Sunday, February 25, 2024
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The FTC saunters into the loot box fight

This time 12 months ago, loot boxes were the biggest story in the video game business . But now, even though they are still in some games, they already feel like a relic of the past. So naturally, here comes the Federal Trade Commission.

The FTC is promising to look into the effects of loot boxes in video games (as first reported by Broadcastingcable). FTC chairman Joseph Simons made that commitment during a Congressional oversight hearing primarily focused on data privacy at tech giants Facebook and Google. Sen. Maggie Hassan (Dem., New Hampshire) brought up the issue, and Simons explained that the FTC plans to keep the oversight committee apprised of its findings.

In response, the Entertainment Software Association — the biggest lobbying and trade group for video game publishers — shared the following statement:

“Loot boxes are one way that players can enhance the experience that video games offer. Contrary to assertions, loot boxes are not gambling. They have no real-world value, players always receive something that enhances their experience, and they are entirely optional to purchase. They can enhance the experience for those who choose to use them, but have no impact on those who do not.”

So the FTC is going to look into loot boxes, and the ESA is going to defend them. And this showdown feels out of sync with reality.

Beating a dead horse armor

The loot box fight is waning. The backlash against the business model won. Of course, that doesn’t mean that every publisher has stopped using them. Blizzard Entertainment still uses the model in Overwatch and Heroes of the Storm. Loot boxes are how many sports games, like FIFA Ultimate and NBA 2K19, make money. And plenty of mobile games still rely on loot boxes to survive.

But the loot box trend is now moving backward. Electronic Arts removed them from Star Wars: Battlefront II, and then it launched Battlefield V without any loot boxes earlier this month. Over the summer, Middle-earth: Shadow of War developer Monolith removed its entire microtransaction market that included loot boxes in an effort to rebalance the game. And Call of Duty: Black Ops 4 has stopped using its equivalent, supply drops, in favor of a different system.

Publishers and developers aren’t going to put too much effort into removing loot boxes from all of their old games. But they are likely going to use different business models in the future.

The premium progression pass is supplanting loot boxes

Publishers and developers are already finding new ways to generate money from their most loyal and engaged players. This is mostly taking the form of the premium progression model that Valve first introduced as part of its annual Compendium that corresponds with The International esports event for multiplayer online battle arena Dota 2. Since then, Epic has turned the progression pass into the foundational product that props up last-player-standing shooter Fortnite: Battle Royale.

These progression passes are attractive because they include fun digital items, and they make the act of playing a game feel more intrinsically rewarding. This is especially true for multiplayer games where you don’t carry any player progression from one match to the next. The more you play a game the more you unlock in the progression pass. And that makes it feel like you are always working toward a singular goal even if you aren’t winning many matches. Oh, and of course, you can spend extra money to unlock items in the pass even faster.

“By buying a battle pass, consumers have an incentive to become more engaged with the game, as playing more means more levels on your battle pass which means more cosmetics items,” SuperData Research analyst Reggie McKim told GamesBeat in June. “Consumers are also incentivized to level their battle pass up to the highest level possible because the game will place more attractive items towards the higher levels of the battle pass and the higher level items tend to be less common in-game. The level-100 Fortnite battle pass skin can be seen as a badge of honor, for example.”

So is government regulation even necessary?

The FTC should look into and try to understand how game publishers make money. Children play these games and even adults deserve transparency. But I think it’s worth recognizing just how long it took the FTC to even say that it was going to start looking into this issue. It has taken more than a year. and then recognize how much games have changed in just the last year.

So I don’t think a clumsy, blunt instrument like the FTC is effective. You know what the FTC would be good for? Regulating telecoms and protecting net neutrality. But you know why the FTC is good at that? Because the typical market forces don’t affect massive, monopolistic corporations like Comcast.

But that isn’t the case for video games.

The market worked

Government regulation is an option you should always keep on the table. But many people want to treat it like a punitive measure. The idea is that EA and other publishers have sinned, so we need to punish them using the government. But that’s not how this works. If you want to punish a company, you have to do that in court.

You use regulation when a market fails to correct its worst behaviors. But as we’ve already established, loot boxes are on the way out. And they are a passing fad because gamers made it clear that they hate them, and the relevant stakeholders saw that this backlash threatened their bottom line.

Now, that backlash worked because of the potential threat of regulation. But publishers aren’t trying to play chicken or call anyone’s bluff. The gaming industry has competition and accountability, and that was enough to get publishers to comply. And while it’s possible this is not happening on mobile, that’s likely because those audiences are more accepting of loot boxes. But I would bet that even mobile studios, fearing both a backlash and regulation, are looking for alternative models for future games.

The point here is that the market worked exactly like it is supposed to — at least for big-name blockbuster releases on PC and console. Consumers know what they want, and they know how to get it.

So if federal regulators were to still step in, at best, they would waste some resources eliminating the vestiges of a dying business model. At worst, regulation could cause significant collateral damage that leads to layoffs and worse products.


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