Lawyer Says The Needs Of Consumers And The Video Game Industry Must Be Considered

On 2 July 2020 the House of Lords Select Committee on the Social and Economic Impact of the Gambling Industry released their Report “Gambling Harm – Time for Action” . Whilst the report looks at the gambling sector as a whole a large section is dedicated to loot boxes in video games. Loot boxes are  generally defined as, items in video games that may be bought for real world money but which provide players with a randomised reward of uncertain value” However, the Select Committee adopted a broader definition defined loot boxes as, “all mechanisms by which a player pays money for a randomised item.”

Loot boxes have been prevalent in video games since the early 2010s, originally used as a way for developers to monetise free-to-play games, often in mobile titles. This was largely accepted by consumers who were given access to a game for free with the option to upgrade their experience by purchasing additional content. However, in 2017 this general acceptance was challenged when Star Wars Battlefront 2, a game with a purchase price of over £40, introduced ‘pay-to-win’ loot boxes. The public outcry compelled the game’s publisher, EA to issue an apology and subsequently alter the game’s loot box system.

Loot boxes currently fall outside the scope of the Gambling Act 2005 in large part due to the definition of prize being, “money or money’s worth”. As is noted in the Report, “some of these items in games do not have monetary value. Some of them do because you can trade them illegally on other sites, but let us park that for now. They have immense value to the children who are spending money to get them, whether that is to take part in the game all their friends are playing or whether it is to not be bullied, in some cases.”

The report offers two recommendations:

(1) “We recommend that Ministers should make regulations under section 6(6) of the Gambling Act 2005 specifying that loot boxes and any other similar games are games of chance, without waiting for the Government’s wider review of the Gambling Act.”

(2) “We recommend that section 3 of the Gambling Act 2005 should be amended to give Ministers a power, analogous to that in section 6(6), to specify by regulations that any activity which in their view has the characteristics of gambling should be treated as gambling for the purposes of the Act.”

This call for regulation follows other European countries attempts to ban loot boxes. The Netherlands has banned loot boxes which are transferrable , whilst also noting that, loot boxes falling outside of this definition still run the risk of addiction. The House of Lords Report, points to concerns of the relationship between loot boxes and problem gambling and refers to the Children’s Commissioner’s recommendation in 2019 that, “The Government should take immediate action to amend the definition of gaming in section 6 of the Gambling Act 2005 to regulate loot boxes as gambling.”

If the Government decides that loot boxes should be governed by the Gambling Act then it may affect publishers’ ability to sell and market the games that currently contain them, due to a large proportion of the audience falling under the legal age for gambling. 

The report further states:

“The ideal thing to have happened would have been industry self-regulation. It would have been some sort of big commitment from the video games industry to find out what is happening and do something about it. That has not happened. Therefore, I am not against the proposals…that some form of regulation external to the games industry is necessary.”

It would seem now that regulation may well be inevitable. However, industry engagement is vital as will help to ensure that any discussions regarding potential legislative or regulatory changes are well informed and balanced. 

The industry has already taken steps towards managing the issues around loot boxes. In April, PEGI (the European ratings agency) announced its “Includes Paid Random Items” descriptor. This will be applied to physical boxes and digital store fronts of games that contain loot boxes. This follows a commitment from Sony, Microsoft and Nintendo in 2019 to require paid loot boxes in games developed for their platforms to disclose information on the relative rarity or probability of obtaining randomised virtual items. In a recent statement  Dr. Jo Twist (CEO of UKIE, the industry body that represents game companies in the UK), reaffirmed their commitment to addressing the issues raised in the Report and highlighted the ‘Get Smart About P.L.A.Y. Campaign’, which is raising awareness for parents looking to have some oversight and control over the games their children play. Dr Twist stated, “We’ve worked hard to increase the use of family controls on consoles which can turn off or limit spending and we will be working closely with the DCMS during its review of the Gambling Act later this year.”

The Government has confirmed that it will call for evidence into loot boxes following the Report. In particular, the DCMS will call for evidence to examine the impact of loot boxes on in-game spending and gambling like behaviour.

As with all things, a balance must be struck between protecting consumers , particularly children, and supporting the UK’s world leading video games industry which forms a key element of the vibrant creative industries and which has consistently grown over 16 times as fast as the wider UK economy since 2010. 

New regulations and laws are being proposed to help to protect consumers and children  including the On-Line Harms  White Paper which will aim to impose a duty of care towards users and which will be overseen by an independent regulator, this also introduced the concept of “safety by design” and the new Age Appropriate Design Code.

Loot boxes form a large part of the colossal free to play (FTP) global games market. FTP games are provided to consumers free of charge but are monetised in a number of different ways where players can buy content once in the game, including through the use of loot boxes.  In the event that regulation is brought in and loot boxes are brought under the existing gambling laws then this could adversely affect games developers which could incur additional compliance costs and administrative burdens. Studios may be required to obtain a gambling licence and adopt additional tracking technologies to comply with new legislation.

By Laura Harper, Partner, and Peter Barker, trainee solicitor.