New Regulation for “Loot Boxes” in China – International Impact for all Online Games?

February 2, 2017 Leave a comment
Over the last few weeks, a new regulation initiative from China has globally caught the attention of the games community: The Chinese Ministry of Culture recently published a new regulation that imposes an obligation on publishers to disclose certain detailed information about in-game items which the gamer can receive or purchase in the game – including the odds for receiving a certain type of item in a “loot box”. While this development has been met with a positive response especially from foreign gamers and speculations about its international impacts have already started, the actual consequences for the online game sector remain uncertain.

Contents of the Regulation

The official notice of the new Regulation is available in Chinese only, but unofficial English translations have sprung up on various message boards. Judging by these unofficial translations, the Regulation, which will become effective in May 2017, imposes the following obligation on publishers of online games in China:

2.6 – Online game publishers shall promptly publicly announce information about the name, property, content, quantity, and draw/forge probability of all virtual items and services that can be drawn/forge on the official website or a dedicated draw probability webpage of the game. The information on draw probability shall be true and effective.

2.7 – Online game publishers shall publicly announce the random draw results by customers on notable places of official website or in game, and keep record for government inquiry. The record must be kept for more than 90 days. When publishing the random draw results, some measures should be taken place to protect user privacy.

Thus, the focus of the regulation is particularly on so-called “loot boxes” and similar game mechanisms.

What are Loot Boxes?

Loot boxes are virtual containers available for sale inside online games that contain a number of virtual items (e.g. so-called “skins” for certain game characters or objects). The player cannot see the precise content of the box prior to purchasing it, but of course hopes for objects of a certain value and rarity.

Loot boxes are an important monetisation mechanism for publishers of online and mobile games. Therefore loot boxes are already an integral component of many popular games, such as “Overwatch” or “Clash Royale”.

Potential Impact of Transparency

Of course, whether such increased transparency would actually impact most gamers remains uncertain. On the one hand, gamers could be discouraged by bad odds for items, and the principle behind the sale of Loot Boxes and similar mechanisms might at least partly lose its appeal due to the disclosed data. On the other hand, Loot Boxes are almost never entirely empty, so the odds of not getting anything in return are zero – unlike with lottery tickets, for example. In addition, most gamers already know that you do not usually find rare items in loot boxes – after all, that’s what “rare” means.

Potential International Impact

If the publisher has to disclose the odds for receiving a “rare” item in a loot box to their Chinese customers, this information will sooner rather than later become available for gamers anywhere in the world.

From a gamer´s perspective, this of course raises the question whether it is fair to assume that the odds applicable in China are the same in all countries, which would give gamers from all over the world a chance to analyse such data before deciding on the purchase of Loot Boxes or similar products.

However, we see no obligation for publishers to keep the odds identical across all regions in which a game is offered. In principle, they are free to make their games behave differently in different jurisdictions, which they routinely do as well to appeal to different tastes a cultural backgrounds.

There may of course be limits to this principle. In particular, in some jurisdictions (such as the EU and the USA) it might be deemed misleading advertising if certain favourable odds were actively advertised worldwide, even though in fact they are not available to players in all jurisdictions. Publishers wishing to use different odds in different jurisdictions should therefore make it clear in their Chinese disclosures that the numbers do not necessarily apply for users outside of China.

We’d like to thank our research assistant Benjamin Dankert for his contribution to this article.

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Felix Hilgert

Felix Hilgert

Senior Associate at Osborne Clarke
Felix is a lawyer with Osborne Clarke's IT Team in Cologne, where he acts for companies of all sizes, from start-ups to market leaders.

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