How Loot Box Regulations May Affect the Video Game Industry

Last year's release of Star Wars Battlefront II should have been a blockbuster success for Electronic Arts as a company, but instead, it generated one of the biggest controversies of the video game industry. The game included loot boxes that contain a variety of virtual prizes that can be unlocked with real-world currency purchases. That's nothing new in the world of gaming, but EA's implementation of the feature was so close to gambling that a Belgium regulatory commission ruled it as such. Here's why the legal battle surrounding video game loot boxes could change investing in the industry forever.

Lawmakers Are Being Pressured to Focus on the Issue

After the Belgian Gaming Commission ruled that loot crates purchasable with real money constituted real-world gambling, the world was set on fire to consider the consequences of the implementation. Hawaiian State Representative Chris Lee famously held a press conference in which he stated loot boxes were "predatory gaming" practices and presented legislation that would prevent minors from making these purchases. Australian regulators felt similarly stating that "what occurs with loot boxes does constitute gambling" and they should be regulated. This scrutiny from lawmakers will undoubtedly change how video game developers can deploy monetization schemes in their products.

Microtransactions Are the New Way to Fund Video Games

Investors in video game companies tend to prefer companies that focus on microtransactions in their video games. Both EA and Activision are heavily focused on promoting products that contain these microtransactions. That's contrasted to Nintendo, who typically prefers to make complete experiences that do not contain additional purchases beyond DLC and expansion packs. Day traders are heavily shorting Nintendo stocks right now because they believe stocks like EA and ATVI are more profitable thanks to their monetization efforts.

Digital Payments Make It Possible to Spend Hundreds of Dollars at a Time

Because these microtransactions are available right from the game, it's simple to press a button and have the credit or debit card attached to the console charged for each loot box you purchase. Digital payments are here to stay, but it's likely that video game developers will look at ways to make these loot boxes feel less like gambling in the future. That's already happened with one game from Warner Bros. Interactive. When Middle Earth: Shadow of War debuted, it contained a loot box system that functioned much like the system in Battlefront II that caused regulators to rule it was gambling. After that controversy, WB Interactive completely removed the loot box system and re-tuned the game to be more like a traditional game without loot boxes.

Loot Boxes are Profitable, and the Industry Will Find a Way to Keep Them

While the Star Wars: Battlefront II release brought the controversy to a head, EA has been offering loot boxes in FIFA games for years. In fact, the recent regulatory attention has investors worried that FIFA will no longer be the profitable product that it was in the past. FIFA brought in $800 million in revenue from the previous year, so it’s understandable why investors have these concerns. However, EA says it is working with regulators in regions where loot boxes have been determined to be gambling and that FIFA's Ultimate Team feature would not be affected.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.