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Who is responsible for loot boxes?

Voices from around the industry share their thoughts on what's at stake and who should be doing what

Loot boxes are a point of heated debate in the games industry right now. I've shared my own thoughts on the matter, but I've also been recently speaking with other industry-watchers and developers to get a sense of where other people are when it comes to the issue.

One of the first people I ask is Kantan Games' Dr. Serkan Toto because of his familiarity with the Japanese games industry. After all, Japan has been through this debate before. In 2012, the Japanese Consumer Affairs Agency ruled that a game mechanic called kompu gacha (or complete gacha) was illegal. Gacha is similar to standard loot boxes, where players spend money and are given a randomized item. Complete gacha builds a second level onto that, giving players a grand prize if they collect a set of rare items through the normal gacha mechanic.

kompu_gacha

An explanation of kompu gacha from Dr. Toto's blog.

"The industry didn't implode, but major mobile game developers like GREE and DeNA took major blows from which they never recovered," Toto said. "What is important to note is that until today, the Japanese government specifically targeted kompu gacha and gave 'recommendations' on what mechanics should be banned (there is a list) -- but it technically never regulated the industry to this day. Instead, the ban on kompu gacha was an act of self-regulation from within the Japanese mobile game industry itself."

"I cannot picture a scenario where developers or regulators across China, Korea, Europe or the US will cooperate and enforce loot box regulation"

Dr. Serkan Toto

That could paint a way forward for the industry, as Toto says the industry's curbing of its most aggressive gacha mechanic has allowed the standard gacha to endure while still allowing for developers to experiment with variants.

"Today, gacha are barely subject to any kind of controversy in Japan," Toto says. "Loot boxes are widely accepted by users, developers and the public alike. As long as excesses like kompu gacha continue to be shunned, the mechanic's future should be safe."

That said, he believes any kind of international regulation -- whether coordinated by governments or the industry itself -- is a different matter entirely.

"Most probably, different geographies will continue to treat loot boxes in different ways," Toto says. "I cannot picture a scenario where developers or regulators across China, Korea, Europe or the US will cooperate and enforce loot box regulation."

Wedbush's Michael Pachter tells us he thinks the fears about loot box legislation are overblown.

"Governments can't call it gambling (because the items "won" have no value), but they can legislate and require game publishers to show the odds of receiving each item," Pachter says. "That's about as far as I expect it to go, and I suppose that when players learn that a Ronaldo card in FIFA Ultimate Team is a 1:100 chance, there may be some impact on card sales. However, most people 'get' it and know that nothing is guaranteed."

"It's dumb of the industry to say 'This is wrong' and nothing else"

Michael Pachter

Even if loot boxes were restricted by governments, Pachter believes most games could move over to the season pass model.

"Loot boxes aren't necessary, and I'm confident that if the legislation/regulation is unpalatable, every game will figure out another way to sell in-game items," he says.

However, Pachter doesn't think much of the way some of the big players in the industry have been responding to concerns over loot boxes.

"It's dumb of the industry to say 'This is wrong' and nothing else," Pachter says. "They should be more like [Facebook CEO Mark] Zuckerberg with potential privacy regulation, and say 'Let us work with you to come up with a mutually agreeable solution.'"

Industry consultant Nicholas Lovell has considered the issue at some length, having devoted an entire chapter of his recent book Pyramid of Game Design to ethical design in the modern world.

"I fear we won't [self-regulate], and that government will have to step it"

Nicholas Lovell

"There are only four groups who can change how loot boxes are implemented in games: players, developers, platforms, governments," Lovell tells us. "It's impossible for players to do: while it's easy to say 'vote with your wallets,' egregious abuses can only be addressed by those with power. Developers may by-and-large want to do the right thing, but when there are a million apps on stores, there will some bad actors. I think it is unlikely we can trust developers to solve this issue alone.

"That leaves platforms and regulators. I want the platforms to be the answer. The industry managed to effectively self-regulate over age-ratings, and I would like to see that happen again over loot boxes (which can be a lot of fun). But I fear we won't, and that government will have to step it. They are unlikely to take a nuanced approach and the unintended consequences could be significant."

As the founder and global director of Trend Micro's Internet Safety for Kids & Families program, Lynette Owens gives us a somewhat different view on the issue. In her role, she's been following concerns over the financial manipulation of children since the first wave of lawsuits against Apple from parents upset over children racking up massive bills on free-to-play iPhone and iPad games.

"The thing I think about most with all of these issues -- not just in gaming but also in social networks -- is there's not enough friction in the system," Owens says. "There aren't enough moments to give people pause and say, 'Wait, should I do that? Should I allow my child to do this?' There should be some kind of 'Hey, you've been on this for two hours now,' or 'Hey, you've been spending this much money.'"

"There's not enough friction in the system. There aren't enough moments to give people pause and say, 'Wait, should I do that?'"

Lynette Owens

Owens speaks about "an ethical side to this, a deliberate conscientiousness that needs to go into the design" of such games. At the same time, she readily acknowledges that for children to be financially exploited by these games, parents generally need to buy them the phone or game system they use, attach the account to their credit card, and leave kids to their own devices (or technically the parents' devices, as Owens noted) for this to occur.

One of the big problems she sees is in the feedback (or lack thereof) gaming and tech companies are receiving from their missteps. She points to Facebook's Cambridge Analytica scandal saying it impacted the platform's credibility and the trust people have in it, but it doesn't seem to have stopped people from using it.

"I don't know what it would take to move people," she says. "Because of that disconnect, I wonder if that's the reason we don't see developers or companies really reacting as much or as quickly as we want. They're just looking at numbers and saying, 'Hm, this doesn't really impact us so why should we change?' That's why I think maybe legislation is the answer, because market signals aren't a good motivator right now. Because I do think if Facebook lost 20% of their userbase, they would do something."

Finally, I touch base with Jesse Houston, co-founder and CEO of Phoenix Labs, a rare independent development studio with loot box experience. (The company implemented loot boxes in its cooperative action game Dauntless for a time before dropping them.)

"Right now we don't have any one group taking an unbiased view on loot crates or other game mechanics that should be meant for adult players"

Jesse Houston

"In my opinion, the industry is at a point where we need to regulate the sale and implementation of loot boxes, and that regulation shouldn't be left up to the platforms or the developers," Houston says. "Platforms are not as ubiquitous as we like to think. As an example, Dauntless has been free of platform constraints for the last few years, and millions of players have played and monetized. Also, as game development continues to democratize, the problem of unification gets harder and harder. Folks like Valve, Apple, or Sony will not be equipped to handle all the unique challenges that come up. Also as loot boxes tend to be (when constructed in such a way) very profitable, platform holders are unlikely to take an unbiased view on them.

"A central, focused, regulatory body, like an ESA, ESRB, or PEGI equivalent, will not only prove to the outside world that we're capable of recognizing potential hazards, but importantly show that we are active in the conversation with an eye on the long term. I feel that we're at a growth point where this type of regulation is necessary to best serve our customers and gamers everywhere."

Houston likens it to the fight over video game violence in the early '90s, when a series of US Senate hearings led to the foundation of the Entertainment Software Rating Board.

"This was absolutely necessary as it helped parents and adults understand at a glance what experiences they were opting into," Houston says. "Mortal Kombat being right next to a Mario game on store shelves did not inform parents of the type of game that they were purchasing for their kids. Parents need that information to help shape what they feel is right for their kids. Right now we don't have any one group taking an unbiased view on loot crates or other game mechanics that should be meant for adult players."

Even though Dauntless dropped loot boxes, Houston makes it clear he doesn't have an inherent objection to them; he just wants there to be some guidance and transparency around them. He likened them to trading card games or monthly subscription boxes, saying people enjoy some randomized rewards and adults are responsible for their own behaviors around such things.

"I don't think that loot boxes are inherently bad and mal-intended, but ultimately we, as developers, want to do things that reflect what our players want," Houston says. "We want to offer them fair and transparent ways to reward us with their money because they like the game we've made and the community we've built up around it. I just think we need a bit more perspective and guidance."

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Latest comments (6)

Kireth Kalirai Associate, Intellectual Property, Simmons & Simmons LLP2 months ago
I would caution slightly against a staunch "governments can't call it gambling" view. Multiple gambling regulators have expressed discomfort at the blurring between some loot boxes/skin betting and gambling, and even though the threshold of "cash out" is often not met the unfortunate and ultimate destination of the current direction of travel is for legislative amendments.

Yesterday in the UK a relatively influential Parliamentary committee announced an inquiry into a reality TV incident that broke over the weekend - their investigatory remit includes assessing whether the broadcasting regulation is fit for purpose. A similar incident occurring in relation to loot box expenditure (which I hope does not happen) would likely include whether the gambling legislation requires amendment.
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Ian Griffiths Product Owner, Hutch2 months ago
I'd love just one article to include someone who isn't against loot boxes. Michael Pachter, who I'm a big fan of, is the closest in this list but he's more looking at this from the industry side.

I'm frankly perplexed by the anti-loot box stance, it still comes down to player choice; if people want them they will buy them. The research into them so far doesn't show them to be addictive, though there hasn't been much study around the topic.

Am I in favour of drop rates being shown to the player? Of course. I think as long as you're being clear with the player about what they're buying there's not much of a problem. Loot Boxes are fun, I like them and it's the randomness that is part of that fun.

What I'm seeing is a lot of people who are used to paid games and not big fans of f2p wanting to stop the business model 'encroaching' on more traditional games. While I understand that I think the fear is misplaced and I actually think games liek Apex Legends and Dota 2 have brought new and fun experiences that wouldn't be here without the business model.
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Ian Griffiths Product Owner, Hutch2 months ago
I hope the mods don't mind me linking to a piece on Gamasutra but I've written more in detail on the topic over there. If you want a pro-loot box view you can find it here - https://www.gamasutra.com/blogs/IanGriffiths/20180215/314677/About_Loot_Boxes.php
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Bob Johnson Studying graphics design, Northern Arizona University2 months ago
Never understood the outcry.

I bought baseball cards all the time as a kid and those are nothing but a loot box. The attraction was always one of hoping to get a great player in the pack you bought. Yes there was temptation to buy more. But you learn fairly quickly the "odds" of getting a specific card. You make a choice for yourself whether you want to spend the few dollars you have as a kid on another pack or two or not.

Same with Pokemon cards. I let me my kid buy Pokemon cards all the time. Probably let him buy too many maybe, but I just say no when it starts to become that too much.

And actually pokemon cards and baseball cards do have some value. Some cards do end up being worth money.

And yet never saw anyone get outraged about these things.

Don't see the outrage now with what are essentially digital packs of baseball and pokemon cards. I'm with Pachter. AT worst they require companies to publish the odds. Companies should do this anyway. They should do the type of things Lynette Owens outlined.

I also like what Dr. Toto reported. Japan just got rid the extra layer on top of the loot boxes. Where you get a grand prize on top of the prizes loot boxes give out if you collect a specific set of prizes.

Last on IOS, as even Lynette Owens said, I can keep my kids from spending a dime on that platform. I don't see the big deal.

I just see a mob mentality out there with a certain loud minority group on the internets. They've just got it into their head that loot boxes are bad and won't have it any other way.

Edited 4 times. Last edit by Bob Johnson on 16th May 2019 5:34pm

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Drew Crecente Executive Director and Founder, Jennifer Ann's Group2 months ago
@Ian Griffiths: Here are a few studies & discussions regarding loot boxes & gambling/addiction. There are many more but I've not read them as they are behind paywalls.

Video game loot boxes are linked to problem gambling: Results of a large-scale survey (2018)
"It is unclear [...] whether buying loot boxes acts as a gateway to problem gambling, or whether spending large amounts of money on loot boxes appeals more to problem gamblers."
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0206767

eSports, skins and loot boxes: Participants, practices and problematic behaviour associated with emergent forms of gambling (2018)
"Although the results are not generalisable to the wider population, they suggest a need for increased attention, from academia and regulators, regarding newly emergent gambling behaviours in contemporary digital culture."
https://journals.sagepub.com/doi/abs/10.1177/1461444818786216

Are Loot Boxes Gambling? Random reward mechanisms in video games (2018)
"We argue that the term 'loot box' and the phenomena it covers are
not sufficiently precise for academic use and instead introduce the notion of 'random reward
mechanisms' (RRMs). We offer a categorization of RRMs, which distinguishes between
RRMs that are either 'isolated' from real world economies or 'embedded' in them."
https://pure.itu.dk/portal/files/83333144/DIGRA_2018_Are_loot_boxes_gambling_pre_print_21.05.2018.pdf

Edited 1 times. Last edit by Drew Crecente on 16th May 2019 5:51pm

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Ian Griffiths Product Owner, Hutch2 months ago
@Drew Crecente: None of those prove that loot boxes are addictive.

For your first source, https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0206767

First, the collection of data was through an online self-reported survey and an awful lot of bad data came in and had to be discarded. Second, the authors state that they think loot boxes should be regulated. To me this implies considerable bias, I'm looking for evidence of a problem not guidance about what to do if there is a problem. Third and most importantly, this doesn't prove that loot boxes are addictive. There is some correlation that shows people who gamble tend to spend more on loot boxes but I would expect more direct evidence.

Regarding the eSports and skins betting, I don't see that as tied to loot boxes. That people choose to use a stand-in for money is up to them. The developer who make loot boxes don't support the practice and I can't imagine a single case where it doesn't break the EULA. People betting with game skins is no more the fault of the developer than it would be the fault of the green grocer if they were betting with apples.

The last piece - https://pure.itu.dk/portal/files/83333144/DIGRA_2018_Are_loot_boxes_gambling_pre_print_21.05.2018.pdf
This was more interesting than the others though I didn't have time to read it all, again that there are some shared traits between games and gaming doesn't surprise me, these elements are fun after all. It doesn't necessarily indicate a problem.

Loot boxes are regulated by numerous consumer laws. The main platforms require that games show drop rates and make it very easy to passcode or disable purchasing of microtransactions altogether. I'm not seeing much of a need for regulation.

Again though, it's this f2p model that has brought fun new games to people to play, and most of them do so at zero cost. It's been a win-win if you ask me.
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