Five Ways Loot Box Legislation Could Transform the Video games industry

Loot boxes are one of the most popular monetisation models in the games industry and the new legislation is likely to have a big impact on the industry.

Avatar Yijun Chen Marketing Manager 2019-05-24

Loot boxes might soon be under legislation in the US. On the first of this month, Senator Josh Hawley announced he would be introducing a bill which will prohibit the sale of loot boxes to underage audiences.

When a game is designed for kids, game developers shouldn’t be allowed to monetize addiction,” stated Hawley. “And when kids play games designed for adults, they should be walled off from compulsive microtransactions. Game developers who knowingly exploit children should face legal consequences.”

Hawley’s statement is disputed by leading game developers, publishers and trade bodies. But if legislation of loot boxes were to happen in the US – after legislation of varying degrees was passed in China, the Netherlands and Belgium – it could have a profound impact on the sector.

Loot boxes are one of the most popular monetisation models in the games industry. And with many of the most popular games in the industry today – including FIFA, Puzzles and Dragons and Rocket League – using loot boxes, legislation is likely to have a big impact on the industry.

But how exactly? Here are five ways loot box legislation could shift up the sector.

 

Major publishers have been hit first, but every game will be affected

If loot boxes are legislated, it will likely be major international publishers and developers who will have to adapt first.

In Belgium last year, authorities reviewed popular games like Star Wars: Battlefront 2, Overwatch FIFA 18 and Counter-Strike: Global Offensive and concluded that loot boxes constitute as gambling.

Publishers and developers of those games could face fines and prison sentences if they did not remove the offending mechanic. And as you can guess from the games that were analysed, they were principally from companies such as EA, Activision and Valve – rather than smaller enterprises.

However, the impact will be felt everywhere. Loot boxes may have attracted regulatory attention due to their use by major publishers, but small and medium size games businesses will be subject to the same regulations.

 

A shift in monetisation tactics

If loot boxes are regulated, it will lead to a temporary rebalancing of the global video games economy. This is due in no small part to their influence on the sector.

Loot boxes are a lucrative business and play their part in powering the global games industry with revenues larger than $130 billion a year.

A lot of game companies had pinned their hopes on the billions that loot boxes promised.

Last year, Juniper Research expected the digital games market to hit $160 billion in worth by 2022, driven mainly thanks to the “increasing prevalence of loot boxes”.

As a result of this, game companies are going to have to find other monetisation models to fill the large gap that has been left.

 

Slower growth in the short term

For many companies, the main concern is how much of an impact loot box legislation would have on their businesses. In particular, companies are unsure of what the regulation could look like, when it could come in and what that would precisely mean for their games.

This will be challenging to define. Different countries are taking different approaches to loot boxes. While much emphasis has fallen on bans in Belgium and the Netherlands, a similar ban in Japan on gacha mechanics reduced the prevalence of it but didn’t lead to the mechanics disappearing fully.

In the worst case scenario, it’d lead to the complete removal of loot boxes in games on a global scale and a significant readjustment.

However, the likelihood is that loot box legislation would lead to a slowing of growth – rather than outright apocalypse – for the industry. As regulation winds its way through government, businesses would have time to shift approach and find a way through the crisis.
It wouldn’t be ideal for the sector. But it could be manageable.

 

Long term sustainability

Loot box regulations are undoubtedly likely to cause a slow down in the sector. But as businesses are forced away from using them, it is possible that the industry could benefit from a shift to lower burning, more sustainable models.

Subscription models are starting to become more popular. Consumers within the games market are used to paying regularly for services like Netflix and Spotify. And already, some game companies are starting to explore what that might look like for the games industry.

Sony, Microsoft, Apple and EA are starting to offer monthly passes to users to let them access large collections of their games. And with those passes could come a consistent revenue for plays or presence on the service, whatever the game listed.

This could prove beneficial to businesses. While the average lifetime value of a player might decline, the number of players paying could go up considerably. And provided that balance is found with other monetisation models, it could prove more sustainable.

 

Ad revenue will take center stage

Finally, loot box regulation means that other monetisation models are likely to become even more important to companies. This includes ad funded models.

Ad revenue streams are already a key part of the mobile games industry. Particularly for casual games which require low engagement and skill levels to play. These players are less likely to dig into their pockets however might happily watch an ad video for rewards.

In mobile, a shift away from loot boxes would likely see more ad funding. But it will also likely lead to similar developments in console and PC. New technology in the programmatic space could see advertising dynamically inserted into such titles, helping offset lost revenue from loot crates.

We are also likely to see game companies delve deeper into the advertising world and get inventive with the way they show ads to their players. And with every game age rated, most actively community managed and carefully watched for content, brands may find that the legislation of loot boxes could be the start of something good for them.

 

Conclusion

Loot box regulation might seem like an impending sledgehammer. However with foresight and preparation, game companies won’t just be well placed to avoid their impact – they could benefit from the opportunities it provides.

Whether it’s shifting to subscription, adding ads or finding a new way to make money, businesses could find benefits to a move away from loot boxes.

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As Mintegral's marketing manager, Yijun Chen oversees marketing events and partner relationships for Mintegral's overseas market.
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