Oxygen discusses loot boxes and their moral implication.

Hearthstone and Overwatch's overwhelming financial success have pushed Heroes of the Storm to adopt a similar monetization model by introducing its own loot box system back in May 2017. How have loot boxes changed the landscape of gaming? What are some of their moral implications?

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A brief history of randomized microtransactions

Back in November, Star Wars Battlefront 2 players denounced Electronic Arts' unscrupulous business practices that required players to spend an exorbitant number of in-game hours to be on an equal footing with players who could instead opt to spent large amounts of money on randomly generated in-game items... in a game they had already purchased for some $60. To most, EA had gone too far with so-called pay-to-win which, to add insult to injury, was highly randomized. This controversy served to put randomized microtransactions under the global spotlight, prompting comments and actions from lawmakers and political figures globally.

Such microtransactions are far from new, however. Back in 2007, Zhengtu Network was looking to monetize its homonymous game in Asian countries. To understand the move, it should be said that Asian markets were quite different from their American and European counterparts: players generally didn't purchase full titles and instead relied chiefly on internet cafés and copying games to play. Instead of relying on base sales to generate a profit, Zhengtu turned to loot boxes, which made sense for a young population of gamers that were much more receptive to a nickel-and-dime approach. The experiment proved so successful that it bred an entire genre of "free-to-pay" games, particularly on mobile platforms, that would come to solely exploit microtransactions to thrive.

Western regions were first exposed to microtransactions in 2009 through those Zynga compulsion loop-driven Facebook social "games" we've all been involuntarily exposed to. Team Fortress 2 would soon come up with its twist on microtransactions, in 2011, by introducing the loot box system we are so familiar with. Valve's logic was that by making their game mostly available for free, gamers would flock to the popular title in such numbers that even if only a small fraction of those players ended up spending, they would generate a profit. Valve won their bid, Team Fortress 2's population grew by a staggering factor of 12, and many mainstream games, including games from the FIFA, Counter-Strike, and Battlefield franchises, League of Legends, and, of course Overwatch, would follow suit.

The Star Wars controversy I discussed earlier happened to explode because of the franchise's humongous cultural significance that allowed the controversy to reach way beyond the social circles of those who would normally be concerned. In other words, non-gamers were, for the first time, exposed to the concept of loot boxes. To top it off, Star Wars Battlefront 2's loot box system was a particularly insidious blend of ludicrous costs, a highly pay-to-win scheme, and a high base game cost for what was essentially the re-release of a decade-old game. One of the most important conversations that would stem from the controversy is about the very nature of loot boxes and whether or not they should be considered a form of gambling, and thus regulated.

Why microtransactions? And how?

From a business standpoint, making a product free to then rely solely on post-consumption microtransactions may come off as an odd decision; why run risk of not seeing a return on your investment by not charging consumers right away? The context of games, and specifically, multiplayer games, is quite different from what I might call traditional consumerism: players are also part of the product, as without functional matchmaking, multiplayer games obviously stop working. Social bonds also tend to keep players more invested, and more players simply means more opportunities for bonds to develop.

The real prize, however, lies in a specific player profile known as a whale. Whales are essentially players who spend a ludicrous amount of money on otherwise free products. In its 2016 report on monetization, Swrve demonstrated that a mere 0.19% (!) of players contributed to some 48% of freemium games' revenue. Doesn't it make sense, then, to try and cater to said whales? How do you do it? Besides the importance of creating an appealing game, I believe that there are four main components to what we might colloquially call whale hunting.

I) Anemic time-to-reward ratios and "unreachable" goals

One of the most typical aspects of competitive free-to-play games is that they almost ubiquitously require players to spend a steady amount of money to stay in the loop. One of the most egregious examples of this might be Hearthstone, for which it is technically possible for a given player to build a competitive deck through sheer playtime. However, doing so would be extremely time-consuming and would require of this player that they focus on a single deck, leaving them extremely vulnerable to metagame shifts (which forcibly occur every time an expansion is released) and unable to experiment. The key to creating a dependence on microtransaction lies in making in-game currency gains so anemic that players feel forced to make steady real money purchases. Going back to our Hearthstone example, and assuming a steady rate of 8 matches per hour, your average player (50% win/loss ratio) might be able to purchase a pack after some 7.5 hours of playtime, daily quests notwithstanding. Since individual packs cost $1.50 USD, this time could be valued at about $0.20 an hour, making a minimum wage job rather appealing by comparison. Although you are hopefully enjoying yourself playing Hearthstone during this time, any player looking to be a serious contender will absolutely have to invest into the game.

Daniel Friedman from Polygon did the legwork for me and produced a fair estimation for the yearly cost of sustaining a reasonable Hearthstone collection: $400, including in-game currency gains. For a whale, this isn't a lot. By comparison, $170 USD a year will keep you completely competitive in Heroes of the Storm, though in reality, you could get away with spending much less by regularly completing daily quests and skipping weak heroes. Again, for a whale, this isn't a lot. As a developer, you then run into this problem of needing to balance the needs of freeloaders, casual players, and whales. On one hand, purchases that have a direct effect on game play (cards in card games, characters in MOBAs, weapons in FPSs, etc.) must remain relatively accessible to all. On the other hand, you need to have content for whales to spend on. And this is exactly why most free-to-play games feature a large amount of expensive cosmetic items. At the time of writing, building a full non-golden Hearthstone card collection would set you back nearly $2,000 USD. For a full golden collection, I've seen estimates ranging between $10,000 and $20,000 USD. This number would increase by approximately $3,000 with every new expansion. For the majority of us, this sounds insane. To a whale, this is a goal.

II) Artificial rarity

Scarcity breeds desire. De Beers exploited this back in the 1930s to artificially inflate the price of its diamonds. Blizzard too does this across its microtransaction games; inherently, high rarity items in Hearthstone, Overwatch, and Heroes of the Storm aren't more powerful (less so for Hearthstone) or attractive (this is subjective, of course) than other items. By assigning rare, epic, and legendary qualities to their items – which is rather clever, by the way, as we have been groomed by years upon years of World of Warcraft to respect these rarities and associated colours – Blizzard is justifying steeper crafting costs and lower pulling chances when there would otherwise be no objective reason to make certain items harder to acquire. Item rarity becomes particularly easy for players to hate, and justifiably so, when it is directly tied to in-game power levels. But for big spenders, high rarity simply becomes synonymous with quality, regardless of the item's intrinsic value, not unlike luxury brands.

Item rarity isn't the only way Blizzard (and other companies; I'm not trying to specifically criticise Blizzard here, but I just happen to know their products well enough) are creating artificial rarity. Although card games such as Hearthstone naturally conjure events whenever a new expansion comes out, Overwatch and Heroes of the Storm very carefully plan time-limited in-game events with event-exclusive and sometimes limited (in the sense that this is your one chance of acquiring them) cosmetic items to imbue players with a hollow sense of urgency. These events often have specific loot boxes, and the items they contain are invariably more expensive than year-round items for players to craft to further incentivise purchases.

III) Obfuscation of costs

Let's have a short quiz.

a) How much is a legendary Hearthstone card worth?

Surprised? So am I.

b) How much is a legendary Heroes of the Storm item worth?

...surprised again? So was I. And I'm actually slightly embarrassed to admit that it took me a few minutes to math this one out. Why? I had to convert my local Canadian currency into a number of "Gems" before looking into making a loot chest purchase. The insidious bit is that whenever I tried to purchase a specific number of chests, I'd always either have some leftover gems or have to go for a less appealing package. At this rate, this point is just writing itself out.

Gold, gems, dust, credits, "not-money". Whatever you call them, they're much easier to spend than actual cash, not unlike real life credit, and particularly for impulse purchases. You'll notice that such currencies are often purchased by the thousand, which only serves to further disconnect consumers from their money.



You look like candy. I don't mind spending you at all.

The random nature of loot boxes and card packs only serves to further obfuscate how much players are actually spending for what they're getting. If you've ever wondered why players weren't just allowed to pick whatever card (or cosmetic, in the case of loot boxes) they needed from packs since cards have no resale value and cannot be traded with other players, this is it. And if you've ever wondered why obvious filler such as Sewer Crawler or Worgen Greaser gets printed with every expansion, there's your answer again.

IV) Steady compulsion looping

No random microtransaction system can be successful without providing its target market with a highly controlled but steady stream of merchandise. Games such as Heroes of the Storm offer a frontloaded number of loot chests to hook its players in, then cleverly use the "progression" system to regularly feed them with bits of dopamine. The player profile has a section dedicated to indicating how close players are to acquiring their next reward as a constant reminder. The tiered loot chest system even acts as a small knob to control exactly how much players should be getting, and when. Items such as Stimpacks have the dual effect of doubling the rate of the compulsion looping schedule and instilling players with a false sense of faster progression to become particularly addictive. Positive reinforcement variable ratio schedules are also found under the form of a mechanic known by players as a "pity timer" which ensures that at least one legendary item will be collected every 35th loot chest (every 39th card pack in Hearthstone) to ensure a certain level of randomized microtransaction loyalty.

The visuals and sounds that accompany the opening of loot boxes is specifically designed to heighten excitement, with higher rarity items being generally accompanied by flashier animations and more exciting sound effects.

Ultimately, the goal of the system is to create a form of extrinsic motivation that encourages players to remain active and incentivises them to make purchases. Daily quests fulfill a similar purpose, though they obviously cannot be purchased.

Are loot boxes and card packs a form of gambling?

With randomized microtransactions under the proverbial spotlight, I believe this question is going to be a big one in the near future. As of right now however, the answer varies broadly depending on who you ask; many American and European countries are in the process of studying the question, whereas most Asian countries have already legislated. Given the different gaming culture, as was explained in the second paragraph of this article, this makes sense: Asian countries have been way more exposed to microtransactions – and their effects – than western countries have.

In an unexpectedly liberal move, China dropped a bomb in December 2016 when it announced that game publishers dealing in the country would have to reveal the draw chances of randomized virtual items and services. Furthermore, this new law outright banned loot box-like systems. Blizzard complied with the new legislation in a particularly crass way by instead selling meaningless amounts of in-game currency (dust for Hearthstone, credits for Overwatch, etc.) and giving out an equal amount of packs or loot boxes as a "gift" for purchasing said currency. I'm not joking.

Of course, this is just one step towards regulation (or not) in one country, and, as stated earlier, distinct countries are tackling the issue at different speeds. However, I suspect the battle to have far-reaching consequences. In the US, lawsuits against analogous systems, notably, Pokémon cards, was ultimately dismissed back in 1999. Why? Simply put, booster packs were deemed to "not be harmful enough" despite passing the gambling test, which serves to identify what constitutes gambling in the US. How do you perform this test? Look for the three following elements:

Consideration; basically, a cost or "risk" Chance; an unpredictable outcome (what will I win, or; will I win something at all?) Prize; what you will gain if you do win (for binary gambling), or; what you will gain (i.e. cards, for non-binary gambling) Notice anything? Loot boxes and card packs – though only those purchased with real currency – fit the bill. I've seen individuals argue that loot boxes could not be considered gambling because they always had a yield, but the test cares little about the nature of the yield as long as it is directly tied to consideration and chance. Jurisprudence has set a rather strange factor – harm, which, I have no idea how the judge evaluated – as one of the main component for future lawsuits. And so, we must then ask whether loot boxes and analogous systems are in fact harmful. Some have hypothesized that they can contribute to video game addiction, but the very existence of this disorder is still being debated. Perhaps we should instead look at gambling addiction to make a case, though we are headed deep into political and moral territories. Who should be in control of their own fate? Let's not go there just yet.

Moral and design concerns

It is with much noise and celebrating that Heroes of the Storm moved away from its standard microtransaction system to embrace loot chests fully back in May 2017. Most of the changes brought in by Heroes 2.0 would ultimately serve to support the introduction of randomized microtransactions.

Indeed, if economic research showed that loot boxes were not more lucrative than typical microtransactions (such as buying exactly what you want, such as a given Hearthstone card or Heroes of the Storm skin for a set price), they simply wouldn't exist. They are predatory in the sense that they exploit basic behavioural traits to make more money than a typical, non-random system would.

The success of loot boxes becomes particularly terrifying when certain fundamental games design principles have to be twisted to promote the appeal of purchasing loot boxes. Games such as Overwatch are hardly affected. Other games, such as Hearthstone, are incentivised to make more powerful cards rarer to increase potential profits, though ultimately, this is a thing we have come to accept – unjustifiably, perhaps? – from card games. Other much more reprehensible game examples literally tie player power to randomly finding certain items. Loot boxes and their content need to be advertised, too, which distracts from the game.



Hey MVP! Don't mind my skin and banner, by the way. Cough. But they do look nice. If only you had them, you could be just as good as I am...

The human demand for gambling is undeniable. Unlike video game addiction, however, gambling addiction is recognized as a mental disorder. Whether certain whales are affected by the disorder is difficult to tell, but vices ultimately tend to affect the most vulnerable of us. Controlling certain behaviour is excessively difficult, if not impossible, but knowing that my favourite games may be subsidised by people whose lives are compromised by gambling problems is always a sad thought. And although I generally try and avoid making unfounded assertions, I can't help but to question the effects of exposing children and adolescents to gambling, regardless of the form. This is particularly worrisome as younger gamers are being groomed by popular mobile games to see such microtransactions as completely normal.

TL;DR

Electronic Arts' massive blunder with Star Wars Battlefront 2's loot crate system caused a global awareness of randomized microtransactions, prompting reactions from several political figured around the world. Random microtransactions would be considered a form of gambling by US law, but existing jurisprudence tells us that they are unlikely to be controlled unless objective harm can be proved, just as with physical collectible cards. Random microtransactions exploit human behavioural weaknesses to generate significantly more profit than traditional transactions.