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Chambers UK

Games eBulletin: UK Government’s advisory committee publishes its findings on loot boxes and other areas of concern

13 September 2019

An advisory committee to the UK Government (Committee) has published findings which make for an eye-opening read for the games industry, and which could, if implemented, have a major impact on studios and publishers and require them to make changes to their business models and games.

In particular, in a drastic departure from what the UK Gambling Commission indicated last year, the Committee has suggested that certain loot boxes should constitute gambling in the UK. If this approach is adopted by the Government, it could bring the UK more closely in line with other European countries which have adopted a tough stance on loot boxes.

Background

The UK Government has the bit between its teeth in relation to the impact of video games on consumers, particularly children. Last year, it appointed the Committee to conduct an inquiry into “immersive and addictive technologies”, which focused in particular on the video games sector. The Committee carried out a wide-ranging evidence gathering exercise, including face-to-face interviews of several major studios, publishers and other experts and stakeholders in this space.

Yesterday, the Committee published its 84-page report (which can be accessed in full here). In it, it made a number of specific recommendations. We have summarised below the key impacts of the report on games companies, and have provided more detailed analysis further below.

Next steps

It’s worth a reminder that these recommendations are not yet law. In some cases, the ball has been put back into the Government’s court to provide a response – a Government which, to put it mildly, has other things on its plate at the moment.

But the significance of the Committee’s findings should not be underestimated. Part of the Committee’s intention is to elicit a reaction from industry, and the UK games industry’s response to the findings will be a crucial (and possibly final) opportunity to influence what and how future laws are implemented. This in turn will affect the future regulatory landscape in the UK and potentially further afield, as other regulators will be interested to see how the UK deals with these issues.

Key Impacts on Games Companies

  • The Committee believes that loot boxes which are paid for with real money are a form of gambling and that the Government should amend the Gambling Act to reflect this. The specifics are not clear, but the suggestion seems to be that this should be the case whether or not the value of the prizes from the loot box can be ‘cashed out’. If the Government does not follow the Committee’s recommendation, it should produce a paper explaining its reasoning. If the Government does follow the recommendation, it would mean that studios and publishers who want to use such loot boxes in their games would need to obtain a Gambling Licence from the UK Gambling Commission, which in practice would be unworkable in many cases.
  • Loot boxes which contain an element of chance should not be sold to children, until further research can be carried out into the potential harm they cause.
  • PEGI should apply its existing ‘gambling’ content label, and corresponding age limits (presumably being PEGI 18), to games containing loot boxes that can be purchased for real money and which do not reveal their contents before purchase.
  • The Committee has recommended the establishment of a scientific working group focusing on the effects of gambling-like mechanics in games. The results of this research are intended to inform the Government’s forthcoming Online Harms legislation, which could be implemented as early as 2020.
  • The Video Recordings Act should be amended to ensure online games are covered by the same enforceable age restrictions as boxed retail copies.
  • The DCMS Department should, with the help of experts, conduct further research into gaming disorder and the long-term effects of gaming. Games companies should be required to share aggregated player data with researchers, and to contribute financially to research through a levy administered by an impartial body.
  • The Committee has accused the industry of lacking transparency concerning the use of player data, game design decisions / business models intended to increase engagement. Government should say how it intends to support independent research into this; such research to inform the development of a behavioural design code of practice (to tie in with the Government’s plans for a new Online Harms regulator).

Detailed Analysis

1. Loot Boxes and Gambling

Loot Boxes

On the subject of loot boxes and similar mechanics, the Committee recommends that:

  • Loot boxes that contain the element of chance should not be sold to children playing games, and instead in-game credits should be earned through rewards won through playing the games.
  • Working through the PEGI Council and all other relevant channels, the UK Government advises PEGI to apply the existing ‘gambling’ content labelling, and corresponding age limits, to games containing loot boxes that can be purchased for real-world money and do not reveal their contents before purchase.
  • The Government should bring forward regulations under section 6 of the Gambling Act 2005 in the next parliamentary session to specify that loot boxes are a game of chance. If it determines not to regulate loot boxes under the Act at this time, the Government should produce a paper clearly stating the reasons why it does not consider loot boxes paid for with real-world currency to be a game of chance played for money’s worth.

The fact that the Committee has made these recommendations, while at the same time acknowledging that “academics broadly acknowledge that there is not yet enough evidence to reliably conclude that loot boxes cause problem gambling” may come as a surprise, but the Committee’s position is clear: in its view, loot boxes that can be bought with real-world money and that do not reveal their contents in advance are ‘games of chance’ played for money’s worth – i.e. a form of gambling. If the Government follows this recommendation, studios and publishers who want to use such loot boxes would need to obtain a Gambling Licence from the UK Gambling Commission, which in practice is unlikely to be feasible in the main.

The proposed blanket ban on loot boxes being sold to children is described as ‘precautionary’, until evidence shows that no harm is done to children by exposing them to these mechanics (but in the knowledge that such evidence may not materialise). The report is not clear on whether the proposed ban would apply to games played by children as a whole, or whether loot boxes may nevertheless be permitted to exist within a game, as long as any children who play it are not exposed to them. For some games, making loot box-type mechanics unavailable on a per-user basis may simply not be possible, so in practice the proposal could amount to a blanket ban on loot boxes, assuming the game is played by children.

The Committee has placed the ball back in the Government’s court to explain why it thinks otherwise (assuming it continues to think otherwise, after reviewing this report).

For some studios, loot boxes were already a poisoned pill to be avoided at all costs. For others, if the recommendations in this report are implemented, it could be the final nail in the coffin.

The report praises the actions of other countries such as Belgium in relation to this point, which the Committee says “the UK could learn from”. One of the reasons behind the proposed widening of the definition of ‘money’s worth’ is to capture subjective (as opposed to just objective and monetary) value to a player. But the consequences of doing so would need to be considered carefully. As noted by Brad Enright of the UK Gambling Commission, there is a risk that doing so could “catch lots of other activities, which may also incorporate expenditure, chance and a prize of value or worth to the player”.

‘Online Harms’

As expected, the issues of loot boxes and gambling feature heavily in the report. The Committee has now expressly stated that it believes any gambling-related harms associated with gaming should be recognised under the Online Harms framework. This is a reference to the Government’s Online Harms white paper, published earlier this year, which recommended (among others things) the establishment of a new statutory duty of care to make companies take more responsibility for the safety of their users and tackle harm caused by content or activity on their services, to be overseen and enforced by an independent regulator.

On that subject, the Committee has recommended that:

  • The Department for Digital, Culture, Media and Sport should immediately establish a scientific working group to collate the latest evidence relating to the effects of gambling-like mechanics in games. The group should produce an evidence-based review of the effects of gambling-like game mechanics, including loot boxes and other emerging trends, to provide clarity and advice. This should be done within a timescale that enables it to inform the Government’s forthcoming online harms legislation.

2. Industry Funded Research into Psychosocial Harms

On the subject of psycho-social harms, the Committee has recommended that:

  • The Department for Digital, Culture, Media and Sport should immediately update its areas of research interest to include gaming disorder, working with researchers to identify the key questions that need to be addressed and develop a strategy to support high-quality, independent research into the long-term effects of gaming.
  • The Government should also require games companies to share aggregated player data with researchers and to contribute financially to independent research through a levy administered by an impartial body … to oversee research into online gaming and to ensure that the relevant data is made available from the industry to enable it to be effective.

The call for further research is not surprising; it was clear that the Committee felt during the interviews it conducted that it did not have a sufficiently broad set of data to get to grips with the issue of addiction and harms caused by games. Recommending that that research be funded by a levy on the industry is in line with the Committee’s overall sentiment that games companies need to be more proactive in investigating and addressing the issues raised.

A number of questions remain unanswered, such as which game companies will be required to take part in the research and to contribute to the levy, and what that levy will be. Although this is not yet known, it is logical to assume that the focus would be primarily on larger studios and publishers; certainly most smaller ones would find it difficult to comply with these requirements.

There will inevitably be sensitivity around the sharing of data with third party researchers, which could be commercially damaging if inadvertently leaked.

3. Age Ratings

The Committee has recommended that:

  • The Video Recordings Act should be amended to ensure that online games are covered by the same enforceable age restrictions as games sold on disks.

Currently, under the Video Recordings Act 1984, PEGI 12, 16 and 18 rated games cannot legally be sold as boxed products to anyone under those ages. The Act does not explicitly deal with digitally distributed and online games. As the wording of the recommendation suggests, this would see the scope of the Act widened to encompass digitally distributed and online games, making it a statutory obligation enforceable under English law.

In practice, PEGI ratings are often used by publishers and platforms for online games on a voluntary basis, and this approach seems to have worked well for a number of years. The Committee’s recommendation for a more heavy-handed approach, while seemingly unnecessary, is consistent with the general tone of the report.

4. Player Data, Game Design and Business Models

Average Levels of Engagement

A substantial section of the report focuses on game design and the use of player data to increase engagement (whether through dynamic difficulty adjustments or through direct offers).

A particular frustration of the Committee under this category is the unavailability of data for ‘average levels of engagement’, to help it to determine what may or may not be considered a ‘healthy’ amount of game play. It noted that: “Games companies collect this information for their own marketing and design purposes; however, in evidence to us, representatives from the games industry were wilfully obtuse in answering our questions about typical patterns of play.”

This is an oversimplification which, in the case of some games, does not do justice to their complexity and the difficulty of determining what is an ‘average’ level of engagement, but it highlights an area in which the industry will have to work to educate regulators and re-establish trust.

Age Restrictions

In a rare section of the report which is not directed exclusively at the games industry (but also to social media) the Committee expressed serious concern that there is no effective system in place to keep children off age-restricted platforms and games, and criticised companies for being reactive in addressing this problem.

Game Design Mechanics

On the issue of design mechanics, the Committee’s concerns are directed at the use of mechanics and techniques designed to keep players playing. It acknowledges that studios understandably want players to like their games, which is not inherently objectionable, but concludes that there is enough evidence that some players have lost the ability to control their amount of engagement and spending to justify “a greater sense of duty of care in the way products are designed”.

The list of mechanics potentially in the firing line is very broad, including high event frequencies, deliberate near misses, variable ratio reinforcement schedules, the use of “light, colour, and sound effects” and more general features such as persistent worlds found in MMORPGs.

The Committee’s view is that the games industry’s emphasis on player choice does not acknowledge the way in which many games use random reward mechanisms that have allegedly been proven to create repetitive behaviours, and the effect that this might have on the meaningful exercise of choice.

As with loot boxes, the report is highly critical of what the Committee perceived as a lack of transparency on the games industry’s part. It notes that: “the reluctance to discuss engagement metrics or to acknowledge the psychological impact of core design principles in evidence to us suggests that highly-skilled designers either do not know the data and psychological studies and strategies that underpin their industry or, what is more likely, do not feel comfortable admitting it in a public forum. For an industry generating such high revenues from so many millions of players worldwide, that lack of transparency is unacceptable”.

In concluding this section of the report, the Committee expressed the view that online games and social media are both “data-driven industries that use asymmetrical information and deliberate design practices to manipulate users into spending more time or money on their platforms” and, consequently, recommends that:

  • To provide clarity for policy-makers and the public, the Government should outline in its response to this report how it intends to support independent research into the application, extent and effect of design mechanics used in digital technologies to extend user engagement. Such research should then inform the development of a behavioural design code of practice for online services. This should be developed within an adequate timeframe to inform the future online harms regulator’s work around “designed addiction” and “excessive screen time”.

5. Esports and Player Wellbeing

This is addressed towards the end of the report, in a section which attempts to deal with several different issues and, as a result, is difficult to follow.

The report identifies esports as an area of growth and innovation, which has the UK Government backing, but notes that there are no common standards for the duty of care that esports teams have to their players, as exist for other sports such as football.

As well as suggesting that esports could go further in the promotion of player wellbeing and promotion of healthy gaming in schools, the Committee states that there are “significant opportunities for the development of esports in the UK to harness best practice in the use and monetisation of player data, which could serve as a model for other parts of the games industry”. The meaning of that sentence is unclear, but the broad message appears to be that, when it comes to player data and monetisation, similar ‘best practices’ should apply to both the games and esports industries.

On this subject (but on a somewhat unrelated note to the discussion which precedes it) the report recommends that:

  • The Department for Digital, Culture, Media and Sport should lay out within the next six months how a similar framework to the duty of care practices enshrined and enforced by the governing bodies of other sports can best be applied within esports.

Concluding comments

The industry is at a regulatory crossroads, but it is not too late to influence how the legislative agenda of the next few years will unfold. At the same time, studios and publishers will be mindful of the increased mainstream press interest and potentially adverse PR which the Committee’s report could bring (particularly as it has already been widely covered by the press), and will need to be ready to deal with requests for comment from the media and other third parties.

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