Are Loot Boxes the Future of Game Monetization?

Well, loot boxes are certainly all the (internet) rage recently with them appearing in AAA games such as Forza 7, Assassin's Creed Origins and Middle-earth: Shadow of War. In this article we will discuss what loot boxes are and how they could potentially be a big part in the monetisation of games in the future. So what are Loot Boxes?

Loot boxes, much like Daenerys Targeryen, go by many different names and titles; Booster packs, card packs, loot llamas, mystery chests (you get the picture hopefully). Depending on the game the contents can fall into two main categories - progression and cosmetics. Progression items could be things like swords, survivors, characters that basically make you better and able to progress quicker/easier. Cosmetics can contain things such as skins (we all know you're a dirty casual if you use the default skin, just joking) as well as voice packs, banners and other items that just make you look like the cool kid.

Once again depending on the game you can purchase these typically with in-game currency or through paying with real money. Some games like Smite or Fortnite will allow you to earn these Loot Boxes by accumulating small amounts of the premium currency in game (Gems in Smite and V-Bucks in Fortnite) so you can 'earn' them in game however you can pay real money in order to get more of this in-game currency. Secret marketing tip: Sometimes the use of in-game currency is to confuse the player since it is harder to know what they are worth in real money. Casinos and arcades tend to do this too.

Loot Llamas in Fortnite are basically funny talking loot boxes. Also not my image... I'm actually power level 60 (humblebrag)

Other games allow you to purely buy these loot boxes with actual money and very rarely you can only earn them in game. Occasionally these Loot Boxes are also given out as rewards (as a means to get players accustomed to them being a part of the overall experience) for completing quests, daily logins or other means. In fact Borderlands 2 does something interesting with it's Golden Keys (which are essentially Loot Boxes) that I wrote about previously.

Also much like free-to-play (coming later in the article) loot boxes aren't new to Asia - in fact the first recorded game with a similar concept was ZT Online, a Chinese free-to-play game released in 2007 (Although I am sure I had experienced them before that). Then of course this was followed in the West by Valve's Team Fortress 2 in 2010 (which went from a pay once to a free-to-play model). Now we could track loot boxes further back than that and talk about collectible card games (CCG) like Magic the Gathering or perhaps Gacha (shortened form of Gashapon which are vending machines that dispense toys in capsules in primarily Japan). Thinking back I have experienced loot boxes throughout my life - like when I used to collect toys from Yowies or Tazos from potato chip packet (side note - it was all worth it for that rare DBZ Vegeta Tazo... which you can now get on ebay for like 70 cents). However a key difference is that in games the contents of loot boxes tend to be account locked. So they're super manipulative and basically evil right? Are loot boxes bad?

Short answer no, long answer 'depends'. Much like any design choices in a game (such as regenerating health, quick time events or pixel art) loot boxes are simply another design choice (albeit about in-game monetization) and the real issue comes when they are used in the wrong situations, implemented incorrectly or too often. In fact loot boxes can be lots of fun (just watch the countless YouTube videos on it) when used correctly, however that hasn't been the case recently...

Pay us $60 and then access our market so you can spend more with us! Nah, I'm good thanks.

So are loot boxes bad in Shadow of War? Yes, definitely. For starters loot boxes are typical of a free-to-play title and seeing them in a AAA title is pretty sucky (and appears greedy, we'll get to that though). I haven't played Shadow of War personally but the rumours circulating are that they will be required to 'finish the game' (or take 40 hours if you get wrong rolls), and this is a big example of using them incorrectly as they are gating you from the ending (I thought only Capcom did this with their DLC?). Implementing loot boxes in a game is a difficult design balance as it can make the game easier for those that pay, Morgan Jaffit (Gamerunner for Defiant Development) explains in great detail why loot boxes are not in Hand of Fate 2 in his article 'Why we don't have loot boxes (and others do)' which provides an interesting developer perspective (and saves me from typing a hundred or more words, thanks mate for letting me link it). Implementing any form of loot box is basically a tough balancing act between people feeling they have to pay to win (and therefore turning people away which if youre making an online multiplayer game can make it a barren wasteland) and not essential (and therefore not earning money, which developers need to pay rent... and buy loot boxes in other games). Another interesting point is having repeats in a loot box. Overwatch actually caught a lot of slack of there being duplicates in their loot boxes and are working towards that being minimised (like do I really need another Junkrat voice option?). Personally I really like how games like Smite implement this by having the contents of (some of) their mystery chests (their loot boxes) available to see which allows the customer to make a more informed choice (and it's kinda more ethical) and if they already own content from it (such as a skin) then that won't appear when they buy it (and therefore if you buy all copies of the mystery chest it becomes unavailable). I am under the impression that they also make all options of equal chance but I cannot confirm - but this brings us once more back to Asia.

(Apparently) translates to Skin Debris (Skin Shards): 45.135%, Permanent Skin: 29.255%, Hero Debris (Champion Shards): 14.61%, Permanent Hero: 7%, Summoner Icon: 2%, Guarding the Skin (Ward Skins): 2% in China's version of League of Legends

In China (and some other Asian countries) they have regulations (come on US and UK and even Aus, it's best for the industry) that actually need to show the probability of particular outcomes when it comes to loot boxes, personally I'm all for this as it allows the customer to make better informed choice. Also in China, Blizzard had to change Overwatch's loot boxes a bit by instead buying currency and receiving them as a 'gift' since the sale of virtual lottery tickets isn't allowed. Interestingly in Japan they banned the practice of loot boxes of multiple pre-determined smaller prizes which could combine (classic Japan and their Super Sentai) into a better and therefore more valuable prize. So for any developers looking to implement loot boxes in their game worldwide I'd strongly recommend doing some regional research.

So loot boxes are the 'in-thing' around the world right? Are they the future of gaming? Well before we can discuss that we have to go back... back to 1985! (also I'm really proud of this because it links to the article's opening banner, go check it out again)

Pricing in the early days of modern gaming

We will be talking more so between the 8 bit to the 128 bit generations (so about 1985 to 2005) before digital downloads became a popular choice. During this time frame you could pick up a standard title for about $60 USD, (so about $80 or $90 AUD). This was the norm for an extended period of time.

Toys 'R' Us Catalogue displaying Genesis (Mega Drive to the cool kids) games

Now this was just the way things were priced (occasionally the odd good game would launch cheaper such as when PlayStation switched from jewel cases to those thin CD ones - i.e. Medievil 2) however it had a major issue - the publishers were missing potential revenue!

Classic fixed price example:

So we will boil this down to a really simple example. Imagine there are six potential consumers wishing to purchase and play a game, say Final Fantasy VII. Aerith is willing to pay $100 because she's got a large inheritance. Bartz is willing to pay $80 because he had fond memories of the last generation games. Cid is willing to pay $60 because he enjoys all the Final Fantasy games. Dagger is willing to pay $40 because the game looks fun but she's not into it, yet. Edgar is willing to pay $20 because new games aren't a priority and thinks its a rip-off. Lastly there is also Faris, but being a pirate and all, has 'other methods' (so $0). Now since this is the late 90s they are unable to price discriminate and need to charge one set price (at launch) So this begs the question... how much should they charge as the retail price for the game? Obviously they can't charge $0 because then they would make no money (therefore ruling out F). Doing some quick maths we can eliminate $100 because we will only have one sale and earn $100. We can also rule out $20 because that will result in five sales and only earn $100. So that means we could charge $40, $60 and $80. Charging either $40 or $80 will generate $160 revenue (4x40 and 2x80 respectively), however charging $60 will earn $180 (3x60). So the suggested option is to charge $60 (although I should point out this is in a vacuum assuming you can print unlimited copies, and we are ignoring other complex matters such as cost of production as well as building and maintaining a brand which are some things to consider for your game).

So we are left with $180 which generates the most revenue, however we are left with the issue that there are two sales we missed out on (D and E) as well as missing potential revenue (since A and B were willing to pay $40 and $20 more respectively).

Pricing during the digital era of games Okay so fast forward to towards the end of the PS3/360 era and we start to see publishers address the issue of this missing potential revenue by way of DLC (and that damn horse armour). Not going to go into too much depth but you should be able to see how DLC can help publishers and developers extract more money from customer to maximise revenue and profits. Also we had online passes, and they were dumb.

John Cena? More like John Seeing All Your Money Go Away

Then right at the end (and up to now) we have deluxe and legendary editions (or many other adjectives), which often feature some additional DLC (such as season pass included or special DLC not available separately). By having multiple deviations (very similar to Goldilocks Principle) this meets the above criteria of A and B with the prices of these at launch product deviations. So that now means publishers earn $60 from C with the Standard Edition, $80 from B with the Deluxe Edition and $100 from A with the Legendary Edition. So before when only the standard edition could be sold the publishers would have only made $180 revenue, now they make $240 revenue. This of course equates to more profits, although we do need to consider that the additional content of these versions can eat into the revenue although sometimes that is already offset by the standard version. I will discuss releasing three or multiple versions of a game in a future article in which we will delve further into the subject but for now need to move on and free ourselves! ... And then came Free-to-Play Around the same time we also saw the rise of free-to-play in the west which would have been spearheaded in particular by League of Legends. Now, free-to-play is by no means a new concept in gaming and has been prominent in Asia for years and years - in fact I remember playing games like Gunbound (with the subtitle of Thor's Hammer at the time) back in early University around 2006. With it free-to-play introduced a new person able to partake in the experience - F - who was willing to pay $0 for a game experience. By focusing on microtransactions for products publishers were able to now appeal to A through to E (with F still being important in brand building and maintaining a solid experience for paying customers). However a big shift occurred as it meant that C was willing to pay $60 but that didn't necessarily mean they would spend that amount.

No comment.

For me personally I enjoyed playing Final Fantasy Record Keeper on mobile, however during the year or so I played I didn't spend anything (although it is important to mention that maximising money from each individual product shouldn't be the sole focus for developers and publishers - indies to AAA) although when Pokemon Go game out (and I stopped FFRK) I spent a bit of money on it... well I shouldn't say how much but more than I should of. Way more. With a larger focus on micro transactions the goal on maximising the revenue from the aforementioned potential customers came a big goal, and so began loot boxes and what marketers dream of getting... The Holy Grail of Perfect Pricing Discrimination! Loot Boxes are The Holy Grail for Publishers

Yes it is true. And it's scary. Now it's not quite perfect price discrimination but it can be very close to it. Now they have a system where if someone is willing to pay $5, $50, $500, $5000 etc, the publisher can potentially earn that from them. They operative keyword here being 'can'. As mentioned before having loot boxes are a fine balancing act between people 'wanting' to buy them to 'needing' to buy them. One of the first things I learnt in marketing is you want to change a person's desire from 'want' to 'need', and with that comes the manipulation. And I'm really sorry guys I know this is delving into the more 'black mage' side of marketing (I'm not a huge fan either) but it's necessary to discuss just why they work so well. In my belief, loot boxes work in a very similar way to pokies (Poker machines for non-Aussies). Unfortunately scientific studies related to specifically loot boxes are basically non-existent, but let's be honest it's gambling (sorry US) so we'll compare it to how other gambling practices hook you in and keep you hooked.

When you buy a loot box it is usually accompanied by bright flashes, rewarding sounds and the experience just makes you feel good (much like a pokie machine). In short they trigger various receptors in your brain and releasing endorphins which make you feel happy and high (not the 420 kind) as well as dopamine which is a trigger for addiction. Unlike pokies though they also have an element of Skinner box.

Pellets = loot boxes. Gamers = rats (AAA publisher point of view)

If you're not familiar with Skinner and his rat experiment here's a wikipedia link discussing operant conditioning. In games during the early phases you will often get premium currency or resources for free, so that they condition you to be using them at a particular pace (frequency and reliance) as well as them becoming a necessity... or feeling that way (addiction). Just think back to any game you've played with this system. At the start you literally get premium currency, loot boxes etc at a very fast pace but over time it becomes less and less to sometimes non-existant, but by that time they aim to have you hooked.

Loot boxes and microtransactions in general can lead to other pressures such as needing to buy a skin to feel included (coming back to the earlier joke I made about only casuals using the default skin) and not be labelled as 'poor' sometimes. Also if you are in a group or guild of some type you may feel compelled to purchase these in order to simply keep up which adds an element of social pressure to the mix. Now moving away from 'traditional gambling' and back more so to marketing, loot boxes can also become an on-going continual purchase. As we mentioned before during the early days of gaming, with titles like Final Fantasy VII, when you purchased the game that was it. No DLC. No loot boxes. No microtransactions. Just three glorious discs in a case with a manual. As such when the game launched there was no longer any real way for the publishers to earn money from you (instead they had to mostly rely on making good games and then better sequels... oh I miss those days!) however with loot boxes (DLC and micro transactions too) you could potentially purchase one this week, maybe two the next etc. so in they're able to continually hit you up for money. The future of Game Monetization is...? Now you've probably heard in the news of Games as Service (GAS, appropriate acronym perhaps), and well yeah it's been pretty obvious for awhile. Generally businesses tend to drift away from a product-oriented focus to service-oriented and this has been amplified within the digital age (Like I can even get shavers delivered monthly to my door, I don't though) and you may be familiar with programs like Adobe Creative Cloud and the need for licenses and subscriptions. Some of the main reasons behind this are they tend to be able to earn more money (through a longer lifecycle with the customer), cut costs and ensure customers are locked in and more committed to their brand. There is also a general trend for past generations wanting to own something and current (and maybe future?) generations wanting to use something (insert witty joke about Australia's housing market). For games it also means being able to fight piracy much easier (despite reports claiming that piracy helps gaming). So let's discuss what I believe the key forms of monetization will be in the future, and the answer is anything to support Games as Service. 1) Subscription Models - Not necessarily the way you think of it but perhaps on a higher more publisher-oriented level. Looking at some big players we currently have PlayStation with their online streaming service, PS Now (Not available in Aus). Meanwhile Xbox recently launched the Xbox Game Pass allowing customers to download select games and play. EA Access has been available for awhile on Xbox One. There are also a few indie equivalents floating around (such as Jump). With how particular publishers have been doing things recently I suspect this to develop quite sooner... although that will involve one company making a pretty large and risky plunge. We may also see some titles (I'd predict COD to be an early entry) having a subscription style model in the future. Also this could be an excuse for AAA publishers (to continue) to provide half-assed titles at release as they will provide updates and additional content in order for customers to extend their subscription length. In the far future I'd even predict we may not even "pay" for games at all but purely for subscriptions to access. Speaking of access...

2) Free-to-Play (Pay For Early) - We've seen this recently with Fortnite, which "launches" in 2018, and how you can get "early access" (to the PVE content, I'll talk Battle Royal another day!) by purchasing select packages or getting a friend key from someone else who has purchased these. We'll see this continue where games will be free-to-play but you can pay more to play it now/early. Hypothetically, just imagine you can pay today for Destiny 3 but then it will be free in, say, 6 months (with of course cheaper entry prices leading up to that) with a larger focus on... 3 Microtransactions, DLC and Loot Boxes - Basically methods that offer any type of continual money flow to the company. Particularly in mobile that having any price on a game can severely negatively impact sales (stay tuned for my articles on pricing strategies and reasons). We have seen with GTA Online (aka GTA V) just how successful microtransactions can be. The key of course will be implementing these correctly (AAA will read this as maximising revenue, indies please read this as customer focus first).

Now of course these won't be the only forms of monetization. Once again coming back and once more comparing it to game design if you limit your options you limit your creativity. As more and more games use a particular form of monetization or pricing strategy it will become the new standard (remember when WoW was made and followed by a slew of other MMOs that followed their subscription model... with most failing) but there will always of course be games and companies that 'buck' the trend, and there is also the chance that countries will regulate digital games and content much stricter which may make these options less viable (and indies might take the brunt of this). Hopefully this article has provided some thought about where the industry may be heading and help you make better choices in your games.

Also, if the Final Fantasy VII Remake has Loot Boxes I will be severely angry. And poor.

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