Netherlands Moves Towards Outlawing Certain Loot boxes

The Netherlands Gaming Authority is getting serious about video game loot boxes. Any large game developer, who have come to rely on their monetization, is at huge risk of revenue loss. Companies like EA (NASDAQ:EA 123.11 -0.01%) and Activision Blizzard (NASDAQ:ATVI 67.68 -0.01%). Keep in mind 2018 is expected to see global sales of microtransactions like loot boxes exceed just under $30 billion in sales and up to $50 billion by 2022!

Whats the big deal about loot boxes?

You would be forgiven if you aren’t a gamer and have no idea what a loot box even is.

Loot boxes are virtual assets in video games that a user can either earn through playing the game or more importantly, attain through forking over additional money to the game publisher.

The boxes can contain all manner of “prizes” such as new outfits for characters that are simply a new aesthetic and have no effect on gameplay. They can also contain items or skills that give players a very real advantage over those who don’t pay out money for boxes. Sometimes these schemes are labeled “pay to win”. If User A spends more than User B, then User A has a competitive advantage and an easier path to victory over his or her opponent.

They also function as a virtual slot machine; every loot box gives random “loot”. Sometimes the items are basically worthless and other times a user enjoys a truly rare item that is heavily sought after. It’s not surprising that many players, often minors, get big adrenaline rushes from opening these boxes and are heavily incentivized to pay up to keep the adrenaline-high going strong.

The problem is that this boils down to what is essentially gambling. The situation is compounded by the fact that many gamers aren’t adults and thus not legally allowed to gamble.

EA recently found itself in a big mess over its very aggressive “loot crates” in Battlefront II. Many of the games core features weren’t available to gamers, which enraged many fans because the game itself was already a fully fledged $60. There was a massive internet backlash and EA released all features of the game for free and suspended loot crate sales.

Its stock suffered and sales of Battlefront II only achieved 7 million copies – significant because EA had projected a conservative number of 14 million copies sold.

Governments around the world are starting to view loot boxes as a form of gambling.

There have been calls to investigate loot box gambling from all over the world. U.S. Senators, regulators in England, Germany, France, South Korea, and today The Netherlands are getting serious about the issue.

The Netherlands Gaming Authority, via Dutch news outlet NOS, highlighted four massively popular and well-known games as targets of its investigation into improper gambling:

1. FIFA 18 – EA
2. DOTA 2 – Valve
3. PUBG – Bluehole Studios
4. Rocket League – Psyonix

All the above games generate massive revenue for their respective companies and are assuredly very concerned with today’s news. The Dutch authorities sound very serious in their intent to ban these activities if found guilty of violating its game licenses for gambling. Marja Appelman is the director of the Gaming Authority and he didn’t mince words.

"They are designed as gambling games are designed, with the feeling that you have almost won. There are all sorts of sound effects and visual effects when you open such a loot box, so you have a tendency to play through and through.

I call on all game companies not to make loot boxes accessible to children anymore and to remove addictive elements."

The commission specifically found a problem with these cases because some of the items found in the loot boxes can and are traded in real-world marketplaces for actual currency. This now means players are spending real money for a chance to attain an item worth real money which is de facto gambling in the eyes of the law.

It will be interesting to see how the Dutch handle this as it may mark the start of new global precedent in how to deal with loot boxes and the business model that surrounds it. Publically traded companies that make hundreds of millions of dollars from these transactions would be at real risk of getting devalued.

Remember, as these are just virtual items in the game the revenue that this brings to companies is almost all profit after the minimal cost to add the items into the game is factored in. Games are purchased by consumers for around $40-60 typically. Without loot boxes, the only way companies can further monetize their assets is by adding new content; think new quests or stories. Actual game content.

Actual game content requires developers and programmers and visual artists and voice actors. Things that add up to become millions of dollars in costs.

It’s easy to see why “microtransactions” have become so prevalent in almost every multiplayer blockbuster game released.

Investors of any publicly traded would be wise to keep their ears to the ground as the situation unfolds…