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Further implications
Much of the comment and analysis below is an abbreviation of an article written by Mark W. Hughes, Michael Shortt and Karam Bayraka for Fasken - an international business law firm based primarily in Canada. The piece was published on June 2, 2020. The full text can be accessed at
The concluding remarks on the potential impact on the games industry of a ban on loot boxes comes from JD Supra, an online repository of free legal information, including documents, filings, newsletters, etc. shared by the legal professionals who generate it. Their full text can be found at
North America's video game rating organization, the Entertainment Software Ratings Board (ESRB) and Europe's equivalent entity, Pan European Game Information (PEGI) have issued new labeling requirements for video games containing randomized in-game purchases, more commonly known as "loot boxes"...
The ESRB now requires games that include randomized in-game purchases or loot boxes to be labeled with "In-Game Purchases (Includes Random Items)". PEGI now requires these games to be labeled with 'Includes Paid Random Items'...
The ESRB states that the label 'In-Game Purchases (Includes Random Items)' will 'be assigned to all games that include purchases with any randomized elements, including loot boxes, gacha games, item or card packs, prize wheels, treasure chests, and more'.[2] PEGI states that the label 'Paid Random Items" will apply where there are 'in-game offers to purchase digital goods or premiums where players don't know exactly what they are getting prior to the purchase (e.g. loot boxes, card packs, prize wheels)'. Both the ESRB and PEGI will continue to label games with in-game purchases (but without randomized transactions) with an 'In-Game Purchases' label.
The ESRB and PEGI have made these labelling changes in response to increased public discussion about loot boxes. Critics argue that loot boxes are addictive and similar to gambling. In response to these criticisms, some jurisdictions have implemented specific rules for loot boxes or even banned loot boxes outright. However, most jurisdictions have not yet taken action on the issue of randomized in-game purchases.
Loot boxes are everywhere in video games today, including the most popular games. As new technologies and standards appear, developer and publisher costs are always increasing, yet video game prices have remained relatively flat (and the 'free to play' model has arisen), leading some to argue that loot boxes are important for the long-term viability of the industry, or at least some genres of games.[6]Lately, the conversation on loot boxes appears to be shifting away from legal bans towards 'informed' consumption. Nintendo, Microsoft, Sony, and other publishers will require games on their platforms to disclose loot box odds in all titles by the end of 2020. As well, the ESRB and PEGI's new labeling requirements are an attempt to allow consumers to make informed purchases and avoid randomized in-game reward mechanics if they so choose. This proactive industry step is intended to demonstrate the effectiveness of self-regulation in order to avoid legislative bans or restrictions. Indeed, in jurisdictions where there is no legal regulation of loot boxes, the ESRB or PEGI guidelines are the most important compliance requirements faced by publishers and developers.
And this is self-regulation with teeth: if a developer or publisher tries to hide its loot boxes or fails to fully disclose the contents of its game during the ratings process, the ESRB and PEGI have the ability to impose sanctions on publishers of up to $1,000,000 or �500,000 respectively. Many publishing agreements require developers to cover liability for undisclosed content in published games, so developers must be transparent with their publishers about randomized in-game purchases. As disclosing the odds of loot boxes becomes the norm, developers will also need to ensure visual consistency so as not to create a misleading impression. For example, the visualization of randomized transactions should not make it appear that there are more rare items than the odds would indicate. If loot boxes are not a core component of their game, developers and publishers may need to balance the inclusion of loot boxes with any detrimental effect that the 'randomized item' label may have on sales. Developers options are essentially to comply with labelling or to drop randomized reward mechanics from their games entirely.
Moving forward, whether governments impose a regulatory approach on loot boxes is likely to depend on the practical success of the ESRB and PEGI self-regulatory measures. To contribute to that success, developers and publishers are advised to be as transparent as possible when implementing loot boxes in their games. But given the risk that a few bad actors could bring down the heavy hand of regulation on the whole industry, developers and publishers should also keep alternative monetization strategies in mind.
(These concluding remarks on the impact of a ban on the games industry come from JD Supra) This banning or restriction of loot boxes is a major concern for video game developers and publishers, who make roughly 25-50 percent of their yearly revenue off DLC, with loot boxes being a large part of that revenue stream. Video game developers devote significant financial resources to innovating content, and they should have the right to sell DLC such as loot boxes to adults who understand the risks. Removing loot boxes entirely from video games could have significant ripple effects throughout the industry. It could, for example, result in layoffs, decreased investment in content development and higher game prices. It could also potentially result in decreased interest in video games and esports in general.