Game Over: FTC Staff Issues Perspective Paper on Video Game Loot Boxes

Advertising Law

Back in August of last year, the Federal Trade Commission (FTC) hosted a workshop on video game loot boxes, which, for all you non-gamers, is a video game microtransaction in which an individual playing a video game purchases a reward containing one or more virtual items of differing value or rarity assigned at random. Last week, the FTC staff issued a paper detailing its key takeaways from the workshop.

In recent years, video game loot boxes have been the subject of both national and international scrutiny due to concerns that these in-game devices promote compulsive or gambling-like behavior or use predatory tactics to encourage addictive consumer spending, particularly by children. A number of countries have examined whether to regulate loot boxes, with some offering policy recommendations, implementing restrictions or imposing outright bans. Legislators in the U.S. likewise have raised concerns, including proposals at the state and federal levels to regulate loot boxes. In addition, the video game industry has engaged in self-regulation, for example, through the Entertainment Software Rating Board (ESRB) rating system, in-game purchase disclosures, parental control features and consumer education initiatives.

Panelists and commenters at the FTC’s workshop raised several specific concerns with the way loot boxes are marketed, especially how they are disclosed within the gaming environment.

  • Mechanics That May Confuse or Manipulate Consumers. Several panelists criticized loot box monetization techniques because they mask the real costs to players, the details of the offer are confusing, or because the games may use visual or other tactics to keep players psychologically and financially invested in gameplay. 
  • Disclosure of Loot Box Odds. Panelists expressed concern about the transparency of loot box odds (i.e., the chances a player will receive any particular in-game item), particularly if a game uses dynamic odds that may vary by player or time. In response to this concern, Apple and Google now require all mobile games that incorporate loot boxes to disclose odds. Also, the Entertainment Software Association has promised that by the end of 2020 Microsoft, Nintendo and Sony will require disclosure of loot box odds for new games and existing games that add new loot box features. 
  • In-Game Purchase Disclosures. Frequently, developers utilize in-game currencies rather than real-world currencies to maintain a player’s sense of immersion in the game. But this may confuse some players, as it essentially requires a player to remember the “exchange rate” for real currency to in-game currency and calculate it for every transaction. In the paper, the FTC encourages publishers to enhance purchase disclosures to provide consumers with meaningful information about the real money costs associated with loot box microtransactions. 
  • Content Creator Disclosures. Another feature of modern video games is the rise of “content creators,” who are avid video game players who livestream their gameplay on Facebook, YouTube and Twitch to sometimes millions of followers, and are often paid by the publishers to do so. These content creators should be complying with the FTC’s Endorsement and Testimonial Guides, which, among other things, require influencers to disclose any material connections between themselves and the products they are touting, such as compensation agreements. Livestreams can often run for hours at a time, with viewers coming and going, so even if they make one disclosure upfront, it is unlikely to reach the entire audience. 

Why it matters: As highlighted in the FTC’s paper on loot box practices, key concerns remain about loot box marketing techniques. Although the FTC’s staff paper stops short of providing specific regulatory guidance to game publishers or platforms on loot box marketing practices, the FTC notes that it will continue to monitor developments surrounding loot boxes and take appropriate steps to prevent unfair or deceptive practices. Given the uncertainties in the landscape within the U.S. around loot box marketing practices, video game companies should examine their practices closely and keep in mind the following strategies to minimize legal risk:

  • Avoid structuring in-game mechanisms that create a wager, chance or win/loss structure that could lead to a finding of gambling. For example, make the in-game currency that can be used to purchase loot boxes also acquirable from in-game play, not simply available for direct purchase. It is also possible to remove chance by telling players what they will get in a loot box before they purchase one. 
  • Prevent players from exchanging items received in loot boxes, including outside the game environment, and enforce any preexisting prohibitions on sales of items and/or accounts to minimize the perception that certain items available in loot boxes are more valuable than other items. 
  • Consider enabling strong parental controls to avoid allowing minors to make loot box purchases without the permission of a parent. 

Ensure that loot boxes are promoted in a clear and conspicuous manner, with minimal “fine print” terms or fees that consumers plausibly could argue aren’t transparent.

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