North America's video game rating organization, the Entertainment Software Ratings Board ("ESRB") and Europe's equivalent entity, Pan European Game Information ("PEGI") have issued new labeling requirements for video games containing randomized in-game purchases, more commonly known as "loot boxes".1 Loot boxes are bundles of randomized video game content that can typically be purchased for in-game currency or real money. Once purchased, loot boxes reward the player with virtual items and/or other in-game content, based on chance.
The ESRB now requires games that include randomized in-game purchases or loot boxes to be labeled with "In-Game Purchases (Includes Random Items)". PEGI now requires these games to be labeled with "Includes Paid Random Items". Examples of these two labels are displayed below:
The ESRB states that the label "In-Game Purchases (Includes Random Items)" will "be assigned to all games that include purchases with any randomized elements, including loot boxes, gacha games, item or card packs, prize wheels, treasure chests, and more".2 PEGI states that the label "Paid Random Items" will apply where there are "in-game offers to purchase digital goods or premiums where players don't know exactly what they are getting prior to the purchase (e.g. loot boxes, card packs, prize wheels)".3 Both the ESRB and PEGI will continue to label games with in-game purchases (but without randomized transactions) with an "In-Game Purchases" label.
Developers & Publishers Have Gambled On Loot Boxes
The ESRB and PEGI have made these labelling changes in response to increased public discussion about loot boxes. Critics argue that loot boxes are addictive and similar to gambling.4 In response to these criticisms, some jurisdictions have implemented specific rules for loot boxes or even banned loot boxes outright.5 However, most jurisdictions have not yet taken action on the issue of randomized in-game purchases.
Loot boxes are everywhere in video games today, including the most popular games. As new technologies and standards appear, developer and publisher costs are always increasing, yet video game prices have remained relatively flat (and the 'free to play' model has arisen), leading some to argue that loot boxes are important for the long-term viability of the industry, or at least some genres of games.6
Educating and Informing, Rather than Banning Loot Box Mechanics
Lately, the conversation on loot boxes appears to be shifting away from legal bans towards "informed" consumption. Nintendo, Microsoft, Sony, and other publishers will require games on their platforms to disclose loot box odds in all titles by the end of 2020.7 As well, the ESRB and PEGI's new labeling requirements are an attempt to allow consumers to make informed purchases and avoid randomized in-game reward mechanics if they so choose. This proactive industry step is intended to demonstrate the effectiveness of self-regulation in order to avoid legislative bans or restrictions. Indeed, in jurisdictions where there is no legal regulation of loot boxes, the ESRB or PEGI guidelines are the most important compliance requirements faced by publishers and developers.
And this is self-regulation with teeth: if a developer or publisher tries to hide its loot boxes, or fails to fully disclose the contents of its game during the ratings process, the ESRB and PEGI have the ability to impose sanctions on publishers of up to $1,000,000 or ?500,000 respectively.8 Many publishing agreements require developers to cover liability for undisclosed content in published games, so developers must be transparent with their publishers about randomized in-game purchases. As disclosing the odds of loot boxes becomes the norm, developers will also need to ensure visual consistency so as not to create a misleading impression. For example, the visualization of randomized transactions should not make it appear that there are more rare items than the odds would indicate. If loot boxes are not a core component of their game, developers and publishers may need to balance the inclusion of loot boxes with any detrimental effect that the "randomized item" label may have on sales. Developers options are essentially to comply with labelling or to drop randomized reward mechanics from their games entirely.
Moving forward, whether governments impose a regulatory approach on loot boxes is likely dependant on the practical success of the ESRB and PEGI self-regulatory measures. To contribute to that success, developers and publishers are advised to be as transparent as possible when implementing loot boxes in their games. But given the risk that a few bad actors could bring down the heavy hand of regulation on the industry as a whole, developers and publishers should also keep alternative monetization strategies in mind.
1 (1)Entertainment Software Rating Board, "Introducing a New Interactive Element: In-Game Purchases (Includes Random Items)" (2020), online: https://www.esrb.org/blog/in-game-purchases-includes-random-items/
(2) Pan European Game Information, "PEGI Introduces Notice To Inform About Presence of Paid Random Items" (2020), online: https://pegi.info/news/pegi-introduces-feature-notice
2 ESRB, footnote 1 at para 3.
3 PEGI, footnote 1 at para 3.
4 Makena Kelly, "How Loot boxes Hooked Gamers and Left Regulators Spinning" (2019) The Verge, online: https://www.theverge.com/2019/2/19/18226852/loot-boxes-gaming-regulation-gambling-free-to-play
5 T.J. Hafer, "Are loot boxes gambling? The jury is still out in most places" (2018) PC Gamer, online: https://www.pcgamer.com/the-legal-status-of-loot-boxes-around-the-world-and-whats-next/
6 Kyle Orland, "Despite backlash, loot boxes could be essential to gaming's future" (2018) Ars Technica, online: https://arstechnica.com/gaming/2018/05/despite-backlash-loot-boxes-could-be-essential-to-gamings-future/
7 Entertainment Software Association, "Video Game Industry Commitments To Further Inform Consumer Purchases" The Entertainment Software Association, online: https://www.theesa.com/perspectives/video-game-industry-commitments-to-further-inform-consumer-purchases/
Originally published June 2, 2020.
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