Are lootboxes the slot machines of video gaming?

Lootboxes have embedded themselves in the gaming industry – and audiences are not happy about it. Adam Goodall talks to a free-to-play developer and a public health expert about why lootboxes were inevitable, and how we can change the direction they’re taking the industry.

I’ve been playing Dungeon. Inc for ten minutes when my assistant, a big-eyed goblin named Barbrargh, ushers me into Burnson’s office. Burnson is a blue dragon in middle-management, all collar and tie and stick up his ass. It’s his job to keep me liquid. “GOLD, GEMS, CHESTS,” he booms. “I’ll get your requests approved, post-haste! In fact, I’ve got a free chest for you here, courtesy of Big Boss!”

If you’ve played a mobile game in the last ten years, you probably know this bit. This is the bit where they stop teaching you how to interact with the game and start teaching you how to interact with the company that made it. In Dungeon, Inc, you interact with the company by buying ‘gems’. Gems are the only thing in the game that you can buy with real money. It’s up to $150 for a pack of 7,000.

You can use these gems to buy keys, which you can then use to buy traps for your offices to fight off medieval auditors. Or you can use them to buy chests. You don’t know what’s in these chests – could be gold, could be a level-up for your monstrous guards. But they’re shiny and provocatively-named (Mega-Chest, Hyper-Chest), and the music builds to an ecstatic fanfare whenever you open one.

Dungeon, Inc., a clicker game released earlier this year by Wellington studio PikPok, is one of a number of New Zealand-made games, both paid and free-to-play, with a lootbox system. It usually goes this way: after earning a certain amount of experience or in-game currency, or after paying real-world money, you can unlock a mystery box. That box might have something cool in it, maybe even something that makes you more powerful, or it might just be something you’ve already got or never really wanted in the first place. Think Kinder Surprises – or, more accurately, those bins outside supermarkets, the ones full of clear eggs with toys inside.

Lootboxes are in the regulatory crosshairs right now due to a handful of recent, egregious examples of megacorp rapacity. The most headline-grabbing example, of course, was Star Wars Battlefront II. Battlefront II publisher EA came under fire when people discovered that lootboxes were one element of the game’s complicated currency scheme; it seemed perverse that a $110 videogame should lock players’ in-game progression and success behind a series of gates that could be unlocked with money and luck.

Not all lootbox economies are that extreme. Many more are like Dungeon, Inc’s, offering cosmetic upgrades and superficial advancements. But people are still anxious, still expecting the worst. “These games use gambling imagery and gambling technology,” Paula Snowden, chief executive of the Problem Gambling Foundation, warned Radio NZ’s Kathryn Ryan last month. “The [slot machine machine] business needs a new generation of gambler, and we think that this design is about grooming that next generation of gambler.”

Anthony Hawke is the kaiwhakahaere for Māori Public Health Leadership at Hāpai te Hauora, a public health organisation that works to minimise gambling harm in New Zealand communities, among other initiatives. He tells me over the phone that he and his organisation have similar concerns. “In gaming, there’s an element of skill and knowledge that has to go with it, but when you’re pushing the button on a slot machine there’s no element of skill and knowledge. It’s just randomised play. And that’s what a lootbox is. It’s randomised play… and it’s ingraining in our children an element of addiction from an early age.”

So why are developers even using lootboxes, if they’re so predatory? What problem are they meant to solve, especially in New Zealand, where the industry recently reached the milestone of $100m in annual revenue?

PikPok’s Dungeon Inc.

Mario Wynands is the managing director of PikPok and a trailblazer in New Zealand game development. In May 1997, Wynands co-founded Sidhe Interactive with Tyrone McAuley and Stuart Middleton. Wynands has served as Sidhe’s managing director since then. The studio’s focus has long since shifted, though, from console work-for-hire to mobile development, and their primary brand has shifted with it. They’ve developed 35 games under the name PikPok and, at approximately 100 employees, are one of the country’s largest development studios.

The company formerly known as Sidhe pivoted to mobile in 2009. “The model that was very accepted at the time was – spend money up front, buy your mobile game, have it forever,” Wynands tells me. It wasn’t long after that the mobile market started to change, a ‘race to the bottom’ that quickly and irreversibly transformed how the public saw the mobile market – and what they were willing to pay for it. “All of a sudden, every mobile game was 99 cents,” Wynands says, “and pricing at an outrageous $1.99 was a great way to suddenly have no sales.”

I ask Wynands why he thinks this happened. “It’s probably not a question you have an easy answer for,” I say, half-apologising. Wynands doesn’t flinch or hesitate. “I think there is actually an easy answer. The easy answer is there’s a lot of competition.” The major mobile storefronts – the Google Play Store, Apple’s App Store – are low-information by design. The promotional space you get is often limited to a picture, a title and a price point. So when a critical mass of developers is forced to fight for visibility on those storefronts, there’s only a few ways that they can try and game the system, try and stand out. One of those ways is undercutting the competition on price.

That collapse – that race to the bottom – was quick and absolute. In 2009, PikPok promoted their second mobile game, Flick Kick Rugby, by giving copies away for 24 hours. They gave away half a million copies, Wynands recalls, and daily revenue suddenly increased from $200 a day to $1,000 a day. Six months later, they were releasing two versions of every game they made, one premium and one free with ads. A year and a half after that, they released their first free-to-play game, Slam Dunk King.

Slam Dunk King had ads, but it also had an in-game currency with which you could buy different basketballs and mascots. “We’d gone from a place where we would make about 70 US cents per download, with someone paying us 99 cents per copy, to a place where on average we were only making a few cents – you know, single-digit cents – per download, and we were making that revenue all through advertising and relatively small direct in-app purchases.” Wynands points out, though, that this drop in per-download income was cancelled out by the massive rise in the total number of downloads. “In fact,” he says, this new model drove “a lot more revenue” than releasing a paid game.

PikPok’s Flick Kick Football Legends, their first game with lootboxes.

In November 2013, PikPok released Flick Kick Football Legends, their first game with lootboxes – though at that point they were still called ‘gacha mechanics’, named after Japanese gashapon machines. That is, those bins you see in the front of supermarkets, the ones full of clear eggs with toys inside. Players of Football Legends were asked to conquer a football league, and would buy randomised ‘booster packs’ of players to try and get ahead. “To level up players, you needed multiple copies of the same card,” Wynands explains. “The more of these packs you’d buy, the stronger your team would get, in theory.”

Wynands stresses that lootboxes and gacha mechanics are not something that “you design in isolation”. An in-game economy with elements of randomness needs to be planned, needs to be balanced, needs to co-operate with the rest of the game’s systems. “There’s a lot that goes into trying to work out – okay, here is where, and how, and how fast the player accumulates resources,” he says, outlining the complicated chain of questions that PikPok asks every time they consider implementing a lootbox economy. “Here is where we might offer the opportunities to consume those resources for other things, other contents. Here is where we might offer opportunities to make purchases to speed up their progress or to access a lootbox.”

“One of the things that was important, when we did shift into this model… was making sure that all of the content was all available for free.” Wynands really emphasises that this is a philosophy that’s consistently underpinned the way that PikPok uses and designs its lootboxes. “If you didn’t want to buy booster packs,” he points out, “you got a free booster pack every day; you could accumulate currency, through play or free giveaways, that you could buy additional booster packs with. A player who didn’t want to spend money, but was prepared to put in the time, could have access to all of the same content.”

That’s not say Wynands isn’t conscious of how these systems are typically viewed with suspicion. “Nobody’s saying, ‘okay, how do we squeeze the most money from every player that’s ever going to play this game’,” he says, trying to answer to that suspicion. “Maybe that’s a conversation that some developers have, but that’s not the way that we go about it.”

One of the removed lootboxes from EA Games’ controversial Star Wars: Battlefront II.

This is where it gets murky. Right now, a lot of the heat being generated is the result of people asking whether lootboxes are gambling in a legal sense. Belgium’s Gaming Commission is currently investigating the question. The Victorian Commission for Gambling and Liquor Regulation is exploring ways to bring lootboxes within the state’s definition the gambling. China and South Korea already have regulation in place, and Hawaii State Representative Chris Lee is proposing to introduce legislation to ban lootboxes because, the way he sees it, the answer is obvious.

On the other hand, the UK Gambling Commission has held that lootboxes are not gambling if their “prizes are successfully restricted for use solely within the game”, and our own Department of Internal Affairs agrees. In a column for Stuff, Office of Film and Literature Classification advisor Paul Hung quoted the department’s reasoning:

Gambling, as defined in the Gambling Act, means paying or staking consideration, directly or indirectly, on the outcome of something seeking to win money (or money’s worth) when the outcome depends wholly or partly on chance. The Department considers ‘loot boxes’ as a marketing tactic within computer games that use psychology to reward players and encourage them to spend more on the game. While the exact contents of a loot box may be unknown at time of purchase, the payment of the charge does purchase a box. This does not appear to meet the definition of gambling.

Forty minutes into our interview, Wynands brings this up. He’s surprised that I haven’t asked him the question outright. He tells me that he shares the department’s view. “There is certainly a randomness involved, but I don’t consider it gambling,” he says. “If you can’t win money, actual money, it’s not gambling. You are paying a set amount to get some random stuff and it is random, but the transaction is one-way.” Wynands brings up the Kinder Surprise comparison. If we don’t treat the mystery egg as gambling (and there are parallels), why should we treat the mystery box any differently?

I tell Wynands that the reason I didn’t ask him outright is because whether or not the current legal definition of gambling in New Zealand is broad enough to cover lootboxes is not really the most interesting or necessary question here. The definition of gambling in the Gambling Act is purely mechanical. It defines gambling based on the rules and actions involved. It does not define gambling based on its psychological effect, even though the exploitation of that effect is the harm that the definition is designed to prevent. That means that it’s a definition that can be expanded at any time if we’re faced with something new that has the same psychological effect and, potentially, causes the same harm.

Lootboxes in Blizzard’s popular FPS Overwatch.

In a piece published earlier this year, Kotaku writer Heather Alexandra laid out some of the ways that lootboxes and microtransactions produce that psychological effect. In that piece, Alexandra argues that free-to-play games and gambling companies use similar techniques to compel players to spin the wheel one more time, from the sensory overload that comes with opening a crate to the ‘managed reward schedule’ that tells you when the next crate is. Green Party MP and consumer affairs spokesperson Gareth Hughes echoes those concerns, telling me over email that “it’s a worry it may be introducing and habituating children at an early age to gambling”.

Wynands is sceptical that these “dark patterns”, these techniques that prey on player impulsiveness, are widespread. “I’m sure, in the dark corners of the games industry, there might be people going down that path, but it’s just not common, and I think [it’s] just a myth that most game developers are employing that sort of thinking.” He’s similarly critical of the idea that developers are specifically targeting children. Children just don’t have the disposable income, Wynands says, and even if they did, there are enough regulatory safeguards in place that making them a core source of income is a liability at best.

“What is happening,” he says, “is merchandising.” Wynands starts to echo the Department of Internal Affairs here. “What game developers are doing is they are learning from other industries – whether it be the supermarket industry or the online catalogue industry or TV advertising.” Free-to-play developers are using push notifications, in-game notifications, special events and the like to draw your attention to the product: a product which, more often than not, is at the end of a chain of real and in-game currencies. “You want to be able to make offers in your game that are appealing, that are exciting, that people notice. It’s exactly the type of thing that you would otherwise see on TV.”

Anthony Hawke disagrees; he’s emphatic that there’s a gulf between the relationship a person has with a supermarket, as mediated through television advertising, and the relationship they have with a videogame in the palm of their hand. Addiction thrives on isolation, Hawke says. If the player feels isolated from the rest of the world, it becomes easier for them to establish a relationship with a pokie machine. Hawke says that the same principle can apply to videogames, and that means that the ‘marketing’ in those games takes on a different light. He explains further. “It’s the same conversation you have across alcohol, tobacco, you know? It’s marketing that increases the exposure and the harm for some of the most harmful products in our country… Potentially, it’s the same issue for gaming.”

A lootbox from Monolith Productions’ Middle-earth: A Shadow of War.

A lot of what we know right now about the specific effects of lootboxes is anecdotal. Problem Gambling Foundation chief executive Paula Snowden acknowledged as much in that RNZ interview. But the proliferation of online gambling already poses well-documented challenges for organisations like PGF and Hāpai te Hauora, and Hawke says that the bleeding of these techniques into free-to-play and premium games could make outreach and rehabilitation even more difficult. “To be sorting out addiction,” Hawke tells me, “we need to increase connectivity to family units, to family-centric approaches… Online platforms are a really good vehicle to do that, but it’s also a space where all of these gaming products are being pushed as an activity.”

Free-to-play developers may not be using and marketing lootboxes and gacha mechanics as part of a conscious effort to exploit players with compulsive and addictive personalities. They’re not grooming the next generation of gamblers, as Snowden puts it. But to focus on developer intent is to focus on the wrong question. The question is whether those techniques encourage compulsive, addictive behaviours as a byproduct, an unintentional but unavoidable side-effect of trying to make their products more appealing to players. While research on the issue is still in its early days, a lot of the anecdata out there suggests that they do.

Both Wynands and Hawke agree that we’re reaching a kind of flashpoint, a point where it’s inevitable that ‘something will be done’. “There is a lot of self-reflection happening right now,” Wynands says about the industry, “but I think there’s a lot more discussion to be had before anything significant changes.”

Wynands isn’t sure what reform or regulation might look like, and there’s a few reasons for that. The first is that there’s scope for companies to regulate themselves already. For example, Wynands says, companies could set daily and lifetime spending ceilings for players, or implement limits on the number of lootboxes that they can open. The second is that international storefronts like the App Store, the Google Play Store and Steam already have to implement law changes in other jurisdictions, and those changes are often applied internationally. “To some extent, we’re at the whims of different governments and different, bigger companies,” he says. “If Apple says we have to do something in a certain way, then we have to do something in a certain way.”

The third problem, which Wynands doesn’t mention, is that any lootbox regulation in New Zealand may only end up applying to New Zealand businesses. In his Stuff column, Paul Hung notes that only gambling conducted in New Zealand is subject to the provisions of the Gambling Act. “New Zealanders are able to lawfully gamble on overseas websites,” the Department of Internal Affairs says, “but they do so at their own risk.” That complicates any potential regulatory model: is selling a boxed copy of Overwatch in The Warehouse enough for its lootbox economy to be considered gambling ‘conducted in New Zealand’? Or would any potential regulation only impact local developers? Because while industry representatives have made much of that grand milestone of $100m in annual revenue, an unknown chunk of that is coming from sales of lootboxes and in-game currencies.

“Look,” Hawke says, “you can’t stall growth. But what you can do is you can educate your designers as to the ongoing implications for society, in particular the most vulnerable and the most at-risk of being caught up by mental health and addiction.” Developers need to start modelling new game economies, he says, ones that are humane, non-exploitative and socially responsible. It’ll be tough – actively working against an international design orthodoxy in a volatile market is never easy – but the New Zealand gaming industry can and should play a lead role in that reimagining.

Besides, we’re all impacted by the negative fallout from addiction. One person’s compulsive behaviour can have devastating effects that ripple across communities. The reform of lootbox economies, then, is just one part of a broader, ‘whole of nation’ approach. But someone has to lead that reform, Hawke says, and it’s here that he lays down the gauntlet to New Zealand developers. If lootboxes are only the first step in the development and refinement of these systems, he says, our developers can try and choose the next step in their development. “Alter it so it’s more socially responsible. Lead it.”


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