Parents Beware: That Videogame Under the Tree Might Ask for More Money

By Sarah E. Needleman Features Dow Jones Newswires

This holiday season, children firing up new videogames will encounter one of the industry's most contentious moneymaking tactics in years: the "loot box," an in-game reward that is also for sale.

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Like packs of baseball cards, loot boxes hold a random assortment of mostly generic though sometimes rare virtual goodies such as decorative weapons and souped-up skills. They are doled out to players who accomplish certain tasks, or they can be purchased with in-game virtual currency usually for the equivalent of $1 or $2 a pop.

Critics say loot boxes give gamers with deep pockets an edge, particularly in multiplayer games. The more significant charge, though, comes from people who liken loot boxes to slot machines -- pay money, hope to win a valuable item, repeat.

Loot boxes are drawing greater scrutiny as they appear more frequently in games that often cost around $60. Many popular games feature them, including Activision Blizzard Inc.'s "Call of Duty: WWII" and "Destiny 2," Warner Bros. Interactive Inc.'s "Middle-Earth: Shadow of War," and Ubisoft Entertainment SA's "Assassin's Creed Origins."

A Hawaii state representative caused a stir last month when in a YouTube video he called loot boxes a trap that shouldn't be available to minors.

Loot boxes, which also go by names such as crates and supply drops, usually materialize when players complete tasks. Alternatively, players can go to digital storefronts and buy the boxes, which often look like digital treasure chests or gift-wrapped presents -- designs that evoke excitement over not knowing what is inside.

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Players buy them with real money or in-game currency such as gold coins that can be obtained free as rewards or purchased from the in-game store via credit cards, gift cards and the like.

Wall Street has cheered the money generated from loot boxes, one part of a valuable strategy known as microtransactions. While there is no official tally of loot-box spending, microtransactions are expected to exceed $3 billion in global revenue in console games alone in 2018, according to Wedbush Securities analyst Michael Pachter. Console games are expected to generate $33.3 billion in revenue world-wide this year, up 3.7% from 2016, according to industry tracker Newzoo BV.

"These videogame models are this perfect price discrimination where the gamer decides how much to spend," Jefferies analyst Tim O'Shea said. "Some people opt for the first-class experience and others want to fly coach."

Most loot-box systems are governed by finely tuned algorithms that award rare items a certain percentage of the time. There typically is no guarantee a box will yield a rare item, and some items appear only for a limited time -- a way to tap into people's fear of missing out. Activision Blizzard's "Overwatch," for example, offers special boxes during themed events such as the current Winter Wonderland, which lasts nearly three weeks.

Loot-box critics say children often lack impulse control and don't understand the odds, making them susceptible to repeated buying in hopes of acquiring desirable items. Peer pressure can raise the stakes.

"Competition is a really powerful motivator for anyone, but especially adolescents," said Matthew Johnson, director of education at MediaSmarts, a Canadian nonprofit that develops literacy programs for families and schools. "They're very sensitive to their status within a social group."

He advises parents to look for PlayStation and Xbox controls that set limits on spending.

The Entertainment Software Association, a U.S. trade group, said in a statement loot boxes are a voluntarily feature in some videogames and aren't gambling.

Activision Blizzard and Warner Bros. declined to comment. A Ubisoft spokesman said loot-box transactions in "Assassin's Creed Origins" give players a way to advance quickly.

Loot boxes and other microtransactions have been around for years as a way to generate revenue in mobile and PC games that are free to play. While they only recently started gaining traction in console games, players are starting to push back. Last month, players panned Electronic Arts Inc. over concerns loot boxes would give big spenders an edge in the high-profile sequel "Star Wars Battlefront II."

Electronic Arts, under pressure from its licensing partner Walt Disney Co., removed the ability to buy the boxes on the eve of the game's launch. The company declined to comment but has said it eventually plans to add back that functionality after making changes.

(END) Dow Jones Newswires

December 14, 2017 10:14 ET (15:14 GMT)