The industry's disingenuous defense of loot boxes | This Week in Business

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Earlier this month, the Australian House of Representatives' Social Policy and Legal Affairs Committee held public hearings into various aspects of online gambling, including loot boxes in video games.

During those hearings, legislators heard from consumer rights' advocates and academics about fostering gambling addiction in children and normalizing gambling in culture, manipulative design patterns, research suggesting loot boxes as a gateway activity to undisputable gambling activities, the logistical challenges around legislating loot boxes, and how they might best be overcome.

The industry's point of view was represented by two trade groups, the International Social Games Association (ISGA) and the Australian video games trade body Interactive Games and Entertainment Association (IGEA).

Their defenses of loot boxes were, for the most part, predictable.

They said existing consumer protection laws could address the problem, as if the industry would not fight tooth and nail against any attempt to apply existing laws to loot boxes.

Their [IGEA and ISGA] defenses of loot boxes were, for the most part, predictable... But they also said some other, weirder stuff

They said most players seem to really enjoy loot boxes, as if pointing to the obscene amount of money people spend on a product is an effective defense to accusations that it is addictive.

They said there's no scientifically established causal relationship between loot boxes and gambling, as if untold harm wasn't done in the decades before we could stop having arguments about whether there was a scientifically established causal relationships between smoking and cancer, or fossil fuel consumption and global warming.

They said – repeatedly – that the industry has parental spending controls and ratings systems, as if it makes sense to rely on "solutions" that pre-date the problem and did nothing to prevent it in the first place.

But they also said some other, weirder stuff.

QUOTE | "You are removing them from the protection of the [Australian Competition and Consumer Commission] by putting them under the gambling act. You are then moving all those players who play games today with no issues whatsoever, all for fun, into the same bucket as illegal offshore gambling. I don't think that is good for Australian consumers. If you were to say that this simulated gambling or social casino was gambling under the act, then you are putting those players at risk. As we heard earlier, when people are pushed into those dangerous areas, they are exposed to far less regulated environments." – ISGA CEO Michael Luc argued that classifying loot boxes as gambling would actually provide consumers with less protection.

I wonder if Luc realized he's echoing the harm reduction rationale for drug legalization. He's suggesting it's better to have the unsavory business of loot boxes done above board and under government scrutiny than to have addicts dealing with criminals to get their fix.

QUOTE | "What we want to do is encourage people to use more parental controls and make better decisions, based on the information that they have, and not necessarily put such a high barrier in place that they'll simply turn off the tools or give them a phone that is unlocked for an adult. They have made a judgement that they would like their kid to be able to play the football game with loot boxes when they're 17 years old, because they feel that their child is mature enough, so the child may be given a device that actually gives them access to a lot of other things unintentionally.

"I'm not dismissing the idea that higher classifications are good. We just need to make sure that it works correctly and doesn't have the unintended consequence of removing other parental controls, and that it also allows parents to parent." – Luc argues against giving loot box games a more restrictive rating because parents quickly get sick of having to deal with parental controls and turn them off anyway, rendering them an ineffective tool to prevent children from accessing games.

Updating those parental controls to include the ability to whitelist specific games would completely address Luc's stated concern with harsher ratings for loot box games, of course. Perhaps I'm being cynical, but I suspect his actual concern lies more with the sales impact to games like FIFA Mobile that see their "suitable for everyone" G rating switched out for a restricted R18+ rating that will get parents to take a closer look at exactly what's in their kids' football game. (And perhaps to a lesser extent, the added work that might be required of platform holders to incorporate such changes.)

Luc wasn't alone in throwing out some dubious arguments. IGEA CEO Ron Curry had some gems of his own.

QUOTE | "People like it because they find that it gives them an opportunity to participate in games that they otherwise aren't good enough at. So, if other people are better at 'building their town', they can enjoy the game in another way and have a chance of getting something that progresses them through the game. There are lots of people who like them." – Curry suggests that in-app purchases and loot boxes are for people who aren't good at a game.

Free-to-play publishers love framing the monetization of their games like this. Everything in the game can be obtained without paying a dime, they proudly proclaim. Or, if players don't have much free time to put into a game, they can pay a bit of money to speed up their progression. But we know that's not how these games are designed because every now and then, the people making them actually tell us.

QUOTE | "As best I can tell, payers are the most insanely engaged people you can imagine. They are freaking crazy about your game. And the bad news is that these are the only people who will pay you money in any significant numbers." – In a 2016 GDC presentation, Orange Monkey Games founder and former Playdom creative director Eleanor Todd said the strongest correlation for payers was the amount of time they spent playing a game on a daily basis.

STAT | 45 minutes a day – The average daily playtime over the first week of play for non-spenders on one hit game Todd worked on.

STAT | 5 hours a day – The average daily playtime for people who spent money in their first week on the same game.

QUOTE | "It means you must support and reward such play, or your game will not monetize well. It absolutely means you must take this level of rabid engagement into consideration when you're designing your game up front. It is absolutely not something you can tack on later." – Todd's conclusion.

Of course, "Our business is completely driven by compulsive and unending play so every design choice we make is optimized to swallow as much of a player's life as possible because anything less is not financially viable" wouldn't go over well with legislators, so instead we get Curry's absurd "in-app purchases even the playing field for scrubs" defense.

But what got me the most was Curry's effort to distinguish the games industry (noble, upstanding) from the social casino industry (sketchy, gross).

QUOTE | "We're in the business of video games: the business of fun, positive experiences for players. We're not in the business of gambling. None of our members run gambling services or even make simulated gambling games. The notion that our industry is providing gambling services to children is antithetical to everything our members stand for." – Curry is appalled that you would think video game makers would have anything in common with those kind of people.

Curry was later asked if he was relieved to be able to say that IGEA members didn't make games with pretend poker machines or the fairly basic loot box reveal animation of "an old-style treasure chest that opens up and gold coins come out of the top of it," and he doubled down on his previous statement.

QUOTE | "It's been a very conscious decision of our association over the last 20 years not to have that sort of member… we represent a certain style of video game that's about, largely, entertainment, fun and engagement but that doesn't stray into gambling and direct social gaming. It's just a decision; it's a delineation that we've worked on for the last 20 years, very consciously." – Curry is upset at even the suggestion that the IGEA would ever countenance such scoundrels and ne'er-do-wells in its ranks.

Those are bold declarations Curry gave, especially considering he had just been warned at the start of his appearance that providing misleading or false evidence could be considered contempt of parliament.

Action on loot boxes willhurt the business because modern live service design optimizes for engagement to the point of addiction

IGEA member Take-Two runs simulated gambling services in games like Grand Theft Auto Online and NBA 2K23. Another witness even referred to her own experiences in a Grand Theft Auto casino during that day's testimony.

IGEA member Roblox has a heavily youth-skewing user base, and it hosts a whole bunch of gambling games.

IGEA member Google and IGEA associate member Facebook are being sued for promoting illegal online gambling through social casino apps.

IGEA member Tencent ran the popular Everyday Texas Hold 'Em in China until the country started ramping up its restrictions on the games industry in 2018.

IGEA associate member Twitch had a Slots category on the site that was one of the site's Top 10 categories and racking up more than 50 million hours watched a month until a scandal last September brought the issue to the fore and the site responded by banning streaming of unlicensed gambling sites. (Streams of sports betting and poker sites are still perfectly OK though.)

Former IGEA member Sega is a subsidiary of Japanese slot machine giant Sammy, and the two businesses were part of the same business entity until a 2021 restructuring.

Former IGEA member Mindscape had made Hoyle Slots and Hoyle Casino when it was part of the group, and even promoted Hoyle as the "#1 selling family franchise" to boot.

I'm not naïve here. The trade group's function is to preserve the business, and any kind of meaningful action on loot boxes will almost certainly hurt the loot box business because so much of modern live service design ruthlessly optimizes for engagement to the point of addiction (and beyond, if possible). Trade groups don't participate in these kinds of hearings because they want to offer solutions; they show up to preserve a status quo that got them dragged before legislators in the first place.

That's why the only solutions they suggest are either things already in place (no matter how obviously ineffective they were in dealing with the problem in the first place), or things that put the onus on somebody else, like those good-for-nothing parents who don't instantly grok the complex and deliberately obfuscated economies of a game with multiple virtual currencies that can't even be grasped at a surface level until you've put in hours of gameplay.

This whole hearing – and other hearings around the world we've seen in recent years – have only reinforced my belief that the industry is fundamentally incapable of self-regulation on this matter.

Industry trade groups tell us they're interested in further research because research buys you time, and fighting over the conclusions can buy you even more.

They tell us legislation to address the issue would be overly broad and will apply to exploitive and innocent games alike, but they won't suggest any way to distinguish one from the other. Likewise, they'll always concede there are exploitive games as an outlier, but they'll never actually name them or specify which tactics should be off-limits. Probably because many of the biggest and supposedly most legitimate players in the industry (Epic Games, for example) have shamelessly leaned on exploitive techniques themselves, ignoring the repeated complaints of the press, players, and even their own employees.

They tell us their games aren't gambling because the virtual items have no real-world value, even though their business models utterly rely on customers being willing to pay an arm and a leg for them.

And by telling us all this, they're also telling us that they are not interested in making a good faith effort to address people's concerns, that they will not be meeting anyone halfway, and that whatever restrictions are made around loot boxes and gambling will have to be imposed upon them by force of law.

And if such restrictions do eventually get passed and are particularly onerous and damaging to the specific companies or even the industry at large, the fault will lie not with legislators unable to draw impossibly precise distinctions around what is and isn't dishonest dirtbaggery, but with the IGEA, the ISGA, and all their international counterparts for refusing to even acknowledge the problem, much less be part of a solution.

The rest of the week in review

QUOTE | "It's actually very cost-prohibitive to livestream everything so we needed to focus GDC 2023 on the in-person audience" - GDC's director of event production Stephanie Hawkins tells GamesIndustry.biz why the conference dropped the hybrid/virtual elements this year. Check out our full interview with Hawkins and senior conference manager Ashley Corrigan.

QUOTE | "[During GDC week] I make sure I eat plenty of fresh food and nutritious meals. I also try to avoid caffeine and alcohol. Sometimes I also go back to the hotel to rest for a couple of hours and that's super valid too. We are not machines." - Three of Cups Games CEO Marina Díez offering advice how to survive GDC in our extensive guide. And we mean extensive.

QUOTE | "['Special thanks'] doesn't really explain anything – especially when tossed in a wall of text where they're thanking family members, dogs, cats and whatnot!" - Nazih Fares, vice-chair at the IGDA Game Credits SIG and one of the many we spoke to for our extensive guide to why crediting matters – and how to do it properly. Again, we do not use the work 'extensive' lightly.

QUOTE | "The last two years were the best time ever to be a founder in games. No doubt about it. But now? It is the second-best time. It is still the second-best time ever to set up a games studio and do games. That's a great place to be" - Hiro Capital's Spike Laurie, one of the many investors we spoke to about the state of investment in video games today.

QUOTE | "We don't want to gloss over the ugliness of the history because it needs to be told accurately and also appropriately for your audience. [However] we're an officially licensed MLB game, so [our title] has to be rated E" - Sony San Diego Studio's product development communications and MLB: The Show's brand strategist Ramone Russell on the challenge of adding the Negro Leagues to this year's title.

STAT | 10,000 - Latest round of layoffs at Meta.

STAT | 11,000 - Number of layoffs Meta announced back in November.

QUOTE | "We look forward to co-streaming our event as part of E3 Digital and will not be on the E3 showfloor" - Microsoft confirms it won't physically be at E3, but will still have games to showcase.

QUOTE | "For many years, I truly felt Twitch might die without my guidance and input, but I no longer feel that is true" - Emmett Shear as he steps down as Twitch CEO to spend time with family. He'll still be working as an advisor, so the guidance and input that saw the streaming site become a haven for racism and abuse, as well as evoke backlash from streamers over Twitch's lax stance on gambling streams won't be entirely absent.

STAT | 9 - Number of new studios and publishing labels announced this week

• Fuse Games, a new AAA studio set-up by former Criterion leaders. Read more in our full interview
• Magic Soup Games, co-founded by former Blizzard leaders Jen Oneal, J. Allen Brack and John Donham
• Gas Giant Games, another new studio formed by Blizzard Entertainment alums
• GenPop Interactive, a new studio by Grammy-winning songwriter BloodPop
• IO Interactive opened its fourth studio, this one based in Istanbul, Turkey
• Creative Assembly North, based in Newcastle and led by former Reflections boss Giselle Stewart
• Quebec-based developer Yellow Brick Games opened a new office in Montreal
• Straw Fawn Studio, creator of The Wandering Village, opened a new games publishing division Short N Sweet, a new publishing label by Flux Games focused on shorter (and presumably sweeter) titles

STAT | 0% to 10% - Chance that all these announcements have not been timed to coincide with GDC, where folks can discuss their new ventures, recruit staff, and so on.

STAT | $92.3 billion - total worldwide spending on PC and console gaming in 2022, according to the latest Newzoo report.

STAT | 34% - rate of relief on 80% of qualifying expenditure in UK's improved Video Games Tax Relief. Now called Video Games Expenditure Credit, the rate is higher than the previous 25% offered by VGTR.

QUOTE | "After leaving my full-time role, I filed a lawsuit which I realized, after seeing the facts, was misguided" - Disco Elysium producer Kaur Kender resolved his legal dispute with the game's developer ZA/UM, with the latter saying Kender repaid all debts owed.

QUOTE | "Paying back stolen money, however, does not undo the crime; here, it does not undo the majority that Kompus and Haavel have illegally gained in ZA/UM" - Disco Elysium author Robert Kurvitz and colleague Sander Taal respond to ZA/UM's "deeply misleading" statements and remind folks their own legal dispute with the studio remains very much unresolved.

STAT | 6 - Number of studios who spoke in favour of Microsoft acquiring Activision Blizzard in responses the UK's competition regulator published this week.

STAT | 2 - Number of ten-year deals Microsoft signed with cloud gaming platforms to alleviate regulator concerns over the acquisition's impact on competition, one with Boosteroid and the other with Ubitus.

STAT | 0 - Number of times we've heard of Boosteroid or Ubitus prior to this week.

QUOTE | "Separation was incredibly difficult, but I believed the organization would heal faster under someone new" - former Blizzard president J. Allen Brack discussing his departure amid the company's abuse scandal of 2021.

STAT | $150 million - Amount of money Roblox has with now-defunct Silicon Valley Bank, accounting for 5% of its $3 billion cash and securities balance (as of February 28, 2023). But the company says the bank's collapse "will have no impact on the day-to-day operations of the Company."

QUOTE | "This has been a huge lesson for us and hopefully other indie creators out there too that assets on these storefronts seemingly cannot be purchased in good faith" - Archangel Studios' response after it was accused of stealing Elden Ring animations for its upcoming title Bleak Faith: Forsake. The studio said the animations in question were purchased on Epic Marketplace, but later received a statement from Epic saying the company could not verify the developer behind them had the appropriate rights.

STAT | $1m to $15m - Goal of Atari's new crowdfunding campaign, raising money for new games based on Atari-owned IP. The campaign raised more than $100,000 in the first 24 hours, with minimum pledges of $500.

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