Regulators eye game monetisation in 2018

Last year was a fantastic 12 months for videogames - as in, the actual creative products of this industry, not the shorthand for the industry itself. Studio after studio launched major titles that matched or exceeded the greatest of expectations; Nintendo's 2017 was particularly remarkable, but barely any of the big titles of the year really missed their mark. So good was the year in software terms that some very good games got rather buried - Arkane's superb reboot of Prey being perhaps the game that suffered the most unfortunate gap between its superb quality and the lack of attention it garnered. Many of you, I'm sure, ended the year with a dramatically sized Pile of Shame you're hoping to diminish before 2018's releases start pouring in.

It was not, however, a particularly fantastic 12 months for the videogames business. In theory, this should be a making-hay kind of period for the industry. The tough parts of the transition to digital distribution are behind us, a couple of very strong console launches have proven the resilience of traditional game platforms, and new innovations like VR or AR are interesting to explore, but many years away from being disruptive to existing business. Yet rather than sitting back and letting this be a fantastic era in which to grow the audience, explore creatively and get balance sheets on an even keel, most of the industry finds itself still locked in transition crisis mode - except this time it's a business transition, an unseemly haste to change the fundamental models of how game creators and publishers transact with customers.

"Is it impossible to make a AAA game with the production values of Battlefront 2 without a gacha-esque loot crate system? Perhaps, perhaps not"

The result of this, viewed in hindsight over 2017, often looked like the business was just stumbling from one self-made crisis to the next. The big and memorable screw-ups, like Star Wars Battlefront 2's loot boxes, were punctuated by little ones. From the consumer side, a trickle building to a steady flow of awful stories about people with plainly addictive personalities putting themselves or their families in dire financial straits thanks to the uncapped spending potential of these modern business models. From the industry side, feet hurtled with pin-point accuracy towards mouths as executives tried (and often failed) to balance their messaging to both consumers and investors, whose desires have never been more diametrically opposed.

To hear people from within the PC and console games industry talk about this, you'd imagine the whole thing to be a fait accompli. We've moved past DLC and season passes now; loot boxes and in-game currency and all the trappings of smartphone free-to-play are now part and parcel of what AAA games are, and we'd all just best get used to it. Over on the smartphone side, things are even more clear-cut; without F2P, most people will tell you, there is no smartphone game market.

The reasons given for why this state of affairs must be accepted are well-worn by this stage; AAA games can't make enough money to justify development costs without finding new ways to monetise their core players. Mobile gamers won't pay for games so F2P is the only way to make money at all. Even developers and creators who aren't entirely sold on these systems tend to mournfully acknowledge their necessity, while pointing out - entirely fairly - that it's possible to implement these things well, and fairly, and even in ways that make games more fun. It's just that the biggest budget and most high profile examples tend to make a bee-line for the most exploitative models possible, that's all.

"Within the next couple of years, a government or regulator somewhere will crack down on the industry's shiny new business models"

Each of these assertions of necessity or inevitability is pretty much untestable. Is it impossible to make a AAA game with the production values of Battlefront 2 without a pretty exploitative gacha-esque loot crate system? Perhaps, perhaps not - though honestly, I feel like the controversy over the business model rather let EA off the hook for how utterly uninspired and vapid the game itself is, once you get past the expensively created scenery. Plenty of other developers seemed to make superb, involving games in 2017 that didn't have microtransactions or loot boxes and still made money, but something like the Star Wars license is undoubtedly costly. Equally, is it impossible to make money on mobile without F2P? Perhaps so, but a lot of the assumptions around that - like the importance of "whales" who spend big - are untested and generally backed up only with rather hoary anecdotes.

The problem, as I see it, is that large segments of the industry have repeated these assertions to themselves so often that they now really do see this transition as being inevitable and necessary - and that has blinded them to the very real potential of these business models, or some of their more exploitative aspects, being banned or shut down. I have lost count of how many discussions I had in 2017 where the prospect of regulation being imposed was greeted with dismissal. It might have been airily ("oh, but we need these things, so they can't stop us doing it"), or angrily ("but if they do that, people like me will lose our jobs / companies like mine won't be able to keep going"), but in either case that kind of dismissal amounted to a refusal to engage intellectually with what is almost certainly going to be one of the industry's biggest challenges in 2018 or 2019.

It will not be universal, of course, and it's hard to say where it'll start - but within the next couple of years, a government or regulator somewhere is going to choose to crack down on the industry's shiny new business models. If I were a betting man I'd say either the EU or China is the most likely place for it to happen, and that mobile F2P is still most firmly in the crosshairs; there are simply too many issues around whales, too many tabloid-ready stories of families ending up deep in debt to someone's smartphone game addiction, and too much potential for children to be involved for this not to be on regulators' radars. Console and PC games can also provoke outcry though, and the whole question of loot box items being re-sold on RMT marketplaces raises a spectre of unlicensed gambling as well.

"The sudden imposition of more wide-reaching regulation really would be catastrophic for a pretty large number of companies"

When a government somewhere becomes convinced that these business models and approaches are abusive, damaging and socially harmful, claims that these models are necessary to profit from games, or that their regulation might result in the loss of jobs in the industry, are highly unlikely to be considered substantial mitigating factors. (One can only hope the industry will have the sense not to even try trotting out the smarmy teenage libertarian 'hey adults are free to spend their money as they wish, even if it's their kids' college fund going into gacha tokens for a mobile game' argument.)

Regulation is by no means always a bad thing for an industry - it's often necessary and actually helpful to growth - but when applied to something as poorly-understood by regulators as videogames, it's likely to be an overbearing response to a set of worst case scenarios. The industry will be judged by its most abusive and exploitative games, and sentenced accordingly.

The hope would be that whatever regulation is eventually handed down - and on our current trajectory, I am certain that this is a question of when, not if - will really only blunt the edges of the worst offenders, perhaps by putting a strict per-user revenue cap in place, or banning specific mechanisms (as Japan threatened to do with the combu-gacha systems in games a couple of years ago). The sudden imposition of more wide-reaching regulation really would be catastrophic for a pretty large number of companies, and really would result in significant job losses - not significant enough for legislators to weight them above consumer protection, I suspect, but a major blow to the industry nonetheless.

Perhaps the optimistic view is also worth considering; that stripped of the capacity to endlessly pursue whales down increasingly narrow paths, much of the industry would be forced to return to the task our biggest publishers seemingly abandoned half a decade or more ago - actually growing the audience for games, building revenues by selling to more and more people rather than by extracting the maximum number of dollars from a stagnant or even dwindling player base.

Even mobile F2P, the stunning growth of which promised to open up new frontiers for games, has trapped itself against a ceiling; its biggest games have barely swapped chart positions in years, and largely simply churn the same player base amongst themselves. The regulation of the industry's business models that is almost certainly coming in the next few years will be a shock, and it will hurt, but it might deliver a more sustainable industry in the long run. Smart businesses should start thinking beyond our current monetisation obsession now; those who find other ways to grow the audience will be best placed to survive when this bubble gets a pin stuck in it.