The reception of the bill has been fascinating.
By Adam H. Williams, Senior Associate at E911-LBS, LBSglobe.com, for WOLF STREET:
U.S. Senator Josh Hawley (R-MO) announced Wednesday that he would be introducing a bill aimed at “banning the exploitation of children through ‘pay-to-win’ and ‘loot box’ monetization practices by the video game industry.” The bill seems primarily focused on banning game mechanics which are felt to be exploitive of children and particularly the addictive nature of these practices.
Pay-to-win is stated as “manipulation of a game’s progression system,” and is generally considered to be any practice where players have to, or are encouraged (through advertisement, difficulty spikes, timers, etc.) to pay additional fees where they can advance in a game more quickly, overcome a grind, or are granted a competitive advantage in online play, such as bypassing requirements to access better gear.
Loot boxes are “random” crates which are purchased to gift the player with things like items, skills, or additional features, often with unpublished odds.
In outlining the legislation Hawley’s office said it is to be based upon the Children’s Online Privacy Protection Act (COPPA), targeted at “Games with wider audiences whose developers knowingly allow minor players to engage in microtransactions.” This effectively means almost any game not rated “Adults Only” (which are not carried by mainstream retailers anyway), such as Teen and Mature ESRB rated games, which often have under-18 players.
This mirrors a call by Senator Maggie Hassan (D-N.H.) about a year ago for an investigation into these questionable practices.
Hawley stated in his posting:
“When a game is designed for kids, game developers shouldn’t be allowed to monetize addiction, 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.”
This ban would be enforced by the FTC, which would be directed to treat the ban as a way to combat “an unfair trade practice.” It would also ensure that “State attorneys general would also be empowered to file suit to defend the residents of their states.”
As I previously discussed in the piece, Video Game Industry Stalls, Stocks Plunge. What’s Going On?, pay-to-win and loot box practices are particularly distasteful to consumers at large, widely felt to be predatory, and generally considered to be a drag on the industry. I also began to lay out how Mobile and micro-transactions drove a huge swath of revenue growth, in addition to China coming online.
This is not the first time attempts have been made to regulate these pay-to-win and loot box practices in particular, with previous legislation introduced in Hawaii, Washington and Indiana at the state level and an ongoing FTC investigation into the industry at the federal level. Something about this time feels a bit different.
The reception has been fascinating. Gamers have long been on the front line of the culture war, before it was even a mainstream thing. Reactions in message boards, social media and YouTube communities have been surprisingly, even astonishingly consistent; with many people on all sides seemingly agreeing that this kind of government action was necessary.
Gamers have always had a touchy relationship with Government, resisting as various actors sought to censor or manipulate the medium, but the general reactions are like: What else could they do? We tried to tell them! I don’t like government involved but in this case I may have to support it!
While some still preach skepticism and caution of government interference, the feedback is favorable. This reaction becomes even more interesting when you note that much of the gaming user community openly dislikes Hawley for his political affiliation. Yet you have commenters saying they will support him on this matter. It’s amazing that the first issue that I can recall in years having bipartisan public support is the banning of these practices!
Meanwhile, the Entertainment Software Association (ESA), the lobbying group of major game publishers, offered an official statement that was a repeat of its position in Hawaii:
Numerous countries, including Ireland, Germany, Sweden, Denmark, Australia, New Zealand, and the United Kingdom, determined that loot boxes do not constitute gambling. We look forward to sharing with the senator the tools and information the industry already provides that keeps the control of in-game spending in parents’ hands. Parents already have the ability to limit or prohibit in-game purchases with easy to use parental controls.
The statement failed to mention that Belgium and the Netherlands among others have found parental controls not to be effective, and in response already banned many practices as exploitive, addictive and gambling. The statement also did not address microtransactions as a whole, and pay to win mechanics. Senator Hawley does not seem inclined to hear excuses, as a vocal critic of “Big Tech” and social media.
There are some serious potential implications from this bill. Previous US state legislation has sat in relative obscurity. In contrast this coming proposal has already swept both the gaming business and user community by storm within hours.
Microtransactions are estimated to be up to $50 billion a year worth of revenue globally, and business models are now in serious jeopardy.
Games- as-a-Service may become dead as we know it (to the lament of very few), particularly with the widely accepted recent AAA publications being considered outright failures, like Anthem, Fallout 76, and even Apex Legends. Major companies have become complacent – releasing half-baked games, patching the product in the field, and then trying to monetize them to the nth degree, ignoring user complaints all the while.
As I have suggested before, there may have been a serious misallocation of resources. Entire corporate strategies, departments and org charts were based around this kind of coercive and addictive monetization, and unless you basically ban anyone from under 18 from playing, you could no longer continue these practices.
Marketing and sales were all in on this strategy, with engineering and C-suite leaders being the true believers (at least publicly). Their efforts may now all be for naught – to the cheers of the customers. Many are hoping it will force game publishers to return to their cultural roots that resulted in great games, while others are suggesting that great damage has been done, and these major corporations will not be able to adjust their footing.
There are important tactical questions still unresolved in the bill outline: Would it be retroactive? Would studios suddenly have to remove the mechanics?
Generally, these systems are based off a central server, so technically they could just be disabled like they are in Belgium. However, it may not be possible for some games; then, will there be a waiver or grandfathering process available?
The whole Free-to-Play business model itself also suddenly comes into question – how to monetize the game at all?
Generally, it is felt, Cosmetics would still be OK and would generate some revenue. Even if you wall off children, you basically hamstring a game, as item trading cannot occur and items can still be sold out of game like via eBay. This has serious implications for Mobile Games in particular, which were generally based around these Play-to-Win mechanics and timer manipulation.
Timer mechanics in particular will be severely limited, as who wants to play a game that makes you wait?
There are also global implications, as I covered before in What the Heck’s Going on in China’s Video-Game Market, the Largest in the World? China’s market is heavily monetized around these mechanics in mobile, and AAA companies are desperately seeking access. However, their recent games ban has stalled any efforts in new sales, and a China-centric microtransaction focus would likely be a perilous corporate strategy – particularly as developing two parallel games (with and without loot boxes and microtransactions) would bifurcate a game, leading to costly and complex mobile app development (and likely resulting in a lower quality) with no guarantee of approval or popularity. This bifurcation would apply to any additional market, and effectively has the potential of making the ban global.
There are also questions around ripple effects, such as: Does this start some sort of monetization arms race? Senator Hawley would do well to consider additional protections around personal data harvesting and resale, along with potential rules around in-game advertising, particularly when it concerns children but also consumers at large.
So far, stock movements have been muted particularly compared to this year’s massive 40% game stock drop. However, this relative quiet may not last. With an ongoing trade war, and now a potential ban on the most lucrative (and exploitive) monetization mechanics – with wide bipartisan popular support – these corporations may have to go back to basics, do some serious soul searching, and try to regain their core fans with quality products, against a fan-base which is largely feel disinclined to make amends after years of mistreatment. By Adam H. Williams, Senior Associate at E911-LBS, LBSglobe.com, for WOLF STREET
Layoffs and closures—the beginnings of a major shakeout. Read… Video Game Industry Stalls, Stocks Plunge. What’s Going On?
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