Chinese Law May Show Trend Towards Tighter Regulation of Microtransactions

As I touched on in a previous article, the market for digital items in video games is complex, lucrative, and rapidly changing. One particularly notable change has just come into effect. Last year, a Chinese law was introduced that would require video game publishers to release the item drop rates from in-game “loot boxes”, and as of May 1st this law is now in play. The “loot box”-based model of microtransactions has gained tremendous popularity among video game developers in the last handful of years, with games like DOTA 2, League of Legends, Overwatch, and others making extensive use of this model. In the games covered by this new law, customers purchase a “loot box”-style item (a pack of random digital items or cards) and the game determines what the contents will be through a series of odds-based calculations. Items with a higher game-defined “rarity” will be received less often, but until now players were not sure just what the odds of receiving those rare items are.

Many online communities curate community-sourced spreadsheets of data about the contents of boxes (for example this one on the most recent addition to Hearthstone) in an attempt to back-calculate the odds for each item that can drop from a loot box. This pursuit is time consuming and could certainly be considered tedious, but some people feel strongly that if they are going to purchase digital goods sold under this strategy that they have a right to know what their likelihood is of receiving which items. The fact that communities often resort to this sort of data collection in order to figure out just what they’re spending their money for highlights the fact that this microtransaction model falls into an interesting grey area. It’s not quite gambling in the strictest sense, but the core concept is nearly identical: some amount of money is spent to have a stake in an event with an uncertain outcome. This fact is likely behind the newly implemented Chinese law, but it’s possible that having this sort of law only present for one subset of players could cause its own problems.

It could certainly be argued that as information on drop rates in China makes its way to other regions, non-Chinese consumers may begin to make decisions based on those numbers. This opens to the door for companies to tweak drop rates in regions without the sort of law that China has implemented, potentially duping customers into forking over even more cash under the assumption that the drop rates are the same everywhere. It’s still very early days, but it will be interesting to see how the level of transparency in China affects the markets for these sorts of digital items in China as well as other regions.

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