Loot boxes: Future of AAA or a monetisation misfire?

Developers discuss the reasoning behind the recent rise of microtransactions in full-price games

By James Batchelor.Published Wednesday 18th October 2017, 12:38pm GMT

The loot box debate rages on, but very few members of the industry have joined in the discussion.

As games sites become awash with reports and opinion pieces on each blockbuster's new monetisation system, picking apart the model with which publishers are attempting to retain and monetise players through this Q4's biggest releases, the consensus seems to be that loot boxes are another attempt to nickel and dime the unassuming consumer.

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Attempts to sell in-game items through full-price titles such as Middle-Earth: Shadow of War, Star Wars Battlefront 2, Forza Motorsport 7 and Destiny 2 have triggered discussions as to whether AAA gaming has become akin to gambling, and driven thousands of people to sign government petitions as they demand that action be taken.

"Development costs of AAA titles are five to ten times the price they were in the '90s. But sales and prices have remained pretty static"

Anonymous studio director

While ratings boards have agreed the use of loot boxes does not technically class as gambling, it's easy to understand the upset that surrounds them. Having already paid $60/£60 for a AAA title, consumers are indignant at the idea of having to spend more money in order to fully enjoy their purchase. Implementation varies between each game, with some examples - such as the Star Wars Battlefront 2 beta's implication that multiplayer progression will be locked behind loot boxes - prompting more ire than others.

Getting an official response as to why these systems are becoming more prevalent is nigh on impossible - GamesIndustry.biz received a polite 'no comment' from Activision, Warner Bros, Microsoft, Electronic Arts and several other publishers we asked to weigh in on the subject - but those who do point the finger of blame squarely in one direction: the rising costs of both development and marketing.

This is something we already discussed at length last week, and it seems to ring true for developers across the industry. In the case of Battlefront, this has dramatically increased since EA decided to forego the usual Season Pass model and provide maps and extra content for free, but it still needs to fund development.

But according to one studio director - who wished to remain anonymous - it's not just that costs are increasing, but that the disparity between how much publishers are charging and what consumers are spending is also growing.

"Development costs of AAA titles are five to ten times the price they were in the '90s," the person told us. "As technology moves forward, costs go up and teams get larger. Salaries also go up in that time both for starters and people employed for those periods of time.

"But sales and prices have remained pretty static - especially given the 'sale culture' nowadays."

Ben Cousins, The Outsiders

Ben Cousins, CEO of The Outsiders and a former EA and DICE exec, agrees: "The number of full-priced games console gamers are buying a year is dropping and the cost of developing games is increasing, while the actual audience for console games remains static. They need to find ways for full-priced games to continue to be profitable. Big publishers have been working on plans like this for over a decade."

In recent weeks, UK sales of Shadow of War, Destiny 2, FIFA 18, Forza 7 and The Evil Within 2 are all trending below their predecessors, and this is likely to be the case in other markets. Digital downloads may be making up for some of that shortfall, but not all of it - and there's certainly no sign of significant growth in terms of audience'.

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Meanwhile the 'sale culture' is also likely to be impacting revenues. Last year's Black Friday promotions saw sales of recent releases soar once available for £30 or less, many of which had been at full price just a few weeks before - and no doubt this will be repeated with this year's Q4 hits next month.

Jason Kingsley, co-founder and CEO of Rebellion, emphasises that loot boxes don't even need to convert every player into a payer in order to help offset those costs.

"Some big games are just not selling enough copies to make the development and marketing costs viable," he says. "Loot boxes mean more revenue from those who are interested.

"[Player expectations] that each game gets bigger, better and looks more modern... means it is likely going to cost more to make"

Jeff Pobst, Hidden Path

"For the biggest games that are made by thousands of staff, then yes the simple boxed copy sales may not be enough to make the economics work."

Larger teams and more advanced technology aren't the only things driving this increase. Hidden Path's Jeff Pobst, who previously discussed this subject with us, says the audience has contributed to escalating costs.

"What players may not realise is their expectation that each game in a series gets bigger and better and has more content and looks more modern than before... means it is likely going to cost more to make. The creators are going to want to find a way to cover those new costs as well."

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Then there are the sales expectations of the publishers bringing each game to market. Just yesterday, in the wake of Visceral Games' closure, former Dead Space level designer Zach Wilson tweeted that the second game in the series cost $60 million to make, and another $60 million to market. The title sold a seemingly respectable 4 million copies, but Wilson reports that "wasn't enough."

Again, this emphasises the damage the aforementioned 'sales culture' can have; if all 4 million copies had sold at the full price of $60, EA would have received $240 million. While this may seem to be double the combined marketing and development cost, once you take into account the retailer's share, distribution and manufacturing costs, plus tax, the publisher's share actually diminishes (In the comments below, analyst Nicholas Lovell estimates closer to $150m than $240m). The lower the sales price, thanks to promotional discounts and so forth, the lower the publisher's take.

Shadow of War's loot boxes courted controversy, but the developer assures that they are entirely optional and the game is balanced for non-spending players

Still, the dominant element of the loot box debate seems to be the consumer outrage and the notion that greedy publishers are simply trying to extract every last penny from customers already paying for their products. Naturally the most extreme reactions are amplified by social media, but are they in fact the minority? Does the very presence of microtransactions in full-price games really affect that many people, especially when so many publishers stress that they are optional?

"I don't know the numbers, but my experience tells me this is probably the case," says Cousins.

"Until we have hard data that the presence of loot boxes in a given title is negatively affecting sales and profitability, we should not worry about messaging issues"

Ben Cousins, The Outsiders

He continues: "Until we have hard data that the presence of loot boxes in a given title is negatively affecting sales and profitability, rather than just being a thing people talk about on the internet, we should not worry about messaging issues."

Kingsley adds: "That's hard to quantify but it's clearly an issue as it's getting coverage. Whether it's an issue for most or even the majority is not as relevant as it being a big issue for some I suppose.

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"The reactions to them seem to be based largely on how they are handled and whether the contents are game changing or just cosmetic."

Pobst suggests that the source of the anger is not, in fact, the transactions themselves. Instead, it stems from the changing perception of the game: initially purchased as a piece of entertainment, but starkly highlighted as a commercial product by the immersion-breaking call to spend real-world money.

"Personally, I'm not sure that individual game mechanics or features such as loot boxes are themselves the driving issue for players when you see outcry or concern about the fairness of a game, its feature set, or its monetisation," Pobst explains. "Typically if you go looking, one can find examples of where those same features or mechanics are used in other games and the players there are happy and enjoying themselves.†

"Regardless of development costs, developers and publishers are going to attempt to make money - it's a business"

Niles Sankey, former Bungie developer

"I think the underlying issue is really about the relationship between the product and the players, and how the expectations are set by the people making and marketing the product: the "promise" to the player by the product, as Gearbox President Randy Pitchford likes to say."

The problem most often comes, Pobst posits, when firms add monetisation mechanics to a title or series where they were previously absent. Certainly this was the case with Bungie's Destiny 2 - the earliest example in the recent wave of microtransaction controversies - where shaders that were previously reusable became one-time consumables, with the game offering to sell more to players in exchange for real money.

"Sometimes publishers and developers don't recognise that changing the monetisation can be a more significant impact in changing the promise of the game to the player than they may expect," Pobst continues. "The gameplay and content promises are still there, but the monetisation part of the promise has changed in that case. And depending on the game and the monetisation changes, players may or may not feel like the promise they are excited about is being maintained."

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The proposed system seen in Star Wars Battlefront 2's multiplayer beta was labelled 'pay-to-win' as purchasing more loot crates increased player advantages

Equally, some consumers seem to have an entirely different view on how the relationship between themselves and the publisher or developer works. Fundamentally they seem to forget that while games are indeed provided as both art and entertainment, they are also commercial products and subject to inherent pressures.

"Regardless of development costs, developers and publishers are going to attempt to make money - it's a business," says Niles Sankey, developer of first-person psychological thriller Asemblance. Sankey previously spent ten years working at Bungie on both Halo and Destiny, although he stresses that he was not involved in monetisation.

Jason Kingsley

"Developers†have retirement to save for and families to feed... If people don't like loot crates and microtransactions, they shouldn't support the game by purchasing them. And I'd suggest not buying games made by companies that have previously demonstrated insincere business practices.

"I stopped developing investment heavy games and I no longer play them. In my opinion, there are better ways to spend your time and life. There are so many great non-addictive/investment games to play.. and there's so much more to life than video games."

This is also a message that sometimes gets lost in the outrage: in most cases, microtransactions in full-price games are entirely optional. Following the initial outburst, Shadow of War design director Bob Roberts told our sister site Eurogamer that the team had developed the entire game without the loot boxes activated in order to ensure balance.

Our anonymous developer has no qualms declaring that he has spent money on such items, adding: "It's normally to accelerate my progress. I don't have as much time to play now as I did 20 years ago."

"For the biggest games that are made by thousands of staff, the simple boxed copy sales may not be enough to make the economics work"

Jason Kingsley, Rebellion

Emphasising that loot boxes are optional seem to do little to assuage consumer concerns. Common arguments range from accusations that developers have slowed normal in-game progress in order to sell boosters, or that the very presence of microtransactions psychologically draws players into what Cousins refers to as the "compulsion loop".

There is also an inconsistency to player reactions, albeit driven by the different implementations of monetisation. For all the flack Electronic Arts has received over the proposed monetisation system shown in the Battlefront 2 beta, it still generates $800 million per year with FIFA's Ultimate Team mode - a prime example of successfully monetising a full-price game in the long term.

Similarly, while Shadow of War and Forza 7 have been virtually crucified on Twitter, titles such as Rainbow Six Siege and Overwatch escape unscathed, despite the presence of loot boxes - although Cousins says, "Blizzard get a free pass on pretty much everything, as do Valve. Never try to get learnings from them, as they are outliers."

The consumer reaction (particularly in the run-up to launch) has the potential to be highly damaging, further preventing publishers from recouping costs and exploring new methods of monetisation. Our anonymous developer pointed to one particular practice that has hindered the debate around loot boxes.

"Review bombing exaggerates issues and causes damage to everyone," they say. "Which is why most won't talk about it as they don't want to be targeted unfairly next."

And, ultimately, such tactics are a fruitless endeavour. Despite the controversy around recent titles and their microtransactions, publishers will inevitably continue to experiment with new business models. Especially as a recent report proves that games-as-a-service systems have tripled the industry's value.

Just today, Activision was granted a patent for a matchmaking system designed to encourage more consumer spending; a system the publisher stressed has not been implemented in any game, but is something it may well consider in future. And experimentation is fine - it's essential the evolution of any industry - but as our own Rob Fahey warns, publishers need to be careful to cross the line, no matter how poorly defined that line may be.

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