EXTRA LIFE: UK Government gives video game companies chance to self-regulate loot boxes

On 17 July 2022, the UK Government ("Government") published its long-awaited Response to the Call for Evidence on Loot Boxes in Videogames which opened in September 2020 (the "Response").

This latest update follows a series of new legislative announcements in the Netherlands and Spain on proposed new regulations for loot boxes; as well as a highly critical report published by the Norwegian Consumer Council ("NCC") which contemplated an outright ban on paid loot boxes (see our article). However, the Response is notable for taking the opposite tack to its continental counterparts by preferring to rely on industry-led initiatives rather than any substantive change to the law.

Why has the UK chosen not to regulate?

The Government's decision not to introduce new regulation is surprising, considering the mounting pressure from consumer groups and the growing body of evidence connecting loot boxes with a range of potential harms. The Response itself refers to the InGAME rapid evidence assessment (which was commissioned alongside the Call for Evidence and) which found a stable and consistent association between loot box expenditure and problem gambling behaviours. Moreover, the House of Lords Gambling Committee in 2020 had recommended the "Government to act immediately to bring loot boxes with the remit of gambling legislation and regulation" (see our blog), to which the Government had responded in May with the promise of a White Paper.

Nevertheless, the Government has emphasised that of all the legislative amendments which had been considered, none were appropriate whilst the "empirical work on loot boxes is still emerging".

Regarding the suggestion to amend the Gambling Act, for example, the Government explained that: "changing the Gambling Act with regards to loot boxes would have significant implementation challenges and risks of unintended consequences. For example, it would require substantial changes to the gambling tax system, would dramatically increase the scope and costs of running the Gambling Commission, and it could risk capturing other unintended aspects of video games or activities outside of video games with a random reward mechanism".

This risk of unintended consequences was similarly cited as justification not to introduce changes to existing consumer protection laws or to create bespoke legislation like that being considered on the continent: "legislation to introduce an outright ban on children and young people purchasing loot boxes could have the unintended effect of more children using adult accounts, and thus having more limited parental oversight of their play and spending".

What does this mean for the industry?

Whether one can attribute this latest divergence from the Continent to the grab for "sovereignty" following Brexit, or indeed whether this will herald further fragmentation is still unclear. However, what is immediately certain is video games businesses will increasingly need to take a country-by-country approach to loot boxes, as opposed to simply being able to apply a single consistent approach across Europe.

Although videogame producers may be tempted to celebrate this as a victory for loot boxes, it is important to note that the UK Government's decision not to introduce legislative change at this stage is a long way from giving a green light to the status quo. Rather, the Government emphasised that it still "wants to see improved protections for children, young people and adults with regards to loot boxes" and were expecting games companies to lead these efforts. As we have seen with the Online Safety Bill, the aim here seems to be placing the responsibility on the industry itself to identify and implement solutions to harms which are created in connection with their services (for more information on the Online Safety Bill, see our blog here).

In the context of loot boxes, the Government has set two goals in particular it expects businesses to achieve:

1. "Purchases of loot boxes should be [made] unavailable to all children and young people unless and until they are enabled by a parent or guardian; and
2. All players, including children, young people and adults, should have access to, and be aware of, spending controls and transparent information to support safe and responsible gaming".

To achieve these goals, the Department for Culture, Media and Sport ("DCMS") will be convening a technical working group to pursue enhanced industry-led measures. Moreover, the Government announced the launch of a new Video Games Research Framework aimed at addressing the apparent insufficiencies of the evidence base identified in the InGame assessment. Considering the huge revenues which loot boxes represent for the industry, videogame companies will not want to miss the opportunity to participate in these initiatives.  An update on the output of the technical working group is expected as early as the first quarter of 2023, so businesses will need to stay alert to avoid missing an invitation.

The renewed appetite for regulation we have seen elsewhere has often been attributed to a failure on the part of industry to appropriately engage with self-regulation. For example, the transparency provisions which were being considered in Korea last year have been seen as reaction to lobbying group K-Game's failure to convince its members to share accurate "drop rates" for their products. Videogame businesses operating in other countries should bear this in mind and not make this same mistake. The UK Government has maintained that although it supports an industry-led solution, it would "not hesitate to consider legislative options, if we deem it necessary". In many ways, the Government has handed loot boxes an extra life; videogame companies should make the most of it.

With special thanks to trainee, James Russell, co-author of this article.