Trying Their Luck With Loot Boxes, Betting on Microtransactions

Almost exactly three years ago, I explored the question of whether loot boxes might be considered gambling (under a specific federal statute). Despite my analysis, the controversy has not abated. Either my earlier writing was insufficient, or I am not the final authority on all US law. Or both. In any case, I am revisiting this topic.

We have a long history of kids buying an unknown, unidentified, or concealed thing and not calling it gambling: baseball cards, gashapon machines, Kinder Eggs, mystery figurines etc. We also have an established tradition of letting children play games of chance for the opportunity to gain rewards at carnivals and arcades. But stories of kids bankrupting their parents to buy baseball cards are… rare. People have ruined their lives in pursuit of many things (one psychologist admitted to having an addiction to collecting classical music). However, there seems to be an ample stock of stories of people meeting financial hardship after engaging in microtransactions of video games.

Societies make laws and institutions to mitigate the extent to which people can harm themselves and each other. Do the practices of the video game industry cause the kinds of harms that run afoul of these laws and institutions when they make it easy for a customer to bring about self-ruin (and extend that ruin to others)?

 

I. Definitions

I will define the following terms based on my understanding and experience:

Loot Box:  In-game items, conditions, or abilities available to a player, initially concealed from players when obtained. These can be given to players by the game (often for completing particular objectives) or they may be purchased, either with in-game currency or legal tender (“real world money”).

Microtransaction: The option to translate legal tender (“real world money”) for objects or conditions in the game. Although these are often near a $5 price point, it is not uncommon to see options for $30 for a single item, and many games provide bundled options for over $50 or $100. The implied predatory tactic at work in this mechanic is “nickel-and-diming” the customer: the company wants the player to perform repeated small transactions so that the player does not recognize the aggregate amount spent, and therefore spend more than the player would if the player were presented with that aggregate amount.

Pay-To-Win: The design of a game to be unreasonably difficult without the use of microtransactions. This is often combined with games with very low or no cost to play the game, then a significant escalation in game difficulty. Notably, the game does not cease to function, nor become unplayable from a programming perspective.

Cosmetic: An item, feature, ability, or condition in a game which does not affect the mechanics of the game, or the mathematics that calculates the success of the player in the game (or the ability of the player to progress in the game). Some microtransactions are argued to be less predatory because the possible outcomes are cosmetic, and the lack of an impact on game mechanics precludes an assertion of pay-to-win design.

Shareware: The business decision for a company to provide a substantial portion of a game free of charge, often to generate awareness and word-of-mouth advertising. The company expects that the success and appeal of the free portion of the game will lead customers to purchase the full game.

Demo: A small portion of a game available for customers to sample the general style, art, user interface, and gameplay experience, typically for free. In the last 10 years, it has been more common for demos to be available only by watching others (often employees of the company) play the game. Some recent demos have been criticized for misrepresenting the game they purport to demonstrate.

 

II. The Controversy

The largest looming question is whether loot boxes constitute gambling. This question has the biggest legal ramifications, particularly because many of these games and transactions are available to (if not also marketed towards) minors, for whom gambling is illegal.

The second biggest legal question is whether the practices surrounding these microtransactions (advertising, communications, implementation, functionality, etc.) comport with relevant laws and regulations, particularly those set forth and enforced by the Federal Trade Commission (FTC).

Another important question is whether these practices are ethical, dangerous, predatory, fair, or are otherwise positive for the entertainment software industry, developers, publishes, and customers.

 

III. The Analysis

Issue One: Is it gambling?

I still find my previous analysis on the gambling question relevant. However, I don’t know how it would be received by a court or administrative agency. Under my analysis, the issue turns on whether the contents of the loot box are determined before or after the transaction is made. I think the strength of this analysis is that it help to delineate between the purchasing of unknown items available to minors (e.g., baseball cards, Kinder Eggs, etc.) and conventionally understood gambling (sporting events, slot machines, blackjack, etc.) I think the weakness of my analysis is twofold: 1) it may be too technical for some adjudicating bodies to appreciate, and 2) it fails to address the unsavory impacts of loot boxes and microtransactions.

It has become popular to declare loot boxes to be a form of gambling (and some games aren’t exactly shying away from that accusation or the image).  However, I am still unconvinced that any purchase of an unknown item falls under the legal definition of gambling. It may be true that it can be called “gambling” in a cultural sense, but this uses the term to mean “any taking of risk or a confronting of uncertainty.” This use of the term is unsatisfying because it also describes going to a new restaurant (and hoping the food is good) or ordering a shirt online (and hoping it fits well).

I have not yet heard a persuasive explanation that distinguishes buying a pack of Magic: The Gathering cards at my local game store from buying a pack of Hearthstone cards in Blizzard’s digital store. There might be an important distinction. There might not be one. Maybe the purchase of sealed packs of trading cards (Pokemon, YuGiOh, MTG, etc.) needs to be restricted. Maybe Disney needs to put the “mystery figurine” boxes in the “Adults Only” section of stores at Disneyland. However, if the sales of concealed items to minors are permissible, it isn’t clear why purchasing concealed outcome in a game’s loot box is necessarily legally different, in and of itself.

 

 

Issue Two: Is it unfair or deceptive?

The FTC has sometimes found a great deal of latitude in its statutory jurisdiction over “unfair and deceptive trade practices.” The task before the FTC is to determine whether the entirety of the game and microtransactions are designed in a way that is unfair or deceptive to the customer. There is a snag, however: the terms “unfair” and “deceptive” are not clearly defined. Even a sciolistic understanding of advertising in the US shows that there is a lot of distance between an advertisement and the reality of a good or service. The FTC has the responsibility to determine when advertising and marketing tactics (which are frequently adversarial, treating the customer either as a target or an enemy) become unacceptable in the eyes of the law.

Any evidence of companies’ deliberate efforts to obfuscate the amounts spent is likely to earn umbrage from the FTC. I’m fairly confident that the FTC will be displeased with implementation of microtransactions by many companies, and not just because they have addressed a similar issue already.

I’m less certain as to how the FTC would react to the concept of loot boxes. The FTC would examine the implementation of the loot boxes—not just the mere concept of them. The recent decision by several game platforms to require disclosures regarding the probabilities of outcomes for loot boxes will probably please the FTC, because the FTC likes it when useful, relevant, complete information is put in the hands of the consumer. However, some companies are not even putting truthful information in the hands of the consumers. Additionally, the FTC would still take seriously the claims that companies rely on the same tactics as those used by casinos, and the same psychology behind gambling addiction to advance their products. The many stories about the disastrous effects of these strategies on people’s lives would also hold significant weight in the judgment of the FTC.

I think it is likely that the FTC would find some practices by some companies to be unfair or deceptive. Crucially, this would almost certainly lead to a new promulgation of guidelines (and maybe codified regulations) that detail specific requirements for game developers who wish to implement microtransactions, loot boxes, or similar structures.

 

 

Issue Three: Is it good for the industry?

Ostensibly, these strategies have been good for the bottom line of some major companies. But let’s reflect on a very different business strategy. In 1993, Doom was the most popular game of its era and genre, and the developers gave away 1/3 of it for free, as shareware. That is an astonishing truth. It was free and the developers encouraged the unregulated sharing and spreading of it. This is a complete reversal of the current marketing strategies in the video game industry. In every way, this is the opposite of a loot box. And the bottom line did just fine: the developers still made enough money to buy ostentatious sports cars and the company survives to this day. I think there is a lesson for developers from the successful marketing of Doom: Make a game so good that people are happy to play it.

Sure, shareware didn’t always work. Apogee could have been the poster child for shareware. Now Apogee games are the poster child for orphan works. But in fairness: not every loot box game turns a profit, either.

It really goes without saying that loot boxes and microtransactions are designed to make more money for the companies that make and publish the games. I suspect they have been profitable strategies up to this point. However, if you have to spend one hundred million to defend your company’s strategy for making seventy million, that strategy isn’t so good for the bottom line—and that’s not to mention the impact of the negative public image of being perceived as predatory or dishonest.

 

 

IV. CONCLUSION: Maybe Legal, Likely Unethical, Definitely Unnecessary

Loot boxes and microtransactions may very well be legal—but that doesn’t mean that they’re “good” in any sense of the word. There are urban legends of drugs that are so addictive that dealers give away the first dose for free, because they know that the user will immediately become addicted and begin paying. They lower the barrier so that more people will ultimately become customers.

There are two options for developers who crave financial eminence: make a game so good that people want to play it, or make a game so addictive that people struggle to stop playing it. The two games may look similar, but the core functions are opposites. One is a positive experience that works to enhance the player’s life. The other is an effort to remove autonomy and destroy the player’s life. One is giving. The other is taking.

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The Race for Data: Consumer Privacy in a Red Shell

Mario Kart hasn’t outsold the standard Mario formula, but it has been the most successful adaptation of the characters. The lack of multiplayer wasn’t a big deal for games on the original 80’s Nintendo Entertainment System; just running to the right and jumping on boxes was good enough. As demand for multiplayer games grew, Mario Kart proved to be one of Nintendo’s best ideas. Racing games don’t need a lot of explanation, and getting to steer your favorite characters to the finish line made for hours of fun for family game night, birthday parties, and college dorms. Nintendo also made their fun additions to their racing game easy to understand: banana peels make your opponents lose control and crash, mushrooms provide a speed boost to help you catch up (especially useful after a crash), and getting hit by a turtle shell the size of your cart is never good. The weaponized shells come in a few colors, but the red shell was particularly powerful because it follows its targets movements, making it nearly impossible to dodge.

So, when the minds of marketing, data science, and software development came together to create a way to track gameplay data and correlate it to advertising for each unique player, a popular video game weapon that followed a target seemed like a good fit for the name of the product. Maybe a representative from customer relations or ethics would have raised a concern about naming a product after something aggressive and destructive. That kind of name raises a red flag for some people—and  it raises two red flags if it also shares the name with a known malicious virus. Unfortunately, it fell to the players to explain that secretly targeting customers to collect data is an unpopular choice.

 

Red Shell Discovered

Earlier this year, a few Steam users discovered a tracking program hidden inside some game software. The tracking program was called Red Shell. I have not found any indication that users were informed (at least explicitly) of the presence of this tracking software within the games that consumers purchased, downloaded, and installed. The stated purpose of Red Shell is to track user data that can be matched with marketing data to optimize marketing strategies. Despite the fact that the data collected from a user is called a “fingerprint,” developer Innervate is on record as believing that the clandestine program that does not allow opt-in (or even opt-out) decisions is GDPR compliant because it does not collect personally identifying information- just a broad mass of data associated with a user.

Software companies got a different kind of marketing feedback as outraged customers spoke out on forums and social media, attacked games with negative reviews, and called for boycotts against the offending games. I did not find any evidence that Red Shell is harmful or pernicious in any way, and most users seem to agree with that assessment. But actual, or even potential, harm does not seem to be the problem. Rather, the issue seems to be that the customers feel betrayed, deceived, and… well… played.

 

Lessons from the Wreckage

In Mario Kart, red shells cause your opponents to crash. In June of this year, the program Red Shell caused player trust to crash. Red Shell may be GDPR compliant, but the scandal now serves as an example of why mere technical compliance is not always enough.

I think Red Shell would have enjoyed reasonable success if players were given the choice to opt-in. Other companies use clear, voluntary methods to collect data from users—from surveys to system scans. I understand the appeal of “having all of the data,” and the appeal of letting computers do the bulk of the gathering and processing automatically. The efficiency and scale would be hard to match – computers often outperform humans in efficiency, speed, and scale. But computers don’t understand the values of trust, preferences, and autonomy.

Innervate lost sight of the real, ultimate reason for gathering player data in the first place: improve a developer’s bottom line through a better understanding of the player. By failing to connect empathy with the notion of “understanding,” they overlooked what they were losing in exchange for the increased efficiency and scale of their product. The effort to understand brand loyalty undermined the trust and loyalty to the brand. Data that is properly collected and carefully understood in the right context can be a powerful tool for better products and better service. But taking a shortcut around your goals to try to achieve them is just driving faster with no sense of direction.

 

Red Shell Takeaways:

ALWAYS remember that data is not an end in itself- think about WHY you want data.

Other things matter besides the data you think you need- consider the competing values.

Consider ways to get data that don’t interfere with other goals. Consider ways to get to your goals that don’t rely on the data you are chasing.

Don’t lose sight of your larger goals/objectives during your search for data; don’t let your race for data undermine your quest for success.

 

 

 

 

Grinding for Moral Consistency in Borderlands: The Pre-Sequel

“Borderlands: The Pre-Sequel!” is set between Borderlands 1 and 2, and allows players to play as some of the bad guys of Borderlands 2. One trailer (6:40) for BLPS cracked wise about the moral implications of advancing the cause of future enemies, but this question is central to the theme and story of the game.

I. “Life can only be understood backwards, but it must be lived forwards.” –Kierkegaard

The game of BLPS is played as a flashback. After the events of BL2, the mercenary Athena is captured and interrogated by the victorious heroes of the two previous games. She explains her role in the events between BL1 and BL2, and you, the player, play out those events as she describes them. As a freelance mercenary, Athena is hired by the central antagonist of BL2 (Handsome Jack) to save the moon of Elpis from a renegade military commander. (Yes, the plot is heavily influenced by Conrad’s Heart of Darkness)

A recurring theme is the decision to advance the cause of Handsome Jack, as the post-BL2 interrogation reflects on the horrors he inflicted. The story poses to players the challenge of reconciling Jack’s heroic actions of saving a moon (and its colonial population) with his villainous acts of destruction carried out in BL2. The game asks us whether Jack was a good guy or a bad guy, and by implication also asks: How can we understand his apparent transformation? How can we make sense of a character that displays contradictory traits? How can we evaluate good and evil?

These are deeply important questions for our lives. Discerning between good and evil is at the core of ethics, and permeates decisions we make in our personal, familial, political, theological, and professional lives. Adopting the wrong approach to the ethical questions posed in BLPS can have catastrophic implications if applied elsewhere in life: apathetic indifference, sympathy, empathy, or pity for evil, absolute subjectivism, blind and unquestioning tolerance, or strict act utilitarianism all lend themselves to a variety of atrocities and horrors we intend to avoid through ethical examinations.

II. Virtue Theory Gives a More Complete Evaluation than Some Teleological Formulations

The game challenges the maxim that “the ends justify the means” by presenting several applications of that ideal, including one betrayal by a prominent protagonist NPC to kill Jack and the player. The story also makes a specific note of Jack’s decision to kill three probably innocent scientists on the suspicion that one of them might be a traitor—a decision which he openly relishes, afterward. An NPC asks the player-character for their opinion of Jack’s choice, questioning both Jack’s motive and his nature.

One way to evaluate Jack and his transformation between BLPS and BL2 is in an appeal to virtue theory. On this interpretation, Jack’s actions may have saved Elpis, but his nature and character were malicious and malevolent throughout the escapade. This view affords us the outcome of seeing Jack as a bad man who did a good thing. This view is also consistent with the entire knowledge of Jack’s wanton evil in BL2, in which he is malicious and does only bad things.

III. Grinding, Grinders, and Moral Ground

In any game with a leveling and/or gear system, players often find they want to gain an advantage by gaining extra levels for added bonuses, thereby making it easier to meet future challenges. This is often done through repeating simple and mindless tasks, which slowly and steadily advance the player towards the next level or have a chance of yielding desired items. This slow, steady process is called “grinding.”

BLPS introduced a new feature to the game called a “Grinder.” This machine accepts three items and returns (with some probabilities involved), a better item. This does some amount of “grinding” for the player, helping advance the attainment of better gear more rapidly.

Moral identity advances by an analogous method: a slow, steady, repeated process of small decisions, actions, and attitudes.

IV. The Need for a Good Evaluation of Goodness

Throughout BL2, Jack addresses the player characters as bandits, asserting that they are no different from or better than the marauding psychopaths they slaughter. Jack explicitly sees himself as the righteous hero—even with his dying breath. Because evil will always think itself good and present itself in a positive light, we must have a better approach for evaluating morality than general, easy-to-apply standards handed to us by the most convenient authority.