How the video game industry tricks players out of money

Most entertainment markets work like this: You create some book, movie, TV show, and so on, and put it up for sale. If people like the work, then you make money. It's an oversimplified picture, but that's the basic structure.

Many video games are also sold like this. But oftentimes the gaming industry uses psychological trickery to coerce money out of players — and increasingly, they're turning to outright gambling. It's long since time these abusive practices got government regulation.

The classic example of awful gaming structures can be found in many, many mobile games like Clash of Clans, Mobile Strike, and Game of War. They are usually "free-to-play" (meaning you don't have to pay to install them), but unless you fork over real cash, they put up near-impossible barricades to success. They are extremely addictive but not very fun, so they tend to hemorrhage users, requiring massive advertising campaigns and celebrity endorsements to rope in new players faster than the old ones leave. These kind of games are basically a Skinner box with a thin pixel veneer.

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But wait, it gets worse. The majority of revenue produced by these games comes from a tiny sliver of users. A 2014 study found that half the in-game purchases for free-to-play games came from 0.15 percent of the player base, and other studies have found similar results. As casinos, alcohol manufacturers, and drug dealers found out long ago, the way to make money with these sort of manipulative products is by identifying the people who are psychologically vulnerable (e.g. a child with their parent's iPhone), and getting them hooked. Industry reports feature sickening studies about how to identify the "whales" who will spend big, "convert" them into making their first purchase, and retain them so they'll keep spending.

And now, big-time publishers are turning to straight-up gambling. In recent high-profile games like Overwatch, Destiny 2, Shadow of War, and the forthcoming Star Wars Battlefront II (none of which are free-to-play, usually costing $40-60 for the base game), players can buy "loot boxes," which are randomly generated packs of items for the game. These are typically lots of junk mixed in with some tools to customize a character with new costumes and such. Players get a small handful as they play, but the chances of getting anything good are low — thus increasing the pressure to buy more and roll the dice again.

The randomness is key here. Many games have particular cosmetic elements that you can buy. But making the costumes the product of a random system that players can pay to use again and again is functionally equivalent to gambling.

And they have been getting steadily more aggressive. Overwatch's loot boxes are about spicing up one's character in a multiplayer game (which at least has the justification of being able to show off), while Shadow of War has designed its entire single-player experience to push people into buying them. Most recently, Star Wars Battlefront II will apparently have non-cosmetic upgrades — that is, better weapons, armor, and so forth that provide a tangible gameplay advantage — thus increasing the pressure to buy even higher.

All this no doubt sounds pretty silly to a non-gamer. But this is a big industry, which is growing fast — a $25 billion yearly market in the U.S., and $109 billion worldwide as of 2017, which represents a growth of 4 percent and 7.8 percent, respectively, from the previous year. And in-game purchases make up an increasingly large share of that revenue — Activision Blizzard alone made $3.6 billion on them in 2016 (more than half their revenue), up from $1.6 billion in 2015.

That is very probably why the Electronic Software Rating Board (ESRB — the industry's self-regulatory association, which puts movie-style ratings on games) has declined to label these loot box practices as gambling. It would cut into a major revenue source — and one that requires comparatively little investment of resources.

So, what to do? While I would not ban video game gambling altogether, it is certainly a good idea to mandate that these products be clearly labeled as containing gambling, and perhaps to ban the sale of such products to minors, or give them a heavy additional tax. The objective would be to make companies pay a steep financial price for preying on vulnerable people.

Corporate behavior is structured by legal and financial incentives created by state laws and regulations. Predatory business practices often pay extremely well — in general, it is easier to swindle people than it is to create a scrupulous company selling a quality product. Indeed, as George Weidman explains, video game companies have been taking advantage of the exact same tax and financial chicanery that other big multinationals have done. (Here, anti-trust policy would also be useful.)

Activision Blizzard in particular has been savagely cutting their costs with international tax avoidance and layoffs, while juicing their revenue with these in-game purchasing tricks. In effect, they're coring out their game production business, becoming more and more of a shell that kicks out as much money as possible to shareholders and executives. Sound familiar?

If we want game companies to actually produce decent entertainment — or even, dare I say, works of high artistic quality — the state must create a market structure where that is the profitable way of doing business. If it's more profitable for companies to manipulate the "whales" into blowing their life savings on digital ephemera, that is what they will do.