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Thinking outside the loot box

Business model innovation is necessary despite the friction it causes - but the industry needs to recognise when it's overstepping a line

When future historians of videogames come to write their accounts of the 2010s, I sincerely hope that they don't forget to mention the creativity, artistry and innovation that has blossomed in this decade - but I already know that won't be the main focus of the chapter.

If the present decade of the industry's development is ultimately remembered for anything at all, it will, sadly, be the often ugly tug of war between game creators and consumers over how to make game development pay for itself. An optimistic perspective might speak of the flurry of innovation in business models that we've seen in recent years; a more realistic one would point to the frequency with which the industry has ended up at loggerheads with its own consumers over various business tactics.

The standard narrative that's become embedded in the consciousness of many consumers - especially, unfortunately, those whose primary source of information is YouTube, where this narrative is absolutely prevalent - is that game companies are grasping and avaricious, and spend more time sitting around plotting new ways to gouge money from set-upon consumers than they do actually making new videogames.

"The stark reality is that AAA game creators have been facing a necessity to cultivate new revenue streams for well over a decade"

Honestly, I wish I was exaggerating or straw-manning the position taken, but in truth there's a genuine cognitive dissonance in the relationship many consumers have with game creators at present; they manage to square away a genuine love of the games a developer makes with a marrow-deep belief that the developer's main motivation is to screw them over.

Much of this belief is founded in the 'angry ranting man' genre of gaming YouTube media that's become so popular and widely consumed; while some of those presenting that persona are clearly and somewhat tragically genuine, others are a bit more savvy and cynical; recognising that while you may attract more flies with sugar than vinegar, a dash of vinegar does a hell of a lot more for your YouTube subscriber numbers.

Yet the blame doesn't rest entirely with YouTube ranters and outraged Reddit warriors; it's not like consumer dissatisfaction with industry business practices is something they pulled out of thin air or invented on a whim. Quite a few of the industry's experiments with new business models have genuinely been ill-advised, poorly explained or downright exploitative, and that's what created such fertile soil for these 'anti-consumer' narratives in the first instance.

One of the things the industry has generally failed to explain - perhaps because it's not something most of the industry is particularly comfortable with - is the underlying necessity of new business models. It doesn't justify the mistakes and abuses that have been committed along the way, but the stark reality is that AAA game creators have been facing a necessity to cultivate new revenue streams for well over a decade.

"The maths isn't complex; the cost of developing a game is rising faster than its potential sales numbers"

Development costs on AAA titles have continued to rise; not quite at the exponential levels they did in the early 2000s but still pretty rapidly. Meanwhile, the growth in the audience for those games has been far less impressive, having rounded off significantly after the massive boom of the PlayStation and PlayStation 2 eras. The maths isn't complex; the cost of developing a game is rising faster than its potential sales numbers.

How to solve this problem? Well, we could find a way to grow the audience at a more rapid rate, but that's tough in an era when smartphones fulfil the gaming needs of most of the casual audience, the global downturn has hammered the incomes of young generations across the developed world, and the rise of a middle class of potential game consumers in the BRICS nations has either stumbled or not delivered the kind of uplift for game consumption that was expected. We could find a way to reduce development costs, but all the low-hanging fruit in this area is already thoroughly harvested, and marketing budgets have grown to command every penny saved by clever economising on development (and then some). That leaves option C as the only realistic one; find a way to make more money from the games you're selling.

Hence: DLC, Season Passes, Games As A Service offerings, episodic titles, micro-transactions, free-to-play models, and all the rest of it. Each of these has attracted its own controversy and anger; sometimes that's been justified, but for the most part the industry and its consumers have settled into an uneasy truce over these monetisation models.

A vocal sub-group of consumers complain (and are the basis of the 'evil gouging games industry' narrative), but the sheer amount of revenue coming from those models proves that the majority don't find them objectionable - or at least not objectionable enough to stop opening their wallets. Moreover, that revenue isn't really optional for most firms; it's a necessity for them in the face of growing budgets, which means that except for clearly egregious errors and abuses, the background noise of consumer annoyance over these issues is largely ignored.

"Players are entitled to find Battlefront 2 somewhat gross, especially given the extent to which Star Wars is marketed to children"

The problem is that ignoring the background noise can sometimes mean being deaf to genuine issues, or dismissing truly problematic things as being just the latest outrage-of-the-week. This seems to be the case in the current upset over "loot boxes", randomly selected packs of items, in-game currency and power-ups that can be bought for real cash.

Star Wars Battlefront 2 is a pretty extreme and egregious example of the mechanism; when it was implemented in Overwatch and other such games, it was largely aimed at providing players with a random set of optional customisation items, while Star Wars Battlefront 2 is using it to distribute items that alter the balance of its multiplayer matches, essentially making itself into a "pay-to-win" game with a random number generator strapped to its back. Players are more than entitled to find that somewhat gross, especially given the extent to which Star Wars as a property is marketed to children.

[Editor's note: After publication, an EA representative stressed that Battlefront 2 just completed its beta and the company is still considering changes for launch.]

However, between the determination of the 'furious gamer' type of media to insist that the sky is falling on a regular basis, and the industry's own reflexive defensiveness over all these issues, both sides seem to have missed the other's point. Several people - perhaps most notably John Bain - have tried to label loot boxes as "gambling", which they mostly aren't. The defining characteristic of gambling is the possibility of a cash reward; loot boxes are more like a trading card pack or a Kinder Surprise than a slot machine in terms of how they work. Hence, the industry has been very rapid in its dismissal of this issue as just another controversy of the week.

But this misses the more subtle and important point; loot boxes are problematic when taken to an extreme, for a number of reasons the industry seems loath to address. For a start, there's the fact that the system behind them is opaque. While even most mobile game firms have begun informing players of the odds of receiving a card, character or item from any given transaction with a random element, loot boxes rarely reveal this kind of information - and there's little sign that they have any internal system to guarantee that players who want a specific item don't have to roll the dice eternally without getting it (which trading card games, for example, generally do, weighting the distribution of cards in packs to help rather than hinder the building of complete sets). As such, loot boxes are something that faces legitimate criticism that could easily boil over into the public arena if this becomes an issue for parents in particular.

"The importance of the industry engaging with these issues isn't just a moral one; it's a straightforward piece of self-preservation"

There's another issue with loot boxes, which is that in some edge cases, they really are a form of gambling. Some games permit (explicitly or implicitly) real-money transactions for in-game items; buying a loot box for cash in the hope of finding a high-value item inside to sell for more cash is absolutely and unquestionably a form of gambling in most jurisdictions. The use of digital items as an intermediary in the transaction notwithstanding, there's a real chance that companies involved in this are on the hook for permitting minors access to a gambling platform.

The importance of the industry engaging with these issues isn't just a moral one; it's a very straightforward piece of self-preservation. If the games business doesn't figure out where the sensible limits to this kind of business model lie, they risk a public outcry leading to regulators stepping in - and you can be sure that the rules imposed by a body like the EU (perhaps the most likely to come down hard on this kind of business model, though the US authorities will have a canary if illegal gambling is the issue) will be far less accommodating than the industry's self-devised code of conduct might be.

If that seems far-fetched, bear in mind that it was a system similar to loot boxes - called "kompu gacha", and involving receiving a bonus item for completing a full set of items randomly received from purchases - that got the Japanese authorities to step in and regulate mobile game practices, a precedent that's seen the mobile game industry there tread warily around its monetisation systems ever since.

Figuring out how to make enough money from games to meet their accelerating development budgets is undoubtedly tricky; it's a delicate and ongoing negotiation between game creators and consumers, and each side steps on the other's toes or elbows their ribs every now and then. It's important, however, that the industry not become hardened to the complaints or concerns of its own consumers.

The background noise of people who irrationally despise the commercial aspects of an industry they claim to otherwise love should not deafen game companies to genuine warning sounds that suggest a mark is being overstepped.

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Latest comments (5)

Nicholas Lovell Founder, Gamesbrief2 months ago
I agree. I am disappointed with the (perhaps inevitable) fact that gacha systems, with the variable reinforcement schedule, have become the dominant mechanic of F2P game design. The joy of F2P was that it enabled companies to work at all points of the demand cover - to engage with players who didn't want to give them any money and with their Superfans who were happy to spend lots. The technique that seems to be most effective, based on its prevalence, is that one that is most akin to gambling.

I do expect it to be regulated. On the other hand, few regulators or civil servants in the West seem to be paying much attention. Both Japan and China have regulated gacha-style mechanics. It feels odd to see China ahead of the US and Europe in consumer protection.
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Dariusz G. Jagielski Game Developer 2 months ago
Here's an idea: Drop the marketing budgets. A mysterious video send out to the press and YouTube can do helluva lot more than TV ad that gives up the entire game on a silver plate.

And big game companies don't need marketing anyway, except for the new franchises. CoD would still sell out like hotcakes even if the only piece of "marketing" was Activision tweeting "Oh, by the way, we've just released new Call Of Duty game. Get it on Steam now." Same for GTA, etc.
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Steve Peterson Marketing Consultant 2 months ago
Rob, you are correct that loot boxes are problematic in a number of ways, and developers need to tread carefully here.

While I agree that rising budgets have pushed publishers to look for more revenue, implicit in your argument is that game designs follow the well-worn paths of the past. Not all games have done this -- for instance, Minecraft certainly didn't cost a lot to develop, and it's done quite well. Innovation in design can include finding ways to keep development costs from spiraling upwards -- which might help with finding ways to pay for development with annoying players.

Finally, I think a general principle developers should keep in mind is to maximize the value of what they offer players. A saddle for your horse for $10? Not a great value, leading to resentment. A whole array of new cosmetic items, a new area to explore, new game modes -- charge $5 for something like that and you'll be praised. Overwatch has done very well with offering excellent quality at a good price, even though there's a random element.
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Klaus Preisinger Freelance Writing 2 months ago
(Worst/Best) case, loot boxes are another fad that will be run into the ground, much like waggle games and plastic guitars.

(Best/Worst) case, the effects of normalization causes the audience to accept it. The ratio of complaining customers to those for whom ignorance is bliss seems still to be in favor of game studios. Cheers to the next 10 years of horse armor and senior loot box animation specialists.

I would not be concerned about the regulatory committees stepping in due to gambling. That is one patch to adhere to legislation and a month of bad press. The scary part about loot boxes is their infinite potential when it comes to money laundering schemes and the fallout from tax authorities once that happens. The big publishers are not likely to be every suspected, but they will be affected by whatever happens to reign in illicit business models.
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Brian Lewis Operations Manager, PlayNext2 months ago
@Nicolas

The current discussion is not about F2P games, but rather about P2P games that have loot boxes as well. Specifically Shadow of War and Star Wars BattleFront 2. These may simply be the hot subjects of the day, but it clearly shows that this is not a F2P/P2P related issue.

@Steve

I dont know that the value of a specific item is an issue with loot boxes (for this particular discussion). It is more about what the items are (game affecting vs vanity) combined with the randomization that requires many box purchases to obtain the desired item(s).


The real issue here is how these items have moved into mainstream P2P games (including consoles) without the normal slow creep to make it less noticeable. It stands out to the public as a clear line crossed because these changes were not phased in over time, with multiple games in the industry making small changes. It is really a matter of too large a change in on step, causing the consumers to react.

P.S. I would also like to mention (in advance) that our company sold consumable items to increase the chance/quality of item drops (similar to Magic Find in Diablo) as a way to do loot boxes without the actual box.

Edited 1 times. Last edit by Brian Lewis on 16th October 2017 6:30pm

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