Major console makers Microsoft (NASDAQ: MSFT), Sony (NYSE: SNE), and Nintendo (TYO: 7974) came together to pledge new regulations that require video game developers to disclose loot box odds in their titles.
The announcement was made by the Entertainment Software Association (ESA) in a press release that outlines the policies that will be in place by the end of 2020. They include disclosing the “rarity or probability” of obtaining random items in loot boxes, and will be applicable to both base games and downloadable content (DLC) add-ons.
Wednesday’s announcement came as the US Federal Trade Commission convened a workshop to discuss loot boxes, which offers random in-game items as rewards to players. Players don’t know what prizes they’ll get when they open a loot box. Many liken them to gambling, since players can purchase loot boxes with real money for a chance to receive coveted items.
The move may be seen as a defensive gesture by the video game industry as it seeks to self-regulate before the US government chooses to step in with legislation.
Loot box regulation
Loot boxes became a highly controversial topic in 2017, with games such as Star Wars: Battlefront II – published by Electronic Arts (NASDAQ: EA) – coming under fire for its heavy use of the gameplay mechanic.
This prompted a number of local and national governments to review loot boxes to determine whether they should be regulated as gambling. Some have either proposed or passed legislation that regulations the gameplay mechanic.
Loot boxes and other forms of monetization create the foundation for the “games as a service” model, where games continue to generate revenue long after their initial release. It, more than any other factor, has contributed to the incredible growth for publishers such as EA, Activision (NASDAQ: ATVI), and Take-Two Interactive (NASDAQ: TTWO). The model is so effective that Take-Two named Grand Theft Auto V as a major revenue source in its first quarter earnings report despite the fact that it was released in 2013.
Moving beyond loot boxes
Some publishers chose to move away from loot boxes altogether. For instance, competitive vehicular soccer game Rocket League announced on Tuesday that it will no longer use loot boxes. Meanwhile, other developers have moved on to selling Battle Passes, where players pay a fee to unlock a progression line that rewards them based on how much they play. Unlike loot boxes, this monetization system doesn’t have random variables.
According to the ESA’s statement, a number of its members already disclose their loot box odds while others are considering disclosure. Although the announcement came from console makers, the policies will also apply for PC releases. Publishers that have agreed to the policies include Activision Blizzard, Bandai Namco Entertainment, Bethesda, Bungie, Electronic Arts, Microsoft, Nintendo, Sony Interactive Entertainment, Take-Two Interactive, Ubisoft, Warner Bros. Interactive Entertainment, and Wizards of the Coast.