The UK Has Taken A Big Step In Regulating Video Game Microtransactions

Since 2006, the ability of video game players to make small purchases within games, commonly called "microtransactions", has become a major source of revenue for video game companies across all platforms. That could be changing soon if the investigation by the United Kingdom's Department for Digital, Culture, Media, and Sport (DCMS) uncovers enough evidence to classify a particular type of random-reward microtransaction, known as "loot boxes", as a form of gambling. DCMS issued a call for evidence this week, indicating the investigation is proceeding. 

While the rewards from loot boxes have no monetary value, in most cases they do require real money in order to purchase them. In other cases, they can be traded for real money outside of the game. The concern is the exposure of gambling to children and adolescent age groups, as well as gamers who already have problems with money or gambling. Numerous reports of gamers of all ages spending hundreds to thousands of dollars on a single game via microtransactions, can lead to a gambling addiction and even financial ruin. 

If the UK government were to classify loot boxes as gambling, it would require games with such microtransactions to be rated for ages no younger than 18. Additionally, it could require those video game companies featuring loot boxes that operate outside of the UK to apply for a license from the Gambling Commission and submit a 15% point of consumption (POC) tax on gross profits. 

Electronic Arts Inc EA, whose most popular title in the UK is FIFA 20, reported $4.95 billion in annual revenue for 2019, 68% of which is from their Services segment that includes microtransactions. FIFA 20 generates billions of dollars in loot box sales for EA in its Ultimate Team mode. Some countries, such as Belgium, already classify loot boxes as gambling, and EA has made changes to their games in those countries to give gamers the ability to purchase loot boxes with "in-game currency" or currency won by playing the game. However, with the UK being the largest loot box market for its FIFA 20 game, hundreds of millions, potentially billions in annual revenue are at risk of being regulated or taxed.

If this reclassification does occur, EA will not be the only video game company to feel the effects. Activision-Blizzard, Inc ATVI also receives a hefty portion of revenue from microtransactions, earning over $3.3 billion from that segment in 2019, which accounts for over half of its annual revenue. Mobile game developers that rely on microtransactions for revenue on their "free-to-play" games will have to change part of their software that resembles the loot box revenue stream. Some major companies like Take-Two Interactive Software TTWO, while still reaping major profit from microtransactions, have committed to publishing select future games that do not feature microtransactions.

Microtransactions are also unpopular with gamers. Many feel that they are initially purchasing an incomplete game and are forced to pay a premium for a chance at otherwise hard to obtain cosmetic and vanity items within the game.

The real problem is when these microtransactions include lopsided exclusive items that are not obtainable any other way and can shift the outcome of games in favor of the purchaser. This is known as "pay-to-win" and it has earned the ire of gamers that cannot or refuse to pay more money into a single video game title. 

Microtransactions have been a major reason the global video game industry generated more money last year than the global movie box office and music industries combined. Should the DCMS classify these games as gambling, it would put billions in revenue at risk for video game companies. For many gamers, the question isn't whether or not enough evidence will be found to warrant such a classification, it's when.