Loot boxes have mostly avoided the hammer of legislation - for now | Opinion

Just a couple of years ago, it felt distinctly possible that the first dominoes had started to fall in what was set to be a wave of legislation against exploitative F2P game mechanisms.

Media reporting of especially egregious cases -- many of them involving children racking up huge credit card bills unbeknownst to their parents -- had fuelled public anger, and the infiltration of loot box and gacha mechanisms originally designed for F2P games into high-visibility premium titles had raised the profile of the issue massively, especially once legislators across many countries realised that some of these cases were, at best, nuzzling up very intimately against the line dividing games from outright gambling.

Legislation would quite likely have been the worst possible scenario, and even those within the industry who had absolute disdain for the exploitative extremes to which some companies pushed their monetisation models were still keen to avoid national governments from getting involved.

"It's not that regulation of industries is inherently a bad thing... but in this instance, it was apparent that government intervention would likely result in babies being thrown out with bathwater"

It's not that regulation of industries is inherently a bad thing -- it can be a very good thing, in circumstances where market incentives are fundamentally misaligned with social, individual, and environmental goods -- but in this instance, it was apparent that government intervention would likely result in babies being thrown out with bathwater. The distinction between a regular F2P monetisation model or a reasonably balanced random-draw system for in-game items and bonuses, versus an exploitative gacha system or a game that's tipped over the line into being outright gambling, isn't hard to see for someone deeply involved with these kinds of games -- but explaining it to legislators and codifying it in law would be exceptionally hard, and the chances are that we'd just end up with a whole swathe of generally legitimate business models being banned or categorised as gambling.

Ultimately, some dominoes did fall -- but only a couple. This week's launch of Blizzard's new F2P title, Diablo Immortal, marks a good opportunity to take stock of where this side of the industry has ended up.

First of all, the fallen dominoes are evident; the game is not launching in Belgium or the Netherlands, two countries which created strict new rules that effectively ban loot box-style systems. These countries represent the scenario the industry desperately wanted to avoid; as expected, they took a maximalist approach to legislation and simply declared all loot box style mechanisms to be gambling and thus no longer allowed, in a move which led to games from many major publishers being pulled from stores in those countries. That's doable in a couple of relatively small European countries; if bigger dominoes had started falling, and the potential of an EU-wide crackdown had materialised, it would have been a much, much bigger problem.

That didn't happen, though, and that's really the second thing that's evident from Diablo Immortal's launch -- all the dominoes that are still standing. Belgium and the Netherlands have not, so far, turned out to be at the forefront of a major movement across EU states; for now, at least, they stand alone. Moreover, the EU's Digital Services Act, which regulates a very wide swathe of online and digital businesses, was agreed in principle in late April and doesn't contain anything about loot boxes or gambling-like game mechanisms. It's not clear how serious the threat of these games being legislated at an EU level ever was, but avoiding such legislation being enacted in the Digital Services Act probably means it's off the table for the time being.

"While momentum behind the [anti-loot box] movement has slowed down, there are still legislatures looking into the issue"

This doesn't mean that there won't be any more movement on this front within the EU -- consumer groups across many member states are still calling for action on loot boxes and gambling mechanisms, and while momentum behind the movement has slowed down, there are still legislatures looking into the issue. The fact that there's nothing about this in the Digital Services Act just means that the question is kicked back to national legislatures to handle individually.

It's worth noting, though, that while Belgium and the Netherlands were the only EU countries to effectively ban loot boxes, they were absolutely not the only countries in the world to legislate around exploitative game monetisation systems. Japan, South Korea, and China have all introduced rules around game monetisation, such as Japan's widely reported ban on "kompu gacha" systems -- but each of these countries did take a finer scalpel to the issue, focusing in on specific mechanisms they found abusive rather than simply banning the entire concept of loot boxes or random draws. Consequently, Diablo Immortal is launching without issue (thus far) in Asia, as have many other games with similar mechanisms in recent years.

This is notable, because it points to the reality of what's happened in the past few years. Diablo Immortal and other F2P games launch without issue in Asian markets which have legislated against specific types of exploitative monetisation, precisely because they don't fall foul of any of the especially egregious behaviours which the legislation sought to curb. We could of course discuss back and forth over whether these countries' legislation actually goes far enough -- there's a reasonable argument which says that legislating against very specific types of monetisation, like Japan's laws against "kompu gacha", actually just incentivizes companies to invent equally abusive systems that bypass the laws on a technicality, rather than dealing with the root problem. However, we might also wonder if, had the industry been faster to drop the exploitative systems targeted by the laws in Asian nations, the de facto ban in Belgium and the Netherlands (and the now somewhat less immediate threat of this being spread to other EU nations) might never have come to pass.

"The most immediate legislative threats to F2P games have receded, and in large part that's down to the industry doing a reasonably good job of self-regulating to avoid the perceived need for legislation"

The most immediate legislative threats to F2P games have receded, and in large part that's down to the industry doing a reasonably good job of self-regulating to avoid the perceived need for legislation in most countries. This has been a pattern in the games business' brushes with national legislation over the decades, and this time big tech companies also played a role -- they're perhaps even more keen than games companies to avoid legislation, and consequently some of the meaningful self-regulatory steps came in the form of things like Apple's App Store rules which force games with any form of gacha mechanism to reveal the odds of the various outcomes up front. Other steps came from the industry itself simply being more mindful of how certain mechanisms and systems can be perceived and can have an impact on vulnerable consumers, especially children.

However, nobody should be celebrating yet; even if it's possible to launch major F2P titles which use these monetisation strategies almost unimpeded right now, something that was far from a certainty a couple of years ago, it would be naïve to think that this particular battle is actually over.

Aside from the possibility that public and legislative attention will turn back around to this issue in future (the EU in particular is a little distracted right now), the games industry itself has found a whole new box of matches to play with in the hay shed -- namely cryptocurrencies and NFTs. Interest in these fields has waned sharply in recent months, but some companies are insisting on pushing ahead with game projects built around those technologies in spite of consumers' clearly signalled lack of interest - and in the process they're setting up a next round for the fight over game monetisation and gambling mechanisms that will be much, much more problematic than the last. Those currencies and tokens are inherently designed around the idea of having a real-world value and being exchangeable for other currencies, essentially ripping away the thin veil from the thinly-veiled gambling that loot boxes and other such mechanisms were accused of being.

The last surge of legislative interest in the industry's business models led to fairly moderate restrictions across Asia and more strict rules in a couple of small European countries. It won't always be possible to prevent more dominoes from falling. Companies in this sector tend to be very enamoured of "move fast and break things" type thinking, and asking forgiveness instead of permission, but for those moving forward with plans for games where trading in currencies and tokens that are easily exchangeable for real money, it's essential that they be very, very careful about how they apply this "disruptive" market thinking.

Legislators deciding that the games industry is running unlicensed gambling businesses, or worse yet, exposing minors to gambling mechanisms, could very rapidly bring the sky tumbling down not just on the direct culprits, but on a pretty wide swathe of the industry.