US Senator Aims at Big Gaming, Tries to Ban “Loot Boxes” & “Pay-to-Win,” Puts $50 Billion in Revenues at Risk. Here’s How Gamers Reacted

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crates which are purchased to gift the player with things like items, skills, or additional features, often with unpublished odds.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.

Reception:

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.

Implications:

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 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.

Market Impact.

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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  41 comments for “US Senator Aims at Big Gaming, Tries to Ban “Loot Boxes” & “Pay-to-Win,” Puts $50 Billion in Revenues at Risk. Here’s How Gamers Reacted

  1. ZeroBrain
    May 9, 2019 at 2:13 pm

    I figured it out, Wolf. You monetize your site by allowing *microtransactions*. Genius! Pay to be higher up in the thread, or even to temporarily ban posters that you disagree with. You can thank me later.

    • Prairies
      May 9, 2019 at 2:20 pm

      A more accurate use comparison would be to leave articles redacted and missing sections of information for people with ad blocker, then for people here free but allowing ads they would get more content but maybe final analysis redacted and to get full access to all stories you have to subscribe monthly and allow ads. Full monetization. Comment section would get access to emoji’s and links or something.

    • Nat
      May 9, 2019 at 2:39 pm

      I believe the site “Something Awful” actually openly does some things like that. I have heard it is something like $10 to change the icon of someone on the forums, so replacing people’s forum icons with insulting and offensive alternatives for $10 has become very popular accepted practice and very lucrative for the site.

      Not recommending it, just saying variants of what you propose are actually already a thing on the net.

    • May 9, 2019 at 2:49 pm

      ZeroBrain,

      Don’t start me thinking…. Maybe I should leave out crucial parts of text without which nothing makes sense, and then when you get there and want to read on, you need to pay?

      Alas, my stuff isn’t addictive, unlike gaming, and readers would just quit. That’s the leverage gaming has that we don’t have. Our readers can quit in droves in mid-sentence, no problem. It keeps me on my toes.

      • ZeroBrain
        May 9, 2019 at 2:52 pm

        Don’t tell me your site isn’t addictive, I check it so regularly it’s like a nervous twitch.

        • aworldnervelink
          May 9, 2019 at 3:09 pm

          RSS is your friend.

        • Erle
          May 9, 2019 at 6:34 pm

          Yeah but there oughta be a law.
          It used to be funny when the clown car exuded a dozen or so fools at the circus. It was not as silly as the legislature clown car brigade’s show.
          Where’s my meringue pie?

        • May 9, 2019 at 7:29 pm

          ZeroBrain,

          LOL… Thanks!!

      • Panamabob
        May 9, 2019 at 7:39 pm

        Come on Wolf, you know everything that’s good or great is a bit addicting.
        Don’t be so humble!

      • quck
        May 9, 2019 at 10:56 pm

        It is, I check it every day for the last 5 years. :)

  2. NARmageddon
    May 9, 2019 at 2:16 pm

    Republican congressman wants to enforce level playing field and abolish corruption, IN VIDEO GAMING.

    How about taking aim at unlimited corporate corruption of elections instead, aka. passing a law that overturns the CITIZENS UNITED Supreme Court decision?

    • 2banana
      May 9, 2019 at 3:14 pm

      Wouldn’t that have tonbe an Amendment to the Constitution?

      • Edward Binns
        May 10, 2019 at 12:51 am

        You are correct, 2banana. Only new federal law trumps the Supreme Court (assuming the SCOTUS doesn’t shoot down the new law).

      • Kent
        May 10, 2019 at 5:46 am

        Yes, and the people getting the loot would have to vote to stop getting the loot. Not going to happen. Same with term limits.

    • polecat
      May 9, 2019 at 9:19 pm

      Ah .. but SENATORS are exempt from the negative consequences of engaging in insider-trading deals that would have us lowly shlubs sitting behind bars for all eternity !!!
      But hey ! He’s goin after the big bad gamers !*… which gives him said undeserved cred. Fuck these people who call themselves OUR representitives .. They only represent $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.

      *I have no skin in gaming …

  3. anon
    May 9, 2019 at 2:28 pm

    Wouldn’t it just be easier for the parents to, you know, parent?…

    • Nate
      May 9, 2019 at 4:25 pm

      Yeah that’s worked great so far… Mebbe the next generation of parents will get their noses out of the screen long enough to actually be parents. But somehow that seems like a pretty big challenge, their having grown up that way.

    • nick kelly
      May 10, 2019 at 4:34 pm

      If it was easier we could cancel all age restrictions on anything. Why have them for booze, guns, porn etc. etc. Shouldn’t the parents do that?

  4. Prairies
    May 9, 2019 at 2:32 pm

    Microtransactions create insane levels of revenue. Fortnite and Apex are free to play and still generate 10s of millions of dollars each month. I can’t see any reason to buy a game when they make so much money off of “free” games.

  5. Petunia
    May 9, 2019 at 2:37 pm

    The software industry is the only industry allowed to sell a defective product. They routinely sell bug infested non working software to young people because they know this group is largely incapable of fighting them. This bill needs to address this as well.

    As for micro transactions, mostly it’s fraud, they don’t advertise that games cannot be won without spending more. The loot boxes don’t sell a specific item the player needs, they sell a chance at getting the item, so repeat purchases are to be expected. The loot boxes are like buying a lotto ticket, you pay but you don’t necessarily win.

    My son and his friends play the older games and avoid the micro transaction scams.

    • curiouscat
      May 9, 2019 at 6:03 pm

      “The software industry is the only industry allowed to sell a defective product. ”

      Not true. The tobacco industry has them beat by a mile and a century.

      • alex in san jose AKA digital Detroit
        May 9, 2019 at 11:35 pm

        Don’t forget ever-accelerating Toyotas, fatal airbags, and Volkswagens that smoked like chimneys when you’re not looking (testing).

  6. Rowen
    May 9, 2019 at 2:39 pm

    Hawley has been very aggressive in trying to rein in Big Tech at the federal level, without preempting the states ability to protect its citizens. He’s trying to break up FB, but baby steps, baby steps.

    • WES
      May 9, 2019 at 3:46 pm

      Rowen: Good luck trying to break up FB!

      First you will have to break up the CIA who helped financed FB’s startup!

      The CIA loves FB because its users spy on themselves and update whenever anything changes without the slightest effort by the folks at the CIA! Better yet those being spied upon pay for the spying!

      • Mean Chicken
        May 10, 2019 at 11:34 am

        Bigger isn’t always better but I think they won bigly, maybe the CIA now has what they asked for (too much useless data?) and have lost interest in supporting FB for the purpose of dominating a universe of useless information?

        There should be some offer stating if you feel possessed by certain dark tendencies then you qualify for a special FB account.

  7. Howard Fritz
    May 9, 2019 at 2:52 pm

    I’ve never been much for these games but I’m glad to see support for these measures.

  8. MCH
    May 9, 2019 at 2:53 pm

    First gaming, and now credit card companies might not be able to charge 20+% interest rate, how dare those people in Congress look out for the interest of people.

    Where are the senators and the Congress people that have been bought out. They need to get off their asses and earn their seats.

    • Rowen
      May 9, 2019 at 3:15 pm

      What’s hilarious is that most states still have usury laws on the books that capped at rates much lower than 15%. The loophole that the banks exploited was to argue that federal banking laws preempted any state usury laws. Stupid state regulators, you can’t regulate us fancy national banks.

      So then the credit card companies just needed to find states (South Dakota, Delaware – thanks Joe Biden) that didn’t have rate caps on lending.

      The interesting thing that Hawley is doing is carving out the ability for states to have even more restrictive regulations if they so choose, which is old school states rights Republican, not Big Business GOP.

    • 2banana
      May 9, 2019 at 3:19 pm

      If you need Congress to “protect” you from not buying things you can’t afford by using unsecured credit on the credit card you voluntarily signed up for…

      You really don’t get it.

      • MC01
        May 10, 2019 at 8:26 am

        It’s actually worse than that, if you can believe it.

        Since the US Senate has entered Agnes Lovejoy mode (“Will somebody think of the children?!?”) the problem appears to be about minors having unrestricted access to their parents’ or tutors’ credit cards and using said credit cards to engage in “microtransations” with complete abandon, running up huge bills with VG companies and online retailers such as Apple and Valve.
        At least for me the problem could be easily solved without bothering the US Senate: if some parents are fine with their children running up huge microtransaction bills, so be it. Other parents can simply restrict or deny their offsprings access to their own credit cards. Problem solved.
        If some parents really feel their children cannot live without a credit card, there are all sorts of products available for minors (for a reasonable fee of course), from cards with daily and monthly spending limits and IM about “suspicious purchases” down to prepaid cards which get frozen the instant funds run out.

        But as Groucho Marx so memorably said “Politics is the art of looking for troubles, whether they really exist or not, diagnosing them incorrectly and applying the wrong remedies”.

  9. JoAnn Leichliter
    May 9, 2019 at 3:12 pm

    Serious gamers despise the games. ‘Nuff said.

  10. Senecas Cliff
    May 9, 2019 at 3:26 pm

    My Son spent his first two years in college studying computer programing then got bored of it and finished with a degree in Neuroscience. He was immediately snatched up by a NW law firm that writes and files Patents for Microsoft and other video game companies. Turns out many of these gaming patents are as much about the neuroscience of addiction and pavlovian response as they are about graphics and storyline. As an avid gamer with a unique educational backgrouind he was well suited to understand the inner workings of the video gaming world

    • MB732
      May 10, 2019 at 7:47 am

      Are you bragging that your son is an expert at getting kids addicted to video games?

    • sierra7
      May 11, 2019 at 5:43 pm

      Senecas Cliff:
      And, you will notice the “apparatus” of the gaming system so resembles military hardware??????? The “hoi-paloi” and Military Industrial Gaming Complex aren’t stupid. They have created a perfect world of pre-adolescent/adolescent military training platform and making money at the same time.

  11. curiouscat
    May 9, 2019 at 6:10 pm

    Another additive product like Juul, but probably more insidious, although Juuls are pretty f****** insidious.

  12. Gian
    May 9, 2019 at 11:07 pm

    On a positive note, I have a friend who only sleeps with married women and his favored and easiest demographic are those married to gamers, whose only joystick is the one that manipulates their toy soldiers. Sounds like gamers get abused from all angles.

  13. Top-GUN
    May 10, 2019 at 6:34 am

    ADDICTIVE: porn, alcohol, drugs, lottery, gambling, spending beyond your
    means, fattening foods (sugar, flour etc) and smoking come to mind pretty quick.
    Sadly we have to pay for the healthcare, physical and mental, for these folk, deal with problems when they run out of money, and otherwise care for them when their addictions cause them (and us) problems…

  14. Otishertz
    May 10, 2019 at 12:09 pm

    Wait until the government and its contractors use micro transactions to control behavior on a continual and insatantaneous basis by enforcing micropenalties via the thinly veiled public-private partnerships among surveillance company oligopolies.

    Ubiquitous GPS could already be used to ussue speeding tickets by connecting phones to drivers licenses and FB, GOOG, TWIT could middleman government penalties for illegal speech by adapting the algos currently used to root out dissent.

  15. Tonymike
    May 10, 2019 at 3:10 pm

    I admit that I play a popular “Tank” game that is “free to play,” but penalizes you if you don’t have upgrades to survive the tense battles e.g. a fire extinguisher. They recently had an event that forced you to spend real money on necessary parts to get a “free” vehicle, one being the merkava tank. The howls of disdain from the players can still be heard because said company forces you to use their form of in game money to make purchases and they take 15% off the top of each transaction. They provided a gambling slot machine mechanic to “give away” items, which you had a .01 percent chance of winning.

    This company and their micro transactions are banned in Belgium and the Netherlands, but they have the rest of the world to rip off. I see guys who spend 60 dollars on pixel tanks who play top tier and are wiped out in 5 minutes. They don’t have any other tanks, so they bail out of the game and leave their team in the lurch.

    Oh well, in short I am all for this law. As a 30 year gamer, I can recall when you could return a dog of a game for a refund. When the industry ended that practice, pirating went up in a big way. The industry will kill the golden goose as they kill everything else.

  16. InTheSticks
    May 10, 2019 at 6:53 pm

    I agree with Tonymike relative to the topic at hand. I read this site every day and appreciate the content and trust it enough to quote it as a reliable source occasionally in my economic discussions with others. I also view a site daily called newagtalk. Good content relative to my business with an associated classified section that is also free. About every three months the purveyor/moderator puts up a “please donate” post to cover costs and achieve a reasonable return for his work. When the appropriate amount has been met, the post disappears. Speaking for myself, I would click that button for you, and donate to this forum if that were to become an option. Just a suggestion. Take it for what it’s worth!

    • May 10, 2019 at 7:02 pm

      Thanks for the feedback. There is an option to donate here. You can donate by clicking on the little beer mug between the article and the comment section. It takes you to the “How to Donate” page.

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