Saturday, September 8, 2018

Loot box flap shines light on gaming regulation

EA's Failed In-Game Moneymaking Strategy Proves that Consumers Remain the Most Effective Regulators of Markets - Foundation for Economic Education - Matthew McCaffery:

September 6, 2018 - "The outcry over so-called 'loot boxes' — basically a virtual currency in video games that allows users to acquire virtual items and upgrades — shows clearly that calls for regulating the video game industry aren’t going away any time soon....  [E]ach drama brings with it further demands for regulation and censorship.... Despite these constant threats, however, the video game industry has proved repeatedly that consumers, not governments, make the best regulators.

"Microtransactions ... have been around for several years, and have always had vocal critics. But the controversy surrounding them came to a head with the release of EA’s Star Wars: Battlefront II.

"Battlefront II placed major emphasis on loot boxes, rewards players could use to win digital content that provides in-game advantages. Initially, loot boxes could be purchased using ... real-world money... Technically, no one was forced to buy them; however, players faced a trade-off between spending money and spending time to unlock the loot they wanted. And because everyone wanted to benefit as soon as possible, there was a strong incentive to take shortcuts by spending money....

"Whatever their merits, loot boxes caused an uproar among gamers and policymakers and inspired numerous calls for legislation to limit or even ban them. These efforts were not only misguided economically, but also unnecessary: as politicians were scrambling for the spotlight in order to demand action in response to their (unproven) allegations of predatory marketing, the problem was already being solved by the most relentless and effective group of regulators there is — consumers....

"When Battlefront II was released, many players ... refused to buy it, rejected the loot box scheme, and started an extremely vocal boycott of EA. What began as a short-sighted creative decision to pad the company’s bottom line quickly turned into a financial disaster.... EA lost as much as $3.1 billion in shareholder value (close to 10 percent of its market cap)....

"Battlefront II fell between one and three million copies short of its early sales targets, and came up several million copies short of the sales numbers of its predecessor in the franchise. Unsurprisingly, EA quickly began fully dismantling the loot box system, eventually reworking the game’s progression system and eliminating all monetary payments for rewards.

"EA’s Chief Design Officer Patrick Söderlund has since explained that the company has learned its lesson.... Exactly how the company will change its revenue models remains to be seen, but it’s likely that microtransactions and loot boxes will continue to be dialed back, at least for gameplay-related content. In fact, this is already happening with titles from other developers, including Monolith’s Middle Earth: Shadow of War, which has also removed microtransactions in response to fan criticism....

"Ultimately, there’s no such thing as an 'unregulated' market: either businesses are regulated by consumers, or they’re regulated by government. The loot box saga has already shown how one of the largest developers in the world can be humbled by its customers without the 'help' of politicians or new legislation. There’s a simple lesson here for gamers: not every bad decision by a developer needs to be 'fixed' by government."

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