the rush. Changing consumer habits coupled with the change in technology, monetizing standards, and methods have stayed ahead of the curve. Microtransactions and particularly loot boxes have in recent years gained immense traction as the question of their legality and the scope of their regulation looms heavy under the trail of data privacy and user control.
2. THE REGULATION DILEMMA: MICROTRANSACTIONS AND LOOT-BOXES
Microtransactions and loot-boxes have been under scrutiny and more so in the light of events in recent years that have questioned the legitimacy of these methods of monetization in video games. Understanding these mechanisms is the first step in the process of analysing this dilemma of regulation and legitimacy.
Microtransactions are essentially a business model wherein in-game purchases are made for goods and items. It is small in price and function, hence the term ‘microtransactions’. Games like the Call of Duty Series offer microtransactions in the form of in-game currency which is utilised for weapon upgrades, the game Overwatch offers cosmetic items as in-game transactions, whereas the FIFA game franchise sells FIFA points under micro-transactions. They are also referred to as “pay-to-win” in the gamers’ community as it conjures and relates to some of the most player-unfriendly applications of the industry. They unfairly advantage the players indulging in such transactions as opposed to other players who don’t. The sentiment of hate towards microtransactions also stems from the fact that they undermine the pure process of gaming, the efforts to unlock weapons and characters are considered worthless owing to such shortcuts.
Loot-boxes is a kind of virtual treasure chest, purportedly containing a random selection of items that would be highly desirable to players. They resemble goodie bags that contain randomised rewards which may range from exceptionally rare items complementing the players, to banal, cosmetic items. This version of microtransaction is often accompanied by sensory triggers such as sound & light effects likening it to the mechanism of slot machines in casinos. It has been under the scrutiny and radar of government agencies because of the addictiveness it lends to the game and the rather unhealthy effects on the players, considered gambling to an extent. The issue of agencies and countries' definitions and ramifications on loot-boxes and microtransactions is discussed as the central theme in the article.
3.UNDERSTANDING THE MECHANISMS: IN LIGHT OF ACTIONS AND AFFIRMATIONS BY AGENCIES AND COUNTRIES
The mechanism and the idea behind the success of microtransactions (more specifically loot-boxes) are that the games offer a ‘free-to-play’ model which entices players from all ages and walks of life. The prospect of playing a game for free and paying small amounts is preferable to overpaying some amount upfront for a game. The marketing strategy plays on the psyche of the consumer leading him/her to believe that they are on the winning side of the transaction but the reality is stark opposite. Loot-boxes and microtransactions have been under the radar of government agencies and advocacy groups for the reason that they supposedly inculcate behaviour paralleling gambling, especially in adolescent and teenage children. As a consequence of the striking similarities, investigations across the globe are fixated on the point that loot-boxes are in contravention of gambling rules and thus should be regulated, and hence, the tussle between the pro and anti-regulation fronts sprang up.
The Star Wars Battlefront 2 fiasco woke up the legal world to the effects that loot-boxes have over gamers and children. Certain countries have taken initiatives in the field of regulation of loot-boxes and microtransactions. Belgium, being amongst the first to respond to this, essentially termed loot-boxes and microtransactions as ‘gambling’, with the Belgium Gaming Commission imposing fines of up to 800,000 Euros and five years of imprisonment. The Belgian Minister of Justice Koen Greens, went on record to state the central issue with loot-boxes in games, saying that “putting gambling in gaming is dangerous for the mental health of children, who may be tempted to buy the loot-boxes.” Similarly, the Australian gambling regulators have termed loot-boxes as under the definition of ‘gambling’. Whereas, the regulators in the USA have merely expressed concern and have not taken any proactive decisions which could affect the revenues and livelihoods related to the gaming industry.
The global nature of the gaming industry should be taken into consideration while analysing the effect of regulations. Imposing restrictions and regulations would create different versions of the game in different countries, and there have been statements to suggest that the games may not be released in countries with regulations. Such consequences should be unintended as can be reflected in the Star Wars debacle, which is herein discussed to signify the magnitude of loot-boxes and the subsequent ramifications of regulations.
4. THE TIPPING-POINT (STAR WARS 2 BATTLEGROUND DEBACLE)
At first, Bethesda, an American video-game publisher, introduced the idea of paid in-game content with their game Elder Scrolls 4 in 2006. While it drew the ire of gamers, the paid pack became one of the most downloaded bundles on the Xbox 360. In 2009, the concept was picked up by Electronic Arts (“EA”) and implemented in their football game FIFA in the form of Ultimate Team, where players could spend real money to get stronger players like Lionel Messi or Cristiano Ronaldo for their team, which could then be used to compete against others. Gamers could grind for them, but getting them purely through gameplay was tedious and long, and by paying money they could skip spending hours into playing to get the player cards. As explored above, having a randomised system of reward creates addiction, and the Ultimate Team mode proved to be a huge revenue model for EA. In 2020, the mode alone earned $1.49 billion for the developer, and the numbers are staggering indeed.
EA essentially made loot-boxes and microtransactions a staple of the gaming industry. Other developers, of course, could not resist taking a bite of the huge cake that EA was earning itself every year. Another way to maximise revenues was the concept of a gaming pass, essentially a subscription service, where if you paid a nominal amount monthly one could receive all the game content in the future, as it was released. This model is essentially what a lot of companies practice nowadays, not just in gaming, to keep the money flowing in from the consumer, as an upfront one-time purchase is less profitable compared to this subscription-based model.
Most of the video games developed from 2014 onwards featured loot-boxes. All the major AAA developers (AAA is an informal term used to denote video games published by major developers and/or backed by massive funding) ensured that the in-game progression went hand in hand with loot-boxes, thereby forcing gamers to cough up the dough to progress in the game. While games like Overwatch kept loot-boxes to purely cosmetic items, EA, Activision, and a host of other developers tied it in gameplay to give advantages to players who spent more, which is, essentially, gambling for advantage.
As companies pushed the limits of in-game monetisation, the despair and frustration of gamers grew. The Catch-22 they found themselves trapped in, wanting to stop paying for loot-boxes but forced to do so to progress in the game, seemed to be inescapable. However, the bubble finally burst when Star Wars Battlefront 2 came out.
“The intent is to provide players with a sense of pride and accomplishment for unlocking different heroes.”
The above quote, posted by the EA support team to a gamer irate about the pay to win model came under severe criticism. The loot-box system was so exploitative it was dubbed as a casino in the facade of a video game. Disney personally had to get involved because of the universal anger. EA’s stock saw such a massive decline that they immediately turned off all purchases in the game and later had to rework the entire progression system to get rid of all the paid content it featured.
This was the watershed moment gamers had been waiting for. This victory against a greedy anti-consumer company forced to bow down to the consumers’ will, changed the shape of online gaming. It also saw the whole gaming community unite, something hitherto unseen as it was mostly fractured between different games and franchises. The exploitative and malicious capitalist of the gaming industry was defeated, and the treatment EA suffered proved a warning sign to other developers to rethink their approach towards their consumers.
5. RISING FROM THE ASHES
Developers have now changed their stance towards their players and have become a lot more aware of alienating their player base. For instance, Activision’s magnum opus, the Call of Duty Series, had for a long-time locked maps and modes behind a paywall as DLCs. However, with the release of Call of Duty: Modern Warfare in 2019, they pledged to release all major content for free to all gamers with only cosmetic items as payable content. Their CEO, Bobby Kotick, said that he wanted to prove that the tag “Micro transactivision” was a misnomer.
For EA, it has been a mixed bag. While the present state of Star Wars Battlefront 2 is a lot better than it was at launch, their sporting franchises FIFA and Madden NFL still are the epitome of the pay to win model. Belgium has already declared FIFA Ultimate Team as gambling and imposed a fine of $20 million on EA. The House of Lords in the United Kingdom might follow suit soon.
Developers today favour an in-game reward system of season’s pass, where playing matches garners you point that unlock different tiers of content. Playing and winning more unlocks the tiers faster. Of course, by paying a certain fee one can bypass the grind to some extent, but this system seems to be less devious than the randomised reward system of loot-boxes. This hits the sweet little spot of developers earning extra revenue by charging for customisable items, while not putting players who don't want to spend extra money at a disadvantage. While certain games still offer loot-boxes these days, the greed behind them is certainly a lot less than it was before. And after Star Wars Battlefront 2 turned out to be the straw that broke the camel’s back, loot-boxes have become a fading trend. It can be said with surety that gamers won’t be losing their sleep about it either.
 Eddie Makuch, Microtransactions, Explained: Here's What You Need To Know, Gamespot, available at https://www.gamespot.com/articles/microtransactions-explained-heres-what-you-need-to/1100-6456995/.  Loot box, Macmillan Dictionary, available at https://www.macmillandictionary.com/buzzword/entries/loot-box.html.  Wong Shiying, What loot boxes in video games are and why they can be as addictive as gambling, Straits Times available at https://www.straitstimes.com/singapore/what-loot-boxes-in-video-games-are-and-why-they-can-be-as-addictive-as-gambling.  Elvira Torres Benito, Micropayments and loot boxes: a global regulatory challenge that is transforming the gaming industry, Lawhead, available at https://lawahead.ie.edu/micropayments-and-loot-boxes-a-global-regulatory-challenge-that-will-change-videogames-forever/.  Id. Holly Hunt, EA prepares to block FIFA Ultimate Team mode amid loot box lawsuits, Insider Sport, available at https://insidersport.com/2020/12/14/ea-prepares-to-block-fifa-ultimate-team-mode-amid-loot-box-lawsuits/.