Policy Implications of the Video Games Industry’s Latest Controversy

Michael Smolinski and Cordell Philipps

The video game industry is no stranger to controversy. From concerns that video games promote violence, to allegations that they are too addictive, the industry has rarely been free of criticism from outside observers. More recently, however, members within the video game community have attracted the attention of lawmakers around the globe with calls for increased industry regulation. The cause of their discontent? So-called “loot boxes” which, according to many within the gaming community, are being used exploitatively by the industry to indirectly hike the prices of their games.

Loot boxes are, essentially, a way for players to purchase in-game content like characters, weapons, or other items that enhance the gaming experience. However, players often cannot purchase the desired content directly. Instead, they purchase loot boxes which contain a random set of items, hoping to receive the ones they were seeking. Further, while these loot boxes can usually be purchased with real or in-game currency, players are increasingly being nudged into spending real money as it considerably speeds up the process of obtaining desired items. Some players have reportedly spent thousands of dollars trying to acquire particular game content.

Too Close to Gambling?

The primary concern raised by opponents of loot box systems is that they share an uncomfortable resemblance with gambling, exploiting similar human behaviors to keep players coming back for the chance of reward. This observation is particularly troubling when considering that children under 18 make up nearly one third of all gamers in the USA. In a recent interview, Emil Hodzic and Dr. James Madigan, psychologists specializing in video game psychology and addiction, compared loot box mechanics to slot machines. The combination of the randomness of the process, the flashy visuals, and the disconnect from real money, they claim, takes advantage of the irrational parts of our brain and encourages us to continue buying just one more box.

Compounding this addictive element is the troubling observation that game publishers are continually trying to optimize their tactics and increase the sales of loot boxes. In the 2017 release Star Wars: Battlefront II, many players lamented the excessive use of loot boxes which created a “pay-to-win” environment where purchasing loot boxes was necessary to remain competitive and enjoy the game. Publishers appear to be set on continuing the monetization of their games through loot boxes, with Activision recently having been granted a patent for a system that would design in-game scenarios, specific to individual players, to drive even greater loot box sales. For instance, Activision’s new patented play could deliberately match players who possessed different types of items, hoping that they would want to acquire the other player’s items for themselves through the purchase of more loot boxes.

To Regulate or Not to Regulate?

In many jurisdictions, lawmakers are beginning to take notice of the concerns being raised by individuals like Dr. Madigan and the video game community at large. Hawaii State Representative Chris Lee, who recently referred to the loot box system in Battlefront II as a “Star Wars-themed casino”, announced his intention to pursue legislation to ban the sale of video games with gambling-like mechanics to anyone under the age of 21. Also in November, Belgium’s National Gambling Commission launched an investigation into loot boxes and other microtransactions in video games, concluding that they do constitute gambling and should be banned from being sold in the country.

The bad news for lawmakers is that early attempts at loot box regulation have largely failed. This past summer, China introduced legislation making it illegal for video games to sell loot boxes without revealing the odds of winning a specific item. It only took one month, however, for a number of prominent publishers to find ways around the new rules (for example by “gifting” loot boxes to players who make other in-game purchases, rather than selling them directly). It seems that designing regulations for such easily-adaptable products may prove difficult for policymakers.

Is such a heavy-handed approach really necessary, though? Concerns surrounding the effectiveness of potential regulations aside, is it not possible for the industry to police itself?

Indeed, there are already signs that consumer outrage may have a considerable impact on how publishers use loot boxes in future game releases. In response to the loot box backlash, EA Games removed the option to purchase loot boxes with real currency in Battlefront II. Despite this, the game missed its sales targets by nearly 20%, and the company’s stock value dropped by nearly $3 billion (8.5%) in response to the loot box criticisms (though it has since largely recovered). The risk of incurring such financial losses will undoubtedly cause publishers to tread more carefully when deciding how to design future loot box systems. Other companies appear motivated to avoid allegations of encouraging gambling in children. For example, Apple recently amended its developer guidelines to ensure that all games added to the App Store disclose the odds of receiving a particular item of interest through a loot box.

Video games, like all new technologies, are becoming increasingly integrated with our lives, and the loot box controversy is just another example of how these novel technologies may have undesirable consequences for our wellbeing, even for the youngest of consumers. For policy-makers, it should act as a reminder that these rapid-growth and highly adaptable industries warrant more of our attention if we hope to anticipate, and potentially regulate, their future actions. This will not be the last time that video games create a public policy concern, so understanding how the industry responds to both threatened and real regulation will provide valuable insights for addressing future concerns.

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Michael Smolinski is a graduate student at the School of Public Policy and Governance. His policy interests include innovation, research and development, and the regulation of disruptive technology

Cordell Phillips is a recent graduate of Carleton University’s computer science program with a specialization in video game design.