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What did the FTC hear in its loot box workshop?

ESA defends virtual currency and dynamic drop rates as concerns are raised about consumer protection and similarities to gambling

As promised, the Federal Trade Commission is looking into loot boxes. Today the US regulator held an event titled Inside the Game: Unlocking the Consumer Issues Surrounding Loot Boxes "to inform regulatory priorities as well as industry and consumer guidance."

Presenters at the event consisted of academics, industry members, and watchdogs offering their own perspectives on the subject. Much of the day was clearly intended to bring people unfamiliar with games up to speed on the issue, but the event also played host to some breaking news.

During the opening panel of the day, Entertainment Software Association chief counsel of tech policy Michael Warnecke announced commitments from Nintendo, Sony, and Microsoft to mandate loot box odds disclosures for new games (or existing games updated with loot box functionality) on their platforms by the end of 2020. A number of ESA member publishers made a similar pledge for all of their titles regardless of platform.

While Warnecke was obviously the industry's biggest booster in that session, he was not the only one. Sean Kane, partner and co-chair of the Interactive Entertainment Group at Frankfurt Kurnit Klein & Selz, delivered a loot box primer that emphasized how they are optional and have lowered the cost of playing games despite the skyrocketing cost of game development over the years. In her presentation, International Game Developers Association executive director Renee Gittins acknowledged game creators are split on the subject of loot boxes and reiterated the group's call for industry self-regulation.

"The evidence that's been presented raises a lot of key questions that we think are appropriate for the FTC to investigate"

National Consumers League's John Breyault

"While there are different monetizaton strategies, game developers in the end just want to provide joyful and satisfying experiences that make people experience something new in this wonderful medium of games," Gittens said.

The larger concerns were expressed by the other panelists, including John Breyault, VP of public policy, telecommunications and fraud at the National Consumers League.

"The evidence that's been presented raises a lot of key questions that we think are appropriate for the FTC to investigate. First of all, are loot box odds being manipulated to incentivize continued play for eventual monetization," he asked. "When I buy a Magic: The Gathering pack or baseball card pack at Target, my odds of getting a rookie card or a rare card there are fixed. It's a physical thing. But when you're opening loot boxes online, those odds can be manipulated based on a variety of factors. If that is indeed the case, what factors are being used to influence loot box drop odds? "

Breyault said that information asymmetry is particularly concerning when one considers how it might affect younger players who are less able to sift through complicating factors to assess the value proposition of a loot box. That task is even more challenging when publishers aren't just playing with the odds but masking how much things really cost through the use of virtual currency. He showed a screenshot of Fortnite, noting that it uses well-established psychological tricks from the retail world, like pricing something at $1.99 instead of $2.

Breyault's slide showing Fortnite's in-game store

Breyault's slide showing Fortnite's in-game store

"The problem here is that when you combine this with things like these bonuses that are offered, it's a lot of cognitive load on the user, creating a complex exchange rate between digital money and real dollars," Breyault said. "It can make it easy to lose track of an object's real-world value."

Warnecke had actually addressed the subject of virtual currency from the ESA's perspective earlier, saying there were legitimate reasons for publishers to resort to the tactic.

"It would be impractical every time someone does a $0.99 or $1 transaction to have that go to their account because it just would be annoying to have that constantly happen"

ESA's Michael Warnecke

"It would be impractical every time someone does a $0.99 or $1 transaction to have that go to their account because it just would be annoying to have that constantly happen if you wanted to buy a few of them and deal with that," Warnecke said. "But also for the publisher, the transaction costs if their credit cards are being used would be significant if every time there was a small transaction like that, that was a new transaction.

"But there's another reason, too. And that's to preserve narrative integrity. Our members try to create games that are engaging and are true to their world. Say you had a game set in Ancient Egypt and you wanted to buy a chariot for a big combat that was going to come up, and you went to the marketplace in Thebes. You would not want to be buying a chariot for $2.50 US. It would be a little bit jolting and a little bit odd, so instead a publisher will make it with a historically appropriate monetary currency, such as a deben of copper, which would fit in more with the game."

Warnecke also touched on Breyault's concern about publishers manipulating drop odds in a post-panel Q&A session, saying there were innocent reasons for that as well.

"What I can say on those dynamic drop rates is there are a lot of innocuous uses for those that are perfectly legitimate, for instance in a sports game that's mimicked on real-world sports teams. You would want to have the players have continually updated stats. If you had a baseball player that had a really good month of gameplay, their overall ranking is going to go up over time. And as that ranking goes up, they will move into higher levels of rarity. And so that is perfectly acceptable. In fact, if you had a sports game and you didn't continually update it to reflect that, consumers would be upset by that experience."

One possibly unexpected inclusion on the morning panel was Online Performers Group CEO Omeed Dariani. His company represents content creators on a variety of platforms and has a client list ranging from Cohh Carnage and Angry Joe to T-Pain and Dragonforce. He explained that he was asked to represent "the gaming community" on the panel. He explained that the community does not have a monolithic position on loot boxes, but did offer a general takeaway from his discussions with gamers.

"The community mostly thinks loot boxes are gambling," Dariani said. "Of the feedback I got, there was a wide variety, but over and over we had people coming back to this idea that if it's not gambling, it feels like gambling. Even though we can pretty clearly say loot boxes are not exactly the same thing as entering the lottery or sitting in front of a slot machine, they do have some of the same feelings that gambling does."

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Latest comments (6)

James Berg Games User Researcher, EA Canada4 months ago
Excellent coverage, thank you Brendan!
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Brendan Sinclair North American Editor, GamesIndustry.biz4 months ago
Excellent comment, thank you James!

(Also, Rebekah had a great write-up of the final session of the day--https://www.gamesindustry.biz/articles/2019-08-07-consumer-advocates-to-esrb-ftc-loot-box-odds-disclosure-is-not-enough--and I'm working on one for the academic panel that should go up soon as well.)
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Klaus Preisinger Freelance Writing 4 months ago
as that ranking goes up, they will move into higher levels of rarity. And so that is perfectly acceptable.
I can see the business interest. I cannot quite see the consumer interest. It is worth noting that Panini stickers, the most common collectible cards in Europe, do not have different rarities. Last year even the perception of different rarities forced Panini into a public statement https://www.spiegel.de/wissenschaft/mensch/panini-sticker-wm-2018-sammler-klagen-ueber-ungleichverteilung-a-1202436.html

Different regulatory bodies are likely to react more hostile to the current line of arguments, or at the very least demand proof when it comes to statements such as making games cheaper. Consumer protection agencies know what a quarterly report is and they are not afraid to read them.
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Show all comments (6)
Ian Griffiths Product Owner, Hutch4 months ago
@Klaus Preisinger: the consumer interest is the rarity. These same behaviours play out in the real world from limited edition cars to exclusive designer bags. People want exclusive things, digital or not.

While Panini stickers do not have different rarities, as they state and I don't doubt them, other comparable products do. Pokemon cards, MTG cards, Blind box toys, LOL Surprise Dolls etc all have different rarities.

You make out like these companies are acting against the interest of the consumer but that's just not accurate. The people behind these games aren't some evil cabal wringing their hands, they're not against their players, far from it. They're trying to find ways to make good games that are good business and as much as you may think that it's all tricks people actually enjoy these games because they are made with that purpose in mind.

With Live Ops you'll find that games listen and care far more about their players, and indeed the people who spend in their games in a way that many paid games that are one and done don't.
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Klaus Preisinger Freelance Writing 4 months ago
It is hard to pin it down to 'the consumer', as if there was a perfect average. In reality, it has a lot to do with the ideology of people voting with their money for something being the gold standard. Loot boxes or not, CDProject will think their way to sell games is the only right one, just as much as Bethesda thinks their way is the right one. Each of their customers will think that as well to some degree. In the eyes of the ideology of money being the ultimate vote, if lootboxes do not sell, you iterate on them and then they sell better, that being an indication of people liking them more; the ideology works.

Granted, through this lens of honest try and error many companies can achieve financial viability without any malice towards their userbase.

At the same time, we have decades of studies done on gambling, what it looks like, what is causes, how it works on a chemical level in people's brain. Suddenly, that ideology of voting with your money has a nasty scratch.

These two facts now collide in the video game industry. For the consumer protection agencies, it does not matter whether a publisher arrives at loot boxes through a series of happy accidents, or by cynically creating the worst Skinner boxes with help of Psychologists. It does not matter whether there is 100% congruence, as long as there is enough of a match to be problematic.

The video game industry will get judged on results more than intent. There is no need to prove any malice. You do not get away repeatedly with manslaughter just because you prove it mostly happens accidentally. Not when you are the video games industry that is.
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Eddie In Product Manager - Games, Mobile, Boss Fight Entertainment4 months ago
Dynamically changing drop rates without providing that information to the user is stupid. AFAIK, the highest grossing games in the world make their billions without doing it. I've personally seen top grossing games revenue absolutely plummet when the community proves that rates are being adjusted on the fly. With the rise of streaming and the overall growing maturity of gamer communities, I would NEVER EVER touch gacha rates because you'd always get caught. No developer / publisher of midcore/hardcore games that I've met, anywhere in the world, does it. Can you imagine what would happen to whales at a casino if they find out that drop rates were being messed with? I get asked a lot whether it's common practice to adjust rates in F2P games and I'm genuinely baffled.

The flip side is that if users are getting something positive, I want them to know it was me (the developer/publisher) and not dumb luck that made it possible. Nintendo's Dragalia Lost, dynamically increases their rates every time the highest rarity isn't pulled and these increased rates are highlighted on the rate card. You get the double whammy of "Nintendo is so generous! They actually raise their rates!" and "Oh dear, my rates are like 5X higher than normal... maybe I should purchase more." We can debate whether this is all "insidious" and "manipulative" later but my point is that increases/decreases to drop rates without communicating to the user is just bad for business.
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