You Got Loot? FTC Examines In-Game Purchases

By: Ifrah Law

The FTC held three panels on Wednesday, August 7, 2019, that centered on one topic: loot boxes earned or purchased during online game play. It’s clear from the selection of panelists and the questions posed by FTC staff that the FTC is on high alert about potential consumer protection issues surrounding these in-game purchases.  If the name of the game (pardon the pun) on Wednesday was transparency, however, the FTC received some welcome news from industry leaders.

Loot boxes are containers of randomized digital content holding items with varying degrees of in-game value that can either be earned through in-game play or purchased using in-game or real-world currency.  Today’s gaming industry is rife with “freemium” games and games for purchase that are about the same price as those video game cartridges of yesteryear (adjusting for inflation).  Gaming development budgets, however, have skyrocketed to generate the photorealistic graphics and endless gameplay that consumers have come to expect.  To bridge the gap, developers are increasingly relying on in-game purchases, of which loot boxes are a subset. Consumers don’t always know how the value of these boxes is calculated or the odds that they’ll receive a particular item, and they aren’t always aware of the subliminal tactics that developers use to encourage gamers to purchase these boxes.  That lack of transparency has long bothered the FTC.

Michael Warnecke, Chief Counsel of Tech Policy of the Entertainment Software Association (“ESA”), announced today that Microsoft, Nintendo and Sony have a new commitment to being more transparent.  These companies will provide the “drop rate,” or the level of rarity, of certain items in loot boxes available for purchases.  Warnecke said that regardless of the method used to calculate the odds of acquiring a desired item (i.e., static versus dynamic), the odds would be disclosed.  In that way, game developers will provide more information to consumers about their in-game purchases.

The announcement was met with mixed reactions by the other panelists, with some applauding the effort to increase transparency surrounding loot boxes and others cautioning that, for the lay person, knowing the odds isn’t necessarily enough information.  For instance, Keith Whyte, Executive Director of the National Council on Problem Gambling (“NCPG”), said that the disclosure of drop rates is unlikely to be effective because most people—and especially younger people or people with gaming addictions—don’t understand odds, or they don’t care.  Pointing to the Powerball, he said that even though people are aware of the long odds of winning, they like to chase those odds, anyway.  Patricia Vance, President of the Entertainment Software Rating Board (“ESRB”), responded by applauding ESA’s announcement and urged those who were skeptical to trust that the industry is committed to making a change toward greater transparency.

Every panelist agreed that children are a subgroup that deserved particular consideration by the FTC because children cannot always appreciate the charges being racked up when making in-game purchases.  Of course, certain protections are already in place to protect children, including the federal Children’s Online Privacy Protection Act (“COPPA”) law, which protects minors’ online privacy.  In addition, online purchases require credit cards for 18+ users, and both gaming apps and consoles allow parents to impose spending limits.  Both the ESRB and the NCPG have already taken steps to provide parents with disclosures and educational outreach on the subject, and pledged to do more.

Game developers need to be sensitive to consumer protection issues for all gamers, however; not just children.  Regulations often lag far behind advances in gaming, so while the FTC’s role is important in protecting consumers against questionable loot box practices, the onus falls on the developers to ensure that the industry self-regulates in real time.  ESA’s announcement is a step in the right direction and shows that game developers take consumer concerns seriously.  In addition, gaming companies offering clear, fulsome disclosures will have a basis to defend against any regulatory investigations and to collect their charges.