"Lootboxes" in digital games - A gamble with consumers in need of regulation? An evaluation based on learnings from Japan

Abstract

This paper looks at the recent discussion on "Lootboxes" by regulators in several countries referring to the case of Japan in the light of business model revolutions. A game-of-chance mechanic which can be found in more and more in digital games to acquire virtual items and to help monetize these games. These Lootboxes have created several negative reactions and calls for regulation because if their gambling like elements. Japan had similar mechanics in games for a long time called "Gacha" and could serve as an interesting insight into its regulation. Firstly as introduction, this paper explains what Lootboxes are in comparison to "Gacha" in Japan and investigates whether they would qualify as gambling using a gambling taxonomy. Lootboxes and Gacha can be seen as very similar and comparable and both would not qualify as gambling in traditional way as long as it could not be converted into real world currency. Secondly, it reviews recent regulatory actions in Western and Asian countries and their reasonings to regulate or not to regulate "Lootbox" mechanism in games. Regulators approaches to "Lootbox" differ from country to country, from very strict to tolerant, often depending on their understanding and perception of Lootbox mechanis. Thirdly, this paper introduces a player's perception on Lootbox elements and business models. According to a third-party survey, players have a certain preferences and expectation on how to pay for a game or in-game items in accordance with the business model of the game. Several empirical cases showed that an inconsistency or lack of transparency between game players and game companies on how to pay for games could be a trigger for complaints by players, not whether it gambling or not, Finally, this paper summarizes findings from empirical studies and points out the necessity of further studies on "game of chance" elements in games. In the case of so called free-to-play games, the lack of winning probability could be a key issue while for full price games the issue lies more in a lack of transparency of the business model. The former suggests the importance to increase the transparency of "probability" to give players more chances to calculate their chance of winning before they paying for game of chance elements. The latter implies that business models of the game industry have been transforming and games as well as their monetization strategies could be expanded and modified interactively and ceaselessly creating issues on the players side. Both user side and developer side behavior needs to be studies more. But the focus should not only be on gambling and addictive problems -which are important- but also on the issue of business model transformation and the interaction between players and developers in a networked environment.