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

Brendan Sinclair North American Editor Wednesday 7th August 2019 Share this article Share

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.

"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."