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More than 160 million Americans play video games. Originally designed as single-use purchases for consoles or computers, video games are now downloadable, making them more accessible to consumers than ever. One important development for the video game industry has been the creation of “micro purchases” – in-game transactions such as “loot boxes” that players can either buy for a small fee or win through playing. Micro purchases have become a multibillion-dollar market and make up a substantial portion of video game profits. The Federal Trade Commission (FTC) discussed loot boxes and other issues related to in-game purchases in a new staff perspective paper, which offers key takeaways from the FTC’s August 2019 “Inside the Game” workshop and subsequent public comment period.

The purpose of the workshop was to bring a variety of stakeholders together to discuss emerging research on the potential pitfalls of microtransactions, including how they affect children and teens and people with addictive behaviors, disclosure issues, and marketing and monetization techniques. The paper points out that in the United States the video game industry is largely self-regulated through disclosures, including the Entertainment Software Rating Board (ESRB) rating system, parental game controls, and consumer education. However, some panelists at the workshop voiced concern over how microtransactions affect children, who are “vulnerable to manipulation and social pressure, or may not fully understand the cost of the transaction,” despite self-regulatory controls. Following the workshop, in April of 2020, ESRB announced a new disclosure regarding in-game purchases for any game “where the player does not know which specific digital good or premium they will receive at the time of purchase, such as loot boxes and mystery rewards.” The ESRB designation for loot boxes is “In-Game Purchase (Includes Random Items).”

Key issues the FTC identified include:

  • Disclosures: Loot box monetization techniques can mask the real costs to players through confusing details or visuals designed to keep players invested in gameplay.
  • Pressure to spend: Interactive games may pressure players to spend money to avoid letting teammates down or to appear more competitive. Players can get sucked into greater spending than they are perhaps aware. Some video games use pay-to-win tactics, while other games promote loot box purchases that, according to the FTC, may yield disappointing, low-value items. Free games appear to have some of the more problematic microtransactions and loot boxes.
  • Children: Some panelists felt it is difficult for parents to understand how their children interact with video games.
  • In-game spending: Some games use their own made-up currencies rather than real money, which can make it hard for players to keep track of the real cost of every transaction, and “even when a real money cost is disclosed, it may not adequately explain how much a player can expect to pay after the initial transaction.”
  • Content Creators/influencers: There is a growing trend of game players with millions of fans who follow their gaming online. The staff report raised a question of whether content creators may be given better odds by the publisher for promotional purposes than odds given to the general public.

Panelist and commenter recommendations include:

  • Improved industry self-regulation, particularly more detailed disclosures for both players and parents.
  • Possible modification of the ESRB rating for games with loot boxes or creation of a new rating.
  • Disclosure of loot box odds, particularly if a game uses odds that can vary by player or time.
    • Some participants suggested creating in-game purchase disclosures that detail in-game micrtransactions
  • Disclosure by content creators of material connections between themselves and the products they recommend, per the FTC’s Endorsement Guides (recognizing that livestream formats and an inability of content creators to control platforms may be an impediment).
  • Improved consumer education.
  • Additional self-regulatory measures such as a website detailing types of microtransactions, displaying in-game spending in real currency, and making loot box items available for direct purchase.

Industry is looking at the issues the FTC raised, and the fact that ESRB has acted quickly to expand its rating system to address in-game purchases and loot boxes illustrates the ability of self-regulatory organization to respond quickly to challenges raised by new technologies.