Are microtransactions an economic necessity for games publishers or are they a form of gambling which they ruthlessly exploit for profit?
This essay explains what microtransactions are and how they have become increasingly popular. This essay then discusses whether microtransactions are a form of gambling and whether game publishers encourage and facilitate this addiction through how microtransactions are used within games. It then considers if microtransactions are an economic necessity. As this essay ultimately concludes that game publishers exploit gambling addiction, it then examines whether regulatory/government intervention is necessary.
Microtransactions are virtual in-game purchases players can make in exchange for items that can either help them progress in the game or are for aesthetics. For example, unlocking certain features or content, special abilities, extra characters, extra costumes, weapons, extra levels and loot boxes (boxes that contain random selected items). The charges for these microtransactions can vary from less than £1 to as much as a £100 or more. They are in some extremely popular games such as “Call of Duty” and “Hearthstone”. The principle behind microtransactions dates back to coin operated arcade machines where players are required to insert coins to play and extra coins when your lives ran out. (Duverge, 2017)
Due to the increase in smartphones, in particular Apple’s iPhone, cheap or free games became readily available through the app store, which created a platform for microtransactions and this saw a significant increase in their popularity.
Whilst microtransactions are most common in free to play games (known as freemium), they are becoming more common in paid for games. They are additional costs, on top of the price for the game (which typically cost between £40-£60). In the past, you could complete an entire game without spending any money. If you did choose to spend money it would be mainly for aesthetic purposes, for example a character costume, rather than to give you any advantage within the game.
Having explained what microtransactions are, this essay will now discuss a particularly controversial form of microtransactions, loot boxes, and whether purchasing loot boxes constitutes a form of gambling. As previously defined, a loot box contains randomly selected items, some items in loot boxes are purely cosmetic and some improve in-game performance. These boxes can contain items you don’t want, ones you have already received or items that you do want. It is the luck of the draw but you will always get something. The potential of receiving the items you do want, combined with the uncertainty, encourages the player to spend more money to increase their likelihood of receiving the items that they want.
This element of chance draws parallels to other forms of gambling, such as slot machines. Hood (2017) asks if games designers are using psychologist and behaviourist B.F. Skinner’s ‘variable ratio schedule’ (which is a reward system whereby a person is rewarded randomly, rather than consistently) “to prey on our psyche and encourage us to buy loot boxes, much like casinos do with gamblers?” The player could be rewarded the first time they buy a loot box and not again until the fifth box they buy or the third box, then the ninth box and so on. Skinner found the effect of the system so effective in manipulating beings to pursue the reward that people continued to perform positive behaviours even when rewards were no longer being given. This element of probability and chance is a strong argument that loot boxes are a form of gambling.
Jamie Madigan, video game psychologist and author, suspects that game publishers, like Blizzard and Activison, have done their research and have found that randomised loot-drop systems keep people playing longer and spending more due to the fact they are relying on chance rather than just paying for something up-front. (Lawrence, 2017) This suspicion suggests that games publishers are potentially exploiting the psychological addiction of gambling.
However, the key difference between gambling at a casino and purchasing a loot box, is that in a casino you might end up with nothing. However, with a loot box, you will always get something, even if it’s not what you wanted. Dirk Bosmans, of European video game rating organisation PEGI, stated “a loot crate system does not trigger the gambling content descriptor” because a player is always guaranteed to receive game content for their purchase. He believes that whether microtransactions are gambling is something that should be decided by national gambling laws as opposed to PEGI. (Hood, 2017)
Patricia Vance, Head of the Entertainment Software Rating Board (ESRB), a non-profit company that rates video games for age-appropriateness, also found that loot boxes are not gambling. She said they are more comparable to baseball cards, “where there is an element of surprise and you always get something.” ESRB recently announced that they will put that the game has in-game purchases on boxes and online descriptions. It won’t give details of the purchases and it won’t affect the game’s rating. (Crecente, 2018) Ukie, the trade body for the UK’s games and interactive entertainment industry also say that loot boxes are not gambling. (Hood, 2017)
The Gambling Commission has said that loot boxes are not a form of gambling because the items contained within cannot be exchanged for real life money. (Hood, 2017). However, contrary to the Gambling Commission’s statement there are third-party sites where you can exchange in-game items or currency for real money and people will always find a way round the system. In my opinion publishers could put a warning on games with microtransactions stating that they contain gambling in the same way as they put warnings for violence, sexual content etc.
Whilst there is a debate about whether microtransactions are gambling, I do not think that the real-life examples of young children who have become addicted to gambling and spending within games should be overlooked. Ethan Gach (2017) outlines the sad story of a 19-year-old gamer called Kensgold (not his real name) who spent $13,500 on microtransactions and the impact it had on his life and family. Kensgold has a gambling addiction, which began at the age of thirteen through spending money on in-game rewards. His family were so concerned that they disconnected their Wi-Fi to stop him but his access to 3G and his smartphone enabled him to carry on. Eventually, he went to a therapist where he was given the tools to contain his addiction. He posted his story on Reddit to make people similar to himself aware of the dangers of microtransactions and how destructive they can be. This is a scary lesson in how easy it is to sleep walk into gambling from an early age through gaming. Kensgold is one of the ten percent of susceptible players targeted by games companies.
Additionally, according to a survey by Tapjoy, a mobile ad-tech and monetisation company, seventy percent of a game’s overall revenue comes from ten percent of spenders playing free-to-play games. (Shaul, 2017) These gamers are known as “whales” and whales are generating profits for games companies to allow them to make more games for the gamers that don’t want to pay. Game developers create systems to target “whales”. Games designer, Eira A. Ekre (2015) says “While we could instead try to innovate how we build microtransactions systems, and try to inspire a larger group to pay smaller sums of money, we are stuck trying to get the whales to give us all they’ve got.” He adds that “whales” have become “a group that we can exploit without remorse”. This is an example of how games are manufactured to exploit players and encourage excessive spending, much like the techniques used in casinos and other forms of online gambling to target certain groups. An ex-employee explained that his company “choose what to add to their games based on metrics that maximises players’ investments of time and money”. (Rose, 2013)
Another example of how game publishers could be seen to encourage gambling, through the purchase of loot boxes, is presented by Shokrizade (2013) who explains that through using premium or in-game currencies, players are encouraged to spend more because the player doesn’t have to stop playing to get the money thereby giving him an opportunity to think about whether they ought to pay. Games designers set up their games to allow “one button conversion”. Putting numbers on the purchase options which tell players how much they will “save” by buying in bulk is used. Seeing in-game currency decrease causes less anxiety than seeing real money decrease and makes in-game currencies a good way of increasing revenue. This mirrors the technique used in casinos, whereby gamblers have “chips”, as opposed to money, which people generally find harder to part with. This illustrates the similarities between gambling in reality and virtual gambling. Therefore, I believe that to an extent microtransactions, in particular loot boxes, are a form of gambling.
Having examined whether or not microtransactions are a form of gambling and whether games publishers are exploiting more vulnerable consumers through manipulating game manufacturing, it is necessary to consider whether these tactics are an economic necessity.
Reddit is an American social news and discussion website with 542 million monthly visitors. Reddit users are known as Redditors. When Electronic Art (EA) released Star Wars Battlefront 2 in 2017 with microtransactions it caused uproar. A Redditor posted a comment that he had to spend $80 to unlock Darth Vader. The game itself was not free to play and cost $60- $80. In response to EA’s claim that players can unlock popular characters by merely playing the game and that players weren’t required to pay, a Redditor created a spreadsheet, which demonstrated that it would take a total of forty hours of play to unlock a single popular character. Therefore, indicating that the game was clearly designed to encourage players to spend money
Packwood (2017) asks “Was EA motivated by greed? Or were these microtransactions essential for the game to make its money back?” He believes that due to the huge increase in the cost of creating a game, that unless the price of a game is substantially increased then microtransactions will need to continue in some form.
Martin (2017) argues that the economics of games don’t make sense. Workers are let go when projects dry up and blockbuster games cost so much to make now they often don’t break even. Additionally, games have a short shelf life, they are discounted soon after release and subsequently discounted again until the next big game is released. Therefore, this is what makes micro transactions so attractive to game publishers. Game publishers have to make enough profit to warrant the cost of the game and to maintain profitability they need microtransactions. Martin states that microtransactions “might be a necessary evil” if they continually generate money which a games company can use “to end the cycle of layoffs and studio closures”.
Douglas (2017) disagrees with Martin’s view. He says that the games industry is making money and the issue is one of “the inevitable inequality of capitalism”. EA is valued at $27.4 billion and made $1.3 billion in microtransactions and downloadable content (DLC). EA’s CEO, Andrew Wilson, was paid $50 million in 2017, which is a staggering 266 times the amount the average EA artist makes in a year and says “If loot boxes were really a necessary evil, we wouldn’t be seeing this sort of disparity. Loot boxes are but a symptom of a larger problem—and that problem begins and ends with inequality in the workforce.” (Douglas, 2017). This suggests that loot boxes are not an economic necessity and that games publishers are exploiting players and encouraging gambling addiction purely for the lucrative profits generated.
Having assessed both whether microtransactions are a form of gambling, as well as whether they are an economic necessity, it is now possible to determine whether anything needs to be done to rectify, in my opinion, what is definitely a wrong. However, the possible remedial actions are disputed. This essay considers, in particular, whether regulatory/government intervention is required.
Some countries have decided definitively that something needs to be done, in agreement that loot boxes are a form of gambling. For example, China has passed a law that requires developers to publish the probability underlying loot boxes. (Grayson, 2013)
Belgium’s Gaming Commission has announced that it will investigate loot box purchases in video games and the Minister of Justice said that he wants the European Union to take action against games with loot boxes and in-game purchases. (Good, 2017)
A further example is Kevin Ranker, a Washington State Senator, who introduced a bill in the Legislature which asks game developers and Washington to determine whether loot boxes and other game mechanics are a form of gambling that targets children. He would also like developers to be more transparent and disclose the odds for chance-based microtransactions. (Wasserman, 2018)
In Hawaii, Republican Senators Chris Lee and Sean Quinlan said that they are looking at legislation that could prohibit access to games with microtransactions to people under 21. Lee said the issue needs to be addressed before it becomes the new norm for every game and to stop the spread of “predatory practices” in online gaming and the significant financial consequences that it is having on families. He added that the Star Wars Battlefront 2 is a “Star Wars-themed online casino designed to lure kids into spending money”. (Good, 2017)
Rosenberg (2017) argues that Lee and Quinlan’s stance is dangerous. He said that loot boxes aren’t gambling and that games are protected under the First Amendment of the American Constitution because they are works of art. He believes that ultimately what Lee and Quinlan are trying to do is regulate games and this should be resisted because we don’t know where it would end.
In the UK, online gambling is licensed under the Gambling Act 2005 “(a) preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime, (b) ensuring that gambling is conducted in a fair and open way, and (c) protecting children and other vulnerable persons from being harmed or exploited by gambling.” The UK also has a gambling commission to enforce these rules. By comparison, game companies with microtransactions are not regulated.
Labour MP for Cambridge, Daniel Zeichner, has submitted two written question on behalf of one of his constituents, asking what steps the Secretary of State for Digital, Culture, Media and Sport “plans to take to help protect vulnerable adults and children from illegal gambling, in-game gambling and loot boxes within computer games” and “what assessment the Government has made of the effectiveness of the Isle of Man’s enhanced protections against illegal and in-game gambling and loot boxes; and what discussions she has had with Cabinet colleagues on adopting such protections in the UK?”. (UK Parliament, 2017) The constituent posted on Reddit that “The Isle of Man is a British territory which explicitly defines in-game items as money’s worth in its gambling law. It’s currently the only place in the world that does so.” The Reddit user stated their goal was to “to see the UK’s existing gambling regulations applied to loot boxes.” (Artfunkel, 2017)
A petition from gamer Connor Rhys Deeley, asking the UK government to “Adapt gambling laws to include gambling in video games which targets children” has received 16,886 signatures (at time of writing) and needs 100,000 signatures before it is considered for debate in Parliament. All petitions run for 6 months and this one runs out 4 April 2018. (Petitions UK Government and Parliament, 2018).
Wood (2017) argues that while games publishers “are very good at exploiting psychologically addictive behaviours” it is not gambling as regulated and defined by law. He says the gaming community need to oppose publishers exploiting these behaviours and not focus on legislation. He believes that the ulterior motive for regulating gambling is money and control, citing the high taxation on cigarettes and alcohol as an indicator of how taxation could impact the price of games. He states “We need to defeat this monster ourselves, lest we unleash a darker terror on a hobby that we claim to love”.
This essay has evaluated whether microtransactions, in particular, loot boxes are a form of gambling. Whilst it may not meet the strict definition of gambling in that the player is always guaranteed to attain something, I would argue that the element of chance, the uncertainty and the mechanisms used to exploit and encourage the spending of money suggest that it is. The psychological manipulation and the similarities to other forms of more widely recognised gambling cannot be overlooked.
This exploitation to encourage spending is highlighted by the arguments presented that suggest that microtransactions are not an economic necessity. Whilst the costs of making games has increased, the massive profits generated and the disparity in wages suggest that economic necessity is not a genuine reason for using microtransactions.
Finally, upon having considered these issues, and considering real life examples of those affected by gambling, it would seem reasonable to consider that some form of intervention is necessary. Whilst this does raise the slippery slope question, and how far intervention will go, I believe that the benefits of moderate intervention or regulation would outweigh the negatives.
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