Since the Star Wars Battlefront II lootbox controversy started at the end of last year, I’ve been involved in a few conversations about lootboxes and microtransactions. Usually, they start out with a simple question: “Are lootboxes evil?” But what I’ve realized during those conversations was that in order to have a proper conversation about lootboxes, we must first talk about monetization itself. Because, in my opinion, ALL monetization in videogames is ultimately about keeping your business profitable by exploiting your audience’s psychology. And sometimes, some developers will get too greedy and end up exhibiting what we would call “evil behavior”.
Lootboxes are just the ugly tip of the huge iceberg called Monetization.
A Brief History of Monetization
Everyone already knows that developers can’t afford to give away their games for free. It takes time (= money) to develop videogames, and maintaining games costs time & money just the same. But let’s look at the options available to developers in recouping their costs, from the oldest methods to the newest:
A) Arcade games
First there were game cabinets in arcades where people would pay coins to play them. The interesting thing about this business model was that NONE of the monies paid by the players would go to the developer. Instead, the developer sold the arcade hardware to videogame arcades at fixed prices, leaving it to the individual arcades to recoup their investment on that hardware, its physical space and the electricity it consumed.
Developers had to sell as many cabinets as possible to maximize their revenue, and arcade owners were incentivized to only purchase and keep those cabinets with a lot of “activity”.
Side note: More recently, companies like Taito have introduced business models where the developers also receive nominal shares of the arcade revenue, but this is still an exception.
B) Console games (physical discs/cartridges)
Next came “console games”, or games played at home. In this model, the developers (or “publishers” as they were now starting to be called) sell copies of their games to distributors and retail stores at “wholesale price (usually 80% of the suggested retail price at the time)”, leaving it to the retail stores to “sell-through” those copies to consumers (hopefully) at a price higher than the wholesale price.
So, if the game isn’t received well, the retailers/distributors end up stuck with that inventory, which triggers uncomfortable conversations with the publishers (e.g. “You told me I’d move a ton of these units but now I’m stuck with them. I don’t want them anymore, so buy them back, dammit!”).
With both Arcade (A) and Console (B) games, there is only limited room for psychological abuse. Yes, people can still have bad experiences in the form of buyer’s remorse, but the damage is still relatively “contained” since (A) arcade owners would stop buying from bad developers or (B) distributors/retailers would stop stocking bad developers/publishers’ games at their stores. Either outcome would spell certain doom for most developers, and so this keeps them “somewhat” honest.
As we start to explore the newer forms of monetization, however, things become more complicated.
C) Digitally-distributed games & Add-on DLC
With the advent of digital distribution, traditional distributors and retailers are replaced by “digital storefronts” who, instead of making up-front purchases of physical games from publishers, now simply hold onto single “master copies” of games, which they re-distribute to consumers, digitally.
When a consumer purchases a game, the exact mechanics of how that revenue is shared with the publisher varies, but ultimately the developer receives approximately 70% of what the consumer paid, with the rest going to the digital distributor/retailer.
Side note: Most distributor/retailers use a straight revenue share model (approx. 70% goes to the publisher), while others employ a “digital wholesale price” model where the publisher is paid a fixed price no matter the price at which it is sold to the consumer. But even in the latter case, the digital wholesale price is typically set at 70% of the suggested retail price anyway, so the effect is virtually identical.
It’s important to note that, with digital distribution, the distributor/retailers no longer have the same financial incentive to moderate the publishers' monetization behavior. This is because unlike Arcade (A) and Console (B) games, the digital distributors/retailers actually share in ALL the revenue that the developer generates. And, IMO, this is why you never hear any complaints of lootboxes from Sony, Microsoft, Apple nor Google; as digital-resellers, they directly and financially benefit from them (at least in the short term).
But thankfully, even in digital distribution, there aren’t that many ways for the developer to exploit the consumers when selling just full games and their add-on content. While there have been several examples where developers tried to squeeze too much revenue out of its consumers (usually by locking away “core content” as paid DLC), even in those cases the “damages” were limited because the content could still only be purchased a single time. In other words, with digitally-distributed full games (C) there’s still a finite limit to how much you can spend as a player.
D) F2P games & Consumable DLC (in-game currencies)
This newest and final category does not actually represent a new business model. It’s just a new form of monetization that game developers created on top of the existing digital distribution infrastructure. So, from a logistical standpoint, everything is identical to Digital Games and Add-on DLC (C).
This category is drastically different, however, in that instead of selling access to content, developers now sell virtual items that can be consumed then re-purchased indefinitely. In other words, unlike all three previous categories I covered (Arcade, Console & Digital Games), there are no per-player spending caps in this category. As a consequence, whereas previously with A-C, gaining as many paying players as possible was the best way to maximize revenue, with D, making each player pay as much as possible became the primary goal all of a sudden.
And, IMO, what’s particularly dangerous about this category is that too many developers are trying less to monetize on good & compelling game content, but instead on psychological trickery. It’s also worth noting that most of the controversial monetization methods which made the news in the last decade are from this category.
Whales & Lootboxes: Signs of Evil Monetization?
Just to demonstrate how extreme this abuse can become, let me share a story about a “whale” I saw on Japanese TV back in 2014 which covered “whales in Japan's mobile gaming market”. During this investigative news story segment, they interviewed a male in his 30s, who was spinning gatcha after gatcha for his game (“gatcha” being the Japanese equivalent of lootboxes) at $1 per gatcha, trying to complete the full armor set for one of his in-game characters. As of that interview, he had apparently spent around $30,000 on the game already. Let that sink in first. THIRTY. THOUSAND. DOLLARS. Most of us will not spend that much on videogames during our entire lives, even including hardware purchases.
Now… THAT is a clear example of psychological abuse in in-game monetization, particularly with the lootbox mechanic. It’s bad, and what’s worse is that developers generally have a giddy attitude when it comes to these whales. Instead of asking if it’s okay for an individual to be spending hundreds if not thousands of dollars on a single game, they are too excited that some fools have no self-control over their spending and fall for the temptation to keep spending money.
But what exactly is evil here? Lootboxes as a form of monetization? F2P games in general? Game developers?
Let me first note that Lootboxes/Gatcha are NOT new concepts. Diablo 2 and World of Warcraft's notoriously long playtimes were driven by gatcha mechanics at their cores in forms of randomized loot drops from boss kills. But the reason why they were not raised as bigger issues back then was because they did not cost MONEY; they “only” cost TIME instead (tens of thousands of hours in some cases). However, IMO, it was ultimately the same psychological exploitation they used.
So, what does that mean? It’s okay to have lootbox mechanics as long as you don’t charge any money for it?
A different take on lootboxes: Overwatch
Overwatch (OW) is another title which “recently” released at $60, and is being operated “as a service”, meaning it has an ever-expanding roster of heroes and maps/modes. JUST like Star Wars Battlefront II (SWBF2). And also just like SWBF2, OW offers more than $60 of content to the consumer over the long term, so Blizzard NEEDS to make more money than $60 per player in order to sustain the game.
Side note: They probably don't actually “need to” make more money considering how many units they’ve already sold, but that's beside my point.
So, what choices did they have? They could have taken the League of Legends route and charged for additional characters. But this would have had the negative side-effect of some players/teammates not having access to the full roster of heroes, while giving players that own all characters an inherent advantage. This is also a matchmaking nightmare.
They could have also taken the DOTA2 route of charging directly only for skins/costumes (which is the route I also took with Street Fighter V, a game that essentially faced the same dilemma). But instead, OW chose to borrow the chest mechanic from Hearthstone and supercharge it with costumes, icons/avatars & other cosmetic accessories.
Now, I would be lying if I said OW’s approach is not at all exploitative, because the uncertainty of what each lootbox contains makes the potential price of any specific item you may want unknown. In other words, you don't know how much you’ll end up spending until you get the item you want. But in OW’s case, there is an additional layer that compensates for this uncertainty, which makes the overall system drastically less exploitative:
Any duplicates found in lootboxes earn the player "credits" which can be accumulated to directly purchase ANY item that the player wants (except items only available during time-limited promotions). It mitigates the worst-case scenarios of bad luck, and helps the player gain that specific item with a "somewhat predictable" cost instead.
The bottomline is, just like EA with SWBF2, Blizzard needed to make as much money as possible from its players on an ongoing basis without offending them, and their lootbox mechanics tread a very fine line in that regard. But other games with lootboxes aren't so careful in their execution, and are therefore criticized. (SWBF2, as an example, broke just about every rule they shouldn’t have)
Monetization is about making people want to pay money
As I said in the beginning, I brought up monetization as a whole because lootboxes represent just one form of monetization; and not even a very new one either. The right question, therefore, is NOT whether lootboxes are evil, but rather what makes monetization evil/unethical.
Ultimately, the "trick" in monetization is to MAKE people WANT to pay money for something. In my opinion, that is by definition psychological manipulation. However, whether it is "unethical" is entirely up to the DEGREE to which you push it.
In my opinion, that ethical line is crossed when the game doesn't just make its players WANT to spend money (voluntarily), but puts them in positions where they HAVE to spend money (in other words, psychologically, the player has no choice). And to be fair, that applies not just to F2P games and Consumable DLCs (D) but to ALL business models I mentioned (A-D). And there are plenty of actual examples of how that ethical line can be crossed under each model (note: some of these may not be severe enough to be considered "unethical", but hopefully you'll get the point).
A - Arcade Games: Designing an unreasonably difficult final boss fight, to force people to drop more coins into the machine when they are about to finish the game.
B – Console Games: Crappy games based on hit kid movie franchises (from the perspective of parents?) Misleading marketing campaigns (less of a problem nowadays thanks to the internet) Pricing your game higher because you know your fans will “pay anything”.
C – Digital Games & Add-on DLC: Locking away CORE content as DLC. Pay-to-Win DLC items.
D – F2P & Consumables: Gacha/Lootboxes for SET items.
In other words, anything can be abused if the developer gets creative/greedy enough. So, IMO, we should focus less on the mechanics of monetization, and pay more attention to the application of those mechanics in each game.
As an example, in many circles, “Pay-to-Win” mechanics are deemed the ultimate sin in monetization. You’re simply not supposed to do it. But as some games will prove (most notably World of Tanks), when it is applied to the right game in the right way, even “Pay-to-Win” can work as a perfectly fair form of monetization.
In fact, the real reason why I chose this topic for this blog is because I don't think lootboxes are inherently evil. It's what's inside the box that matters, and if the cost & benefit are balanced/fair, then it shouldn’t be treated as being evil. And I believe it’s counter-productive to ban lootboxes altogether just because it can be exploited in some cases.
My Plea to gamers and publishers
So, my plea to fellow gamers is, to give publishers the benefit of the doubt. Not all of them are trying to abuse you: they are merely grasping at straws for more ways to recoup their cost, and are still experimenting with these new forms of monetization. When most games fall far short of their break-even revenue targets, publishers need to push every method they know to drive up that revenue as high as possible. And for multi-year "service-based” games, the revenue burden for microtransactions is even greater because ongoing development costs need to be covered almost exclusively by microtransaction revenues.
SWBF2 was clearly a very badly-executed example; that game was very likely to be successful / profitable even without their microtransactions. But they clearly couldn't resist the temptation to make even more money (it's Star Wars after all), and cranked up that monetization dial all the way to “the Dark Side”… and paid a dear price for it.
But the next time you are playing a game and are upset at how it’s monetizing you, try to put yourself in the shoes of the developer (of that game) and see if you can come up with a different way to monetize that would be (a) less upsetting for you, AND (b) generates as much as if not more revenue (from you) than their method. Because remember: one way or another, you have to pay.
On the other hand, I have a plea to publishers as well: stop looking at videogames as a commodity with razor-thin margins that need stretching through financial tricks.
Instead of trying to squeeze exorbitant amounts of revenue from your existing customers, make MORE people want to buy your games instead. Now, I know that's much easier said than done, but I've also witnessed enough projects where more mental effort went toward "how to monetize players" than "how to make the game more fun". So, I know for a fact that there is huge room left for improvement.
In conclusion
Monetization is an inherently tricky subject, and as some games have proven, can sometimes be done excessively. But before we bring out the torches and burn "greedy game developers" at the stakes, let’s try to look at it from the developers’ perspective as well.
And if even after looking at it from their perspective we still find that they’re being evil, let's also not forget that we are still only talking about videogames; we play this stuff for ENTERTAINMENT. Unlike, say, healthcare where your life literally depends on whether or not you can afford to spend that money.
So, even though it may seem today like lootboxes represent some sort of existential crisis for our collective business, I'm confident that between some healthy boycotting and self-discipline to not fall for obvious monetization traps, this "crisis" too shall pass.
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