2.1 The market and business model

The annual global video game market was valued in the region at $115 billion in 20187 and is predicted to be $230 billion by 2022.8 In South Africa it is estimated to be worth about R8 billion in 2023.9 The exact size of the microtransactions in these video games, specifically the loot box market, both globally and in South Africa, is unknown, as game companies do not release data on the spending on loot boxes.10 It was projected that loot box revenue globally was about $30 billion in 201811 and estimated to be $50 billion in 2022.12 About 60% of the best-selling video games include loot boxes.13 It is estimated that microtransactions make up between 34% and 56% of the profits of most prominent video game developers.14 If these

concept to the general public; parents of video game players, and even the players themselves, may have limited information on how loot boxes function and maladapted cognitive frameworks which serve to promote misunderstanding of probabilities" (Macey et al 2022 J Behav Addict 263).

6 Jiow and Lim 2021 Journal of the Canadian Game Studies Association 91. 7 McCaffrey 2019 Business Horizons 483. 8 Zendle and Cairns 2018 Plos ONE 9. 9 PWC 2022 https://www.pwc.co.za/en/assets/pdf/entertainment-and-media-outlook

2022-26.pdf with reference to the 2023 market estimate. Their estimate for the South African video games and esports market in 2026 is more than R10 billion. Bosch Assessing Video Gaming Events 1 estimated R5 billion in 2021.

10 Xiao 2021 IELR 32-33; Honer 2021 IELR 65. 11 Zendle and Cairns 2019 Plos ONE 1 estimates that the amount will rise to $50 billion

in 2022. Also see Jones 2020 Chapman L Rev 247. 12 Derrington, Starr and Kelley 2021 JGI 313-314. 13 Rockloff et al 2021 J Behav Addict 35; Li 2022 Advances in Economics, Business

and Management Research 1284.

14 Cerulli-Harms et al Loot Boxes in Online Games 7 estimates 34%, although Azin 2020 BC L Rev 1578 and Carvalho 2021 Decision Support Systems 1 note that the percentage could be as high as 56%. Boric and Strauss 2022 Journal of Data Intelligence 203 note that one of the most profitable video game publishers, Activision Blizzard, received more than half of its annual income (US$ 4 billion) from 3% of their players. Mistry 2018 Rutgers U L Rev 553 and Rockloff et al Loot Boxes

estimations are correct, this would mean that South Africans are spending billions of rands annually on microtransactions. Research shows that about 78% of all gamers in the UK have purchased loot boxes,15 including around 31% of children between 11 and 16 years of age.16 The data for South African gamers and minors that purchase loot boxes are not available but have been described as "significant".17 The Film and Publications Board and UNISA Impact Research Report in 2015 noted that playing video games is an important part of the entertainment of children from different socioeconomic backgrounds in South Africa between the ages of 7 and 17.18 What is accepted, though, is that the market is rapidly increasing with the growth in the popularity of smartphones.19

As mentioned above, to remain competitive the business models of game developers utilise additional strategies to generate continuous income streams from their games through microtransactions.20 These microtransactions inter alia enable players to purchase and sell, with real currency, either directly or via virtual game currency, additional or premium content, including virtual items.21 Loot boxes are a type of

4 noted that of the 82 bestselling games in the NSW jurisdiction in Australia, 62%

had loot boxes. 15 Li, Mills and Nower 2019 Addictive Behaviors 27. 16 Digital, Cultural, Media and Sport Committee Immersive and Addictive Technologies

29; Zendle and Cairns 2019 Plos ONE 2; Von Meduna et al 2020 Technology in

Society 8. 17 Lohse 2020 IJSSER 22. 18 Their research showed that children in South Africa between 7 and 9 years of age

play games like Candy Crush Sage, Need for Speed and Memory, all with an age restriction of 16. Similarly, children between 10 and 15 years of age play games with an age restriction of 18 such as Grand Theft Auto, God of War and Call of Duty (FPB and UNISA Impact Research Report 30).

19 Castillo 2019 Santa Clara L Rev 166; Drummond and Sauer 2018 Nat Hum Behav 2; Zendle, Meyer and Ballou 2020 Plos ONE 11; Liu 2019 Wash Int LJ 797; Li 2022 Advances in Economics, Business and Management Research 1287. In South Africa the FPB Research Report para 1 found that, at the time, 40% of video games are purchased on mobile phones, either from the mobile operator or trusted international websites.

20 Shen 2020 UIC John Marshall Law Review 1090; Lui, Thompson and Rich 2020 York L Rev 8; Neely 2019 Games and Culture 229; Azin 2020 BC L Rev 1577-1578; Perks 2020 Games and Culture 1010; Osathanunkul 2015 IJMC 41; Hong 2019 W St U L Rev 61; Cermak 2020 MSU ILR 278; Moshirnia 2018 MJLST 79-80; Mann 2020 WJLTA 202; Arvidsson Ent LR 112; Schwiddessen and Karius 2018 IELR 18; Nielsen and Grabarczyk 2019 ToDIGRA 178; Griffiths 2018 GLR 52; King and Delfabbro 2018 Int J Ment Health Addict 2; Tan 2019 Galactica 128; Adam, Roethke and Benlian 2022 Electronic Markets 981.

21 Zendle, Meyer and Ballou 2020 Plos ONE 2; Schwiddessen and Karius 2018 IELR 18; Lui, Thompson and Rich 2020 York L Rev 8; Osathanunkul 2015 IJMC 41; Cermak 2020 MSU ILR 278; Moshirnia 2018 MJLST 79-80; Azin 2020 BC L Rev 1578-1579; King and Delfabbro 2018 Int J Ment Health Addict 2. Microtransactions include but are not limited to the concept of "pay to win", where players pay to advance in the game and the purchase negates the skill element to progress in a game (Von Meduna et al 2020 Technology in Society 1, 3; Mistry 2018 Rutgers U L

microtransaction.22 This article is limited to loot boxes. Although other microtransactions may raise similar concerns, they are excluded from this discussion.

2.2 What is a loot box?

What is a loot box? It takes the form of a virtual mystery container23 that holds randomised in-game items that a gamer can receive either by naturally progressing through the video game24 or by purchasing it using real currency25 for the opportunity to open the loot box – taking a chance on its unknown contents.26 Not all video games have loot boxes27 and not all

Rev 542; Steinmetz et al 2022 J Gambl Stud 785); in-app purchases with downloadable content, expansion packs and season passes to restricted content (Mistry 2018 Rutgers U L Rev 547, 549; Tan 2019 Galactica 133); "blind boxes" that can be purchased physically and "play to earn" blockchain-based games (Petrovskaya, Deterding and Zendle "Prevalence and Salience of Problematic Microtransactions" 1; Xiao 2022 GLR 1-14; Delic and Delfabbro 2022 Int J Ment Health Addict 1-14; Joseph 2021 Journal of Consumer Culture 68-83 and Newham, Scelles and Valenti 2022 JRFM 1-16) and battle passes, a "type of milestone microtransaction where gamers purchase access to a list of rewards that are provided as gamers invest playtime into games" (Joseph 2021 Journal of Consumer Culture 68 and Petrovskaya et al 2022 Association for Computing Workshop 3; Jiow and Lim 2021 Journal of the Canadian Game Studies Association 94).

22 Schwiddessen and Karius 2018 IELR 18.

23 Loot boxes are random reward mechanisms (RRMs) (Kao 2020 IEEE Transactions on Games 219), also called crates, packs or chests (Azin 2020 BC L Rev 1578-1579; Schwiddessen and Karius 2018 IELR 18; Nielsen and Grabarczyk 2019 ToDIGRA 172; Griffiths 2018 GLR 52); Zendle, Meyer and Ballou 2020 Plos ONE 3.

24 Zendle et al 2020 CHB 182 refers to Star Wars: Battlefront II where loot boxes can be earned through play only.

25 This can also include using in-game currency that can be cashed into real currency. Nielsen and Grabarczyk 2019 ToDIGRA 198 identifies four ways in which digital games relate to real currency through randomised rewards: one, those not for sale or purchase; two, those that can only be sold but not purchased; three, those that can only be purchased but not sold and lastly, those that can be sold and purchased functionally equivalent to gambling. As an example, Counter Strike: Global Offensive's loot boxes could at that time be purchased with real currency (Zendle et al 2020 CHB 182-183). Some loot boxes in a game need a key to open them, but this key must be purchased with real currency (Zendle et al 2020 CHB 182-183 with reference to Star Trek Online).

26 Lui, Thompson and Rich 2020 York L Rev 8; Neely 2019 Games and Culture 229; Azin 2020 BC L Rev 1578-1579; Hong 2019 W St U L Rev 61; Cermak 2020 MSU ILR 275; Mann 2020 WJLTA 202; Schwiddessen and Karius 2018 IELR 18; Nielsen and Grabarczyk 2019 ToDIGRA 172; Griffiths 2018 GLR 52; Zendle and Cairns 2019 Plos ONE 2; McCaffrey 2019 Business Horizons 485; Mistry 2018 Rutgers U L Rev 545; Kansspelautoriteit Onderzoek naar Loot Boxes 2; Cerulli-Harms et al Loot Boxes in Online Games 14; Xiao 2022 Int J Ment Health Addict 438.

27 Experts do not always agree about the definition of loot boxes, as is evidenced by the Xiao-Zendle disagreement (Xiao and Henderson 2022 Addiction 2 and Zendle 2021 Addiction 2556).

loot boxes are the same.28 Loot boxes are available in various popular games29 and vary in access and costs, transparency, content and value.30 In some games, progression is impossible without purchasing loot boxes.31

The loot box contents may be cosmetic items32 with no in-game advantages over other players,33 or the box can contain items that provide in-game advantages.34 These advantages can take the form of more potent weapons, better versions of existing characters or even new characters.35 In some games, items are available exclusively in loot boxes and cannot be obtained merely by progressing through the game.36

Loot boxes can include items that can be used only in the game itself and cannot be sold or traded with others for different items (non-tradable loot boxes), or they can be tradable with other game players in the game itself or on secondary markets created for this purpose (tradable loot boxes).37

28 Drummond and Sauer 2018 Nat Hum Behav 2 provide a detailed overview of the most played games with loot boxes. Also see Macey and Hamari 2019 New Media & Society 23.

29 Rockloff et al 2021 J Behav Addict 35; Li 2022 Advances in Economics, Business and Management Research 1284. Zendle and Cairns 2019 Plos ONE 1 refers to games such as Overwatch and Rocket League, each with about 40 million players and Counter-Strike Global Offensive with over 25 million players. Kao 2020 IEEE Transactions on Games 219 refers to loot boxes in Hearthstone and League of Legends.

30 Cerulli-Harms et al Loot Boxes in Online Games 7-8.

31 Lischer et al 2022 IJERPH 5 refers to the game Diablo Immortal where it is impossible to proceed beyond a specific stage without buying loot boxes.

32 These cosmetic items are also called skins (Abarbanel 2018 GLR 231; Schwiddessen and Karius 2018 IELR 18). The rarest skin called Dragon Love was sold for $61 000 (Jones 2020 Chapman L Rev 269).

33 Even though players attach their own value to these items, they do not provide in-game advantages (Hong 2019 W St U L Rev 74; Cermak 2020 MSU ILR 275). Cosmetic items are usually unproblematic because these items do not alter the way the game progresses, but only how the characters, characters' clothing, or weapons look (Cermak 2020 MSU ILR 275; Moshirnia 2018 MJLST 90; Schwiddessen and Karius 2018 IELR 18-19; Nielsen and Grabarczyk 2019 ToDIGRA 195-196; Neely 2019 Games and Culture 230; Griffiths 2018 GLR 52).

34 Derrington, Starr and Kelley 2021 JGI 301 with reference to Fortnite's Illama pinatas.

35 Azin 2020 BC L Rev 1579; Liu 2019 Wash Int LJ 771; Liu, Thompson and Rich 2020 York L Rev 8; Schwiddessen and Karius 2018 IELR 18-19; Nielsen and Grabarczyk 2019 ToDIGRA 172; Neely 2019 Games and Culture 229; Hong 2019 WSt U L Rev 61; Kao 2020 IEEE Transactions on Games 219; Cermak 2020 MSU ILR 275. In some games, the contents can be "re-invested" in more loot boxes (Zendle, Meyer and Over 2019 RSOS 4). Shelstad Cost of Playing the Game 82 refers to loot boxes possibly containing additional characters for the game in Marvel Content of Champions.

36 Li, Mills and Nower 2019 Addictive Behaviors 28 with reference to the game Counter Strike: Global Offence and Zendle et al 2020 CHB 182-183 with reference to Rocket League.

37 Zendle et al 2020 CHB 182-183 note that some loot boxes, such as in Overwatch and Destiny 2, cash out the rewards to their players whilst others such as those in Counterstrike and Rocket League use external marketplaces. External markets

Items in loot boxes vary in rarity,38 and the rarer the item, the less likely that it will be gained in a loot box.39 Advertising of loot boxes is often engineered to highlight the benefits and rarity of the possible item in the loot box,40 encouraging the gamer to purchase more loot boxes.41 However, the rarity of items or the odds of winning the item (also called the drop rate) is subjectively pre-determined by game developers. Although randomly distributed, these odds are generally not available to gamers.42

2.3 The controversy: lack of information, targeting of minors and possibly gambling

The controversy over loot boxes first came from within the gaming community and not from outside interest groups.43 Although gamers have traditionally accepted add-ons to existing games,44 some regard loot boxes as unfair gameplay and "predatory monetisation" schemes.45 Apart from being regarded as annoying,46 it is argued that loot boxes destroy the game's balance, especially for competitive multiplayer games, in favour of

include OPSkins (Zendle and Cairns 2019 Plos ONE 2), Value's Steam Community Market (Jones 2020 Chapman L Rev 268) and FutGalaxy.com (Derrington, Starr and Kelley 2021 JGI 317). Also see King and Delfabbro 2018 Int J Ment Health Addict 6; Schwiddessen and Karius 2018 IELR 19. Drummond et al 2020 Nat Hum Behav 987 note that the idea that virtual items have no value, is archaic and disregards the various markets that allow people to monetise these items.

38 Rarity of items can also take the form of time-sensitive availability (Zendle, Meyer and Over 2019 RSOS 4).

39 Lui, Thompson and Rich 2020 York L Rev 8; Neely 2019 Games and Culture 229; Azin 2020 BC L Rev 1578-1579; Hong 2019 W St U L Rev 61; Cermak 2020 MSU ILR 275; Moshirnia 2018 MJLST 80; Mann 2020 WJLTA 202; Schwiddessen and Karius 2018 IELR 18; Nielsen and Grabarczyk 2019 ToDIGRA 172; Griffiths 2018 GLR 52. Li, Mills and Nower 2019 Addictive Behaviors 28 with reference to FIFA 18.

40 Jones 2020 Chapman L Rev 269. Also see in general the study of Kelling and Tham 2020 Journal of Interactive Advertising of the interpretations of promotional messaging of loot boxes in FIFA 19.

41 Schwiddessen and Karius 2018 IELR 19. Griffiths 2018 GLR 52 puts it nicely: "All players hope that they can win 'rare' items and are often encouraged to spend more money to do so because the chances of winning such items are minimal." Research by Adam, Roethke and Benlian 2022 Electronic Markets 981 found that the "probabilities of winning rewards in loot box menus influence users' loot box selection".

42 Azin 2020 BC L Rev 1579; Hong 2019 W St U L Rev 75; Cermak 2020 MSU ILR 287; Castillo 2019 Santa Clara L Rev 175; Schwiddessen and Karius 2018 IELR 1819; Nielsen and Grabarczyk 2019 ToDIGRA 174.

43 Castillo 2019 Santa Clara L Rev 175; Tan 2019 Galactica 134.

44 Mistry 2018 Rutgers U L Rev 552. The backlash started on the Reddit website, a community forum for news and content evaluation inter alia of online video games (Jones 2020 Chapman L Rev 287).

45 Brooks and Clark 2019 Addictive Behaviors 26; King and Delfabbro 2018 Int J Ment Health Addict 3; McCaffrey 2019 Business Horizons 485; Mistry 2018 Rutgers U L Rev 541.

46 Some gamers object to the randomness of the loot boxes and to the fact that they receive duplicate prizes of low value (Derrington, Starr and Kelley 2021 JGI 304).

those with money.47 Yet players still make use of loot boxes for a variety of

48

reasons.

The best example of a community-driven player reaction against developers' perceived exploitive revenue-generation options by introducing loot boxes took place via social media and online forums,49 in a backlash against Electronic Arts (EA), the developers of Star Wars Battlefront II.50 As a result of the fallout and subsequent removal of the loot boxes, EA suffered between $1.4 and $2 billion loss in stock value and long-term damage to its brand.51 More broadly, the EA saga resulted in the first call for the regulation of the industry and a campaign for loot boxes to be categorised and regulated as gambling.52

There are a few concerns about loot boxes. The first concern is the lack of available information and inadequate or incorrect labelling about the loot boxes in the game. It has been argued that with some loot boxes, gamers

47 Macey and Bujić "Talk of the Town" 217. Some players admitted to frustration when the random reward mechanisms such as loot boxes interfere with gameplay, especially where the use of real-life currency is the trigger condition (Yin and Xiao "Reward for Luck" 14).

48 Boric and Strauss 2022 Journal of Data Intelligence 208 note that the motivations for paying for loot boxes include "socialization, to continue playing, to unlock content, or to advance in the game, and due to a special offer, a good price/value for money, and convenience". Close and Lloyd Lifting the Lid on Loot-Boxes 2 found that the main reason gamers purchase loot boxes is the fear of missing out. Cai, Cebollada and Cortias 2022 Plos One 21 argue that players "purchase functional-based goods, probability-based goods, and ornamental-based goods for different motives and through the different behavioural processes". Functional-based goods are purchased for the flow experience, probability-based goods as a compromise for purchase restrictions, and ornamental goods for intrinsic motivations and exposure in the virtual world (Cai, Cebollada and Cortis 2022 Plos One 21). Puiras et al 2022 J Gambl Stud 1 further include "enjoyment, the chance to win, boredom, and charitable intentions" as reasons for purchasing loot boxes. He continues that the reasons gamers refrain from purchasing loot boxes include "negative consequences, gambling concerns, disinterest, finances, and accessibility" (Puiras et al 2022 J Gambl Stud 1). Li adds to the first list the seduction of curiosity about the unknown (Li 2022 Advances in Economics, Business and Management Research 1287). Also see in general Eliassen Loot Boxes.

49 McCaffrey 2019 Business Horizons 484.

50 Macey and Hamari 2019 New Media & Society 24; Schwiddessen and Karius 2018 IELR 22-23; Belgium Gaming Commission 2018 https://gamingcommission.be/sites/default/files/2021-08/onderzoeksrapport-lootboxen-Engels-publicatie.pdf 2; Moshirnia 2018 MJLST 92-93; Cermak 2020 MSU ILR 276; Jones 2020 Chapman L Rev 287. In 2017, game developers Monolith Productions removed all microtransactions from the game Middle-earth Shadow of War after the negative response from gamers that it undermined the game itself (Tan 2019 Galactica 140).

51 Kao 2020 IEEE Transactions on Games 220; McCaffrey 2019 Business Horizons 484; Castillo 2019 Santa Clara L Rev 172 onwards.

52 Kao 2020 IEEE Transactions on Games 220; McCaffrey 2019 Business Horizons 484; Castillo 2019 Santa Clara L Rev 175.

are exploited53 by their distinct disadvantage due to the lack of information about the prizes they can win and the odds of winning these prizes, combined with a lack of sufficient remedies against developers for perceived unfair practices.54 This creates a trust problem.55 With unavailable loot box data, questions have been raised about the ethics of these game companies' practices in that no independent empirical research can be conducted to determine the fairness or adverse effects of a particular

56

game.

The second and third concerns surrounding loot boxes relate to the social implications of the purchasing of loot boxes by minors,57 and the possible enhancement of problem gambling behaviour by gamers purchasing loot

58

boxes.

Concerning minors, developers have been criticised for unscrupulous marketing tactics about loot boxes in games that target minors.59 Although not all video games target children specifically,60 loot boxes are widely available in games labelled as suitable for minors,61 thus normalising the activity for children.62 There is a growing awareness amongst parents and other role-players of the possible economic and psychological detrimental effects of loot boxes on children.63

intentionally induce psychological addiction practices into their games that target children specifically (Liu 2019 Wash Int LJ 773-774). Also see Hodge et al 2022 Plos ONE 12. Rockloff et al Loot Boxes 4 also refer to instances where minors were specifically targeted due to their known vulnerabilities.

60 Cerulli-Harms et al Loot Boxes in Online Games 8.

61 Zendle et al 2020 Addiction 1770; Macey and Hamari 2019 New Media & Society 31; Zendle, Meyer and Over 2019 RSOS 1; King and Delfabbro 2018 Int J Ment Health Addict 2; Rockloff et al Loot Boxes 4.

62 Xiao 2022 Int J Ment Health Addict 446; Derevensky and Griffiths 2019 GLR 637; Derrington, Starr and Kelley 2021 JGI 306.

63 Azin 2020 BC L Rev 1585-1587; Jones 2020 Chapman L Rev 251. Cerulli-Harms et al Loot Boxes in Online Games 29 argues that the "(k)nown developmental risk factors for children and adolescents also make them particularly vulnerable in the marketplace". Younger children cannot assess the true cost of a product; do not understand risk; have impulse control problems and are susceptible to the development of "socially disordered behaviours in response to certain stimuli" (Cerulli-Harms et al Loot Boxes in Online Games 29). The concerns about minors having uncontrolled exposure to inappropriate material including gambling are well known and include desensitisation, and the inability to cope with the detrimental psychological consequences. These are not repeated herein. See inter alia FPB Convergence Survey Report 2.1.3.

Gambling is considered to be peripheral to gaming (playing games).64 Gaming is considered harmless and lawful but gambling is not and is regulated through legislation according to the public policy of each jurisdiction.65 Loot boxes in video games touch on another debate namely that some video games have moved from mere gaming into the realm of gambling.66 It is argued that some loot boxes are an example of this complex67 convergence of gaming and gambling over the past few years, with gambling mechanisms based purely on chance being incorporated into video games.68

There are two elements to the discussion of loot boxes and gambling: the first is that they may lead to problem gambling and the second that they may be legally regarded as gambling in certain jurisdictions and should be regulated within the national legislation.69

Regarding problem gambling, numerous studies, starting with Drummond and Sauer in 2018, have found that "loot boxes share important structural and psychological similarities with gambling".70 This configuration does not occur by accident.71

The Australian Senate Committee Gaming Micro-Transactions notes that loot boxes share four mechanisms with gambling.72 First, both include variable ratio reinforcement schedules, also called manipulative conditioning.73 Xiao describes it best:

64 Von Meduna et al 2020 Technology in Society 2. 65 For the South African public policy, see 5.4.3. 66 Wardle and Zendle 2021 Cyberpsychology, Behaviour and Social Networking 267. 67 Zendle 2020 PeerJ 21. 68 Von Meduna et al 2020 Technology in Society 2; Zendle and Bowden-Jones 2019

Lancet 724; Li, Mills and Nower 2019 Addictive Behaviors 30; Gainsbury 2019 GLR

80; Derevensky and Griffiths 2019 GLR 634; Shi et al 2021 Frontiers in Psychiatry

1. Kolandai-Matchett and Abbott 2022 Int J Ment Health Addict 2024 found convergence in "multiple overlapping contexts (gaming elements in gambling, games incorporating gambling elements, gambling on games, free simulated online gambling, and social media games and gambling) driven by technological advances and commercial interests".

69 Ony the first of these will be discussed in this section. The second issue is addressed

under 4. 70 Drummond and Sauer 2018 Nat Hum Behav 1; Zendle and Cairns 2018 Plos ONE

2-3; Fleming 2020 U Toronto Faculty L Rev 85-86; Cartwright and Hyde 2022 Legal

Studies 2. 71 Derrington regards this as the result of a deliberate predatory monetisation scheme

(Derrington, Starr and Kelley 2021 JGI 304). 72 Australian Senate Committee Gaming Micro-Transactions 32-49. 73 Derrington, Starr and Kelley 2021 JGI 305; Liu 2019 Wash Int LJ 763. Developers

capitalise on the behaviour responses of gamers to increase their profits (Azin 2020 BC L Rev 1590). Van der Hof et al 2022 Frontiers in Digital Health 2 refers to "dark patterns" in game design where the gamer is manipulated to make certain choices and cannot make an informed decision. Also see Leahy 2022 Journal of Consumer Policy 582.

[The] desired behavior can be 'reinforced' in a subject through a gradual process of incrementally 'rewarding' behaviours which constitute correct steps towards the formation of that certain desired behaviour.74

The chance-based nature of loot boxes, holding out the possibility of the gamer's obtaining rare and valuable items, creates psychological triggers similar to gambling, even if the reward is not financial.75 Secondly, the game-play experience of gambling and loot boxes is similar. Most loot boxes have a strong gambling tone, look and feel,76 as they are presented in the form of traditional gambling games such as mechanisms resembling slot machine visuals, sounds and lights.77 It has been argued that this sensory feedback of the animations induces the psychological thrill of anticipation and winning,78 and instils a gambling mindset in gamers.79 In addition, research shows that reflecting near-misses specifically "lead to cognitive distortions whereby the player believes they are more likely to win in the future,80 abusing the irrational biases of gamblers to make irrational decisions to 'chase losses'".81 Limited offers also create a sense of urgency to purchase.82 Thirdly, both loot boxes and gambling include mechanisms

74 Xiao 2021 IELR 30. 75 Larche et al 2021b J Gambl Stud 160; Castillo 2019 Santa Clara L Rev 194; Xiao

2022 Int J Ment Health Addict 442. 76 Liu 2019 Wash Int LJ 771. 77 King and Delfabbro 2018 Int J Ment Health Addict 3; Mann 2020 WJLTA 202; Nielsen

and Grabarczyk 2019 ToDIGRA 184; Schwiddessen and Karius 2018 IELR 18; Cartwright and Hyde 2022 Legal Studies 3; Evans 2022 Geo Wash L Rev 380. The audio-visual sensory effects when opening a loot box have a significant impact on how many loot boxes a player opens (Kao 2020 IEEE Transactions on Games 223). Also see Close and Lloyd 2021 Lifting the Lid on Loot-Boxes 13.

78 Derrington, Starr and Kelley 2021 JGI 304; Liu 2019 Wash Int LJ 786; Australian Senate Committee Gaming Micro-Transactions 32; Brooks and Clark 2019 Addictive Behaviors 26; Mistry 2018 Rutgers U L Rev 546.

79 Nielsen and Grabarczyk 2019 ToDIGRA 183, 185; Lui, Thompson and Rich 2020

York L Rev 8; Neely 2019 Games and Culture 229; Azin 2020 BC L Rev 1579. 80 Zendle et al 2020 CHB 182-183 with reference to DOTA 2 and Counter Strike. 81 Adam, Roethke and Benlian 2022 Electronic Markets 984 "demonstrate that platform

providers can profit from offering certain (vs. uncertain) rewards in loot box menus. Moreover, this effect increases when participants previously experienced a loss and decrease when they perceive to have more control over the result". Xiao 2021 IELR 30-31 argues that apart from the near-miss concept, additional irrational biases of gamers are exploited through "entrapment", where a player continues to spend resources to justify previous unsuccessful attempts; and the "gambler's fallacy" that the more they play, the better the odds of winning become. Some players spend huge amounts of money to purchase loot boxes (Jones 2020 Chapman L Rev 255).

82 Azin 2020 BC L Rev 1589. In June 2021 EA changed the loot box mechanics in their FIFA games by allowing players to preview the contents of a loot box for 24 hours before purchasing. Thereafter a new preview pack can be viewed. Lemmens notes that this scheme increases transparency and reduces the gambling element but creates artificial scarcity with players fearing that they will miss out on time-limited offers (Lemmens 2022 Telematics and Informatics Reports 7).

to encourage continued spending.83 The presence of in-game currency and the ability to turn the contents of loot boxes into cash strengthen the link between loot boxes and problem gambling.84 The (Belgium) Gaming Commission Research Report on Loot Boxes lists several ways gamers are lured into playing with real currency: the games create an emotional profit expectation and turn the opening of loot boxes into an online social activity.85 The games create the illusion of a game of skill and fuse fiction and reality by referencing celebrities or cult items.86 The games introduce a personal currency system and easy payment methods but combine these with an unfathomable data policy and many types of loot boxes that do not necessarily add value to the game.87 Fourthly, gambling and loot boxes are constantly available, encouraging continuous play with an "endless cycle" of new loot boxes being released.88

Apart from players describing these features as addictive,89 independent research has found a link between loot boxes and problem gambling in both

83 Xiao 2021 IELR 30-31. Also see Nielsen and Grabarczyk 2019 ToDRIGA 183-185, that highlights the expectation of winning, near misses, losses disguised as wins, cognitive entrapment, the illusion of control and chasing as factors contributing to the culture of gambling.

84 Zendle et al CHB 188. "However, contrary to predictions, the more money an individual made selling loot box items, the weaker their relationship between loot box spending and problem gambling" (Zendle et al 2020 CHB 189). This is contrary to the argument by Brooks and Clark 2019 Addictive Behaviors 33 that actual trading is a crucial feature of gambling behaviours.

85 Belgium Gaming Commission 2018 https://gamingcommission.be/sites/default/files/ 2021-08/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf 6-8. Gamers share videos online of them opening loot boxes (Zendle 2020 PeerJ 4; McCaffrey 2019 Business Horizons 485).

86 Belgium Gaming Commission 2018 https://gamingcommission.be/sites/default/files/ 2021-08/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf 6-8. 87 Belgium Gaming Commission 2018 https://gamingcommission.be/sites/default/files/ 2021-08/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf 6-8. 88 Australian Senate Committee Gaming Micro-Transactions 32-49; Azin 2020 BC L Rev 1579.

89 Mistry 2018 Rutgers U L Rev 546. This addiction to loot boxes seems to be in addition to the addiction to video games, which is specifically excluded from this article (Hong 2019 W St U L Rev 63; Spicer 2022 New Media & Society 1001). Yokomitsu et al 2021 Current Addiction Reports 491 provides an overview of 20 of the 201 studies on the issue to date that met their pre-determined criteria, concluding that those who purchase loot boxes "exhibit Internet gaming-related and/or disordered gambling symptoms and behaviors". Gonzalez-Cabrera et al 2022 CHB 6 showed a positive and significant relationship was established between the purchase of loot boxes and Internet Gaming Disorder and Online Gambling Disorder. Close et al 2021 Addiction 2343 found that for adults "the demographic associations of video game loot box engagement (younger age, male sex, non-university educational attainment and unemployment) mirror those of other addictive and problematic behaviours, including disordered gambling, drug and alcohol misuse" in the UK. The link between loot boxes, internet gaming disorder and gambling disorder remains understudied and unclear (Raneri et al 2022 Addictive Behavior Reports 1; Shen 2020 UIC John Marshall Law Review 1091; Derrington, Starr and Kelley 2021

adults and children.90 Although this link may have to do with the characteristics of loot boxes,91 it was unclear whether the availability of loot boxes is a gateway to problem gambling or whether the spending on loot boxes just appeals more to problem gamblers.92 Research by Wardle and

JGI 306). The recognition of gaming disorder in 2019 in the WHO International Classification of Diseases 11th Revision will generate more research (Király, Potenza and Demetrovics 2022 Current Opinion in Behavioral Sciences 1).

90 See the research of Gonzalez-Cabrera et al 2022 CHB 6 (Spanish adolescents and young people); Tang et al 2022 Frontiers in Psychiatry 1 (male and female players of gacha games); Rockloff et al 2021 J Behav Addict 35 (adolescents and young adults in NSW, Australia); Wardle and Zendle 2021 Cyberpsychology, Behaviour and Social Networking 272 (children between 16 and 24 years); Irie et al 2022 Current Psychology (unplanned loot box purchases of Japanese adolescents between 15 and 18 years); Ide et al 2021 JMIR Serious Games (14-year old Japanese gamers); Evren et al 2021 Psychiatry and Behavioral Sciences 25-31 (adults in Turkey); Macey and Hamari 2019 New Media & Society 35 (eSports between the ages of 14 and 50 plus); Zendle and Cairns 2018 Plos ONE 6 (large-scale online survey of adults); Zendle, Meyer and Over 2019 RSOS 6 (16 to 18-yearolds); Zendle 2019 PeerJ 3; Zendle and Cairns 2019 Plos ONE 9. Also see in general Garea et al 2021 Int Gambl Stud 460-479; Von Meduna et al 2020 Technology in Society 8 and Yokomitsu et al 2021 Current Addiction Reports 489; Li, Mills and Nower 2019 Addictive Behaviors 32, Brooks and Clark 2019 Addictive Behaviors 33; Rockloff et al Loot Boxes 7; Kiraly, Potenza and Demetrovics 2022 Current Opinion in Behavioral Sciences 2; Kansspelautoriteit Onderzoek naar Loot Boxes 9; Montiel et al 2022 Plos ONE 1-23. Etchells et al 2022 RSOS 12 showed a positive correlation between loot box spending and problem gambling, but not between such spending and mental well-being or psychological distress. This is in contrast to Drummond, Hall and Sauer 2022 Nature Scientific Reports 7, which found that "purchasers of loot boxes are at approximately 1.87 times higher risk of severe psychological distress on a standardised clinical screening tool than people who do not purchase loot boxes". Forsstr et al 2022 Addictive Behaviors 6 show that the Swedish version of the Risky Loot Index is a valuable instrument to measure risky loot box consumption with regard to time and money spent, based on the Brooks and Clark 2019 Addictive Behaviors proposal. Also see in general Akçayir, Nicoll and Baxter 2022 J Gamble Stud. Ide et al 2021 JMIR Serious Games 4 found that there is no correlation in Japan between parental loot box purchasing and that of adolescents, and that adolescents that purchase loot boxes are significantly more likely to exhibit problem online gambling problems. Sidloski et al 2022 Addictive Behaviors 5 shows that Problem Gambling Severity Index (PGSI) scores "among non-gamblers were significantly elevated in loot box users vs non-loot box users, although absolute numbers were low overall".

91 Zendle and Cairns 2019 Plos ONE 11; Zendle 2020 PeerJ 1 and Zendle 2019 PeerJ 1.

92 Garrett et al 2022 Int Gambl Stud 9 concludes that "loot box mechanisms appear to appeal disproportionately to a specific demographic (ie. problem gamblers), regardless of income, although the short-and long-term financial and psychological consequences of spending remain unknown". Research by D'Amico et al 2022 Nature Scientific Reports 10 seems to dispel the "gateway" theory whilst Spicer et al 2022 Addictive Behaviors 6 found that almost 20% of the loot box purchasers they studied self-reported either "gateway effects" (loot boxes causally influencing subsequent gambling) or "reverse gateway effects" (gambling causally influencing subsequent loot box engagement). Rockloff et al 2021 J Behav Addict 35 seems in line with Spicer. See Zendle and Cairns 2018 Plos ONE 8; Zendle and Cairns 2019 Plos ONE 11; Zendle et al 2020 CHB 184; Zendle, Meyer and Over 2019 RSOS 4.

Zendle performed in 2021 demonstrated "that the purchase of loot boxes is associated with elevated rates of problem gambling amongst minors even after higher levels of gambling consumption are taken into account".93

As is the case in gambling, most of the revenue from loot boxes is obtained from a small percentage of gamers.94 Although the overall relationship between problem gambling and loot boxes was "observed to be small-tomedium size",95 problem gamblers spend less money when loot boxes are removed from video games.96 Shi notes that there is growing concern about the association between minors who gamble and the later development of gambling problems with the accompanying negative psychological, social, financial and substance abuse, particularly for males.97

These studies are, however, not universally accepted as conclusive98 and not without critique.99 Gainsbury criticises them on the basis that the researchers failed to control the gambling engagement of the participants, that they relied on convenient self-recruiting sampling and introduced

Research by Hunt found that problem gamblers do indeed spend more money on loot boxes than non-problem gamblers (Hunt 2022 Int Gambl Stud 16).

93 Wardle and Zendle 2021 Cyberpsychology, Behaviour and Social Networking 272. Larche et al argue that this is also the case with loot box earners (as opposed to purchasers) (Larche et al 2022 J Gambl Stud 17).

94 Zendle, Petrovskaya and Wardle 2020 https://psyarxiv.com/5k2sy 1, which leads to the potential for economic harm. Their research shows that the majority of revenue is from the top 10% of the gamers with 1% of gamers responsible for 26% of all revenue. Carey, Delfabbro and King 2022 Int J Ment Health Addict 2906 found that "loot box expenditure was low (M = $25 in 3 months, for the 10.8% of respondents who played loot boxes) but significantly positively associated with the degree of gaming-related financial harm".

95 Zendle and Cairns 2019 Plos ONE 9. 96 Zendle 2019 PeerJ 10; Derevensky and Griffiths 2019 GLR 636. 97 Shi et al 2021 Frontiers in Psychiatry 2-3. This was confirmed by the Kisch study in

Sweden in 2022 (Kisch and Håkansson 2022 JMIR Serious Games 1). Ayala-Rojas found empirical evidence for an increase in dual gaming and gambling disorders (Ayala-Rojas et al 2021 Journal of Psychiatric Research 148).

98 Some argue for further research and regular reconsideration (Gibson et al 2022 CHB 14; Sidloski et al Addictive Behaviors 5 and Rockloff et al Loot Boxes 60-61). Gentles et al 2022 Pacific Health Dialog 601 studied Samoan gamers 16-30 and could not find any association between buying a loot box and gambling. Xiao, Fraser and Newall 2022 J Gambl Stud 20 argue for more research in China. Hing et al 2022 J Behav Addict 403 noted that "while causal relationships between loot box purchasing and problem gambling remain unclear, the results indicate that loot boxes disproportionately attract adolescents experiencing gambling problems, adding to the financial stress already caused by gambling".

99 Gainsbury 2019 GLR 81; King and Delfabbro 2018 Int J Ment Health Addict 3. Zendle and Cairns 2019 Plos ONE 9 noted that the relationship between problem gambling and microtransactions other than loot boxes is "trivially small". McCaffrey 2022 Communications of the Association for Information Systems 41 argues that the conclusions in the literature are unsatisfactory and premature.

inadequate timeframes.100 In addition, DeCamp's research on minors shows that loot boxes share little in common with traditional forms of gambling and that minors are less likely to purchase loot boxes than adults.101 Moreover, the Zendle study shows that the more money a gamer made selling loot boxes, "the weaker their relationship between loot box spending and problem gambling".102

Leaving aside the differences, the research highlights the commonalities between loot boxes and gambling. It does not determine whether loot boxes are or should legally be classified as gambling in a particular jurisdiction, however. This matter is discussed hereunder.

2.4 Conclusion

Loot boxes are a relatively new but highly profitable element in video games. What is evident, however, is that there are real concerns about the transparency of some loot boxes, the harmful impact on minors as well as their possible link to gambling and addiction. Notwithstanding the controversies, the loot box market is growing.103

The concerns have not gone unnoticed, and research is ongoing and necessary to clarify the many uncertainties.104 The gaming industry organisations and experts have responded to some of the concerns on an ad hoc basis and these will be set out in the next section.

3.1 Introduction

Several academics and industry experts have called for industry self-regulation to address these concerns – either voluntarily by the industry or through community or governmental pressure.105

100 Gainsbury 2019 GLR 81. Opposing interpretations of the link between loot boxes and problem gambling can also be found in the New South Wales and Dutch Loot Boxes Reports. These reports note that there is no evidence that experiences with loot boxes are related to gambling involvement or gambling problems (Rockloff et al Loot Boxes 59. Kansspelautoriteit Onderzoek naar Loot Boxes 4. Also see Gainsbury 2019 GLR 81-82).

101 DeCamp 2021 J Gambl Stud 198-199. 102 Zendle et al 2020 CHB 189. 103 McCaffrey 2022 Communications of the Association for Information Systems 44;

Close and Lloyd Lifting the Lid on Loot-Boxes 28; Macey and Hamari 2019 New Media & Society 37; Zendle and Cairns 2018 Plos ONE 8; Von Meduna et al 2020 Technology in Society 2; Yokomitsu et al 2021 Current Addiction Reports 491; Zendle et al 2020 CHB 189; Moshirnia 2018 MJLST 112-113; Gainsbury 2019 GLR 82; Cerulli-Harms et al Loot Boxes in Online Games 8 and Australian Senate Committee Gaming Micro-Transactions 3; Gonzalez-Cabrera et al 2022 CHB 6.

104 This is also the case for South Africa (Lohse 2020 IJSSER 24-25). 105 See the discussion that follows.

The industry must recognize that they are beholden to the public they serve and that the public's best interest is their own best interest.106

The argument is that developers, who financially benefit from loot boxes, have the power, responsibility and incentive to self-regulate and to make changes to their games to address these concerns and to prevent governmental interference or regulation.107 But the response from video game companies has been seen as inadequate.108 Mistry argues that self-regulation by professional industry associations remains the most appropriate solution to address these problems to avoid external interference and to allow the developers, producers, filmmakers, musicians and other artists to continue creating these games for gamers' enjoyment.109

Individually some developers and distributors have voluntarily or under duress removed loot boxes from their games110 or limited them to cosmetic items.111 Others have added better labelling to video games by publishing the prizes and the odds to make their games more transparent and fairer.112 For developers, it is ultimately a balance between current potential profit versus the promotion of long-term player engagement and a continued player base.113

But as an industry there has been an unwillingness to unanimously admit to potential problems or harm, to be proactive, or to take comprehensive remedial action. The gaming industry's argument has mostly been that it is a gamer's free choice as to whether he wants to purchase a loot box within a game as part of an informed consent process.114 However, some changes in attitude have been forthcoming on an ad hoc basis.115

The Gambling Regulators European Forum (GREF), for example, released a joint statement by eighteen European regulators noting their concern about the blurring of lines between gaming and gambling and the need for

106 Fleming 2020 U Toronto Faculty L Rev 108. 107 Abarbanel 2018 GLR 233; Cermak 2020 MSU ILR 316; Fleming 2020 U Toronto

Faculty L Rev 101-103. 108 Cermak 2020 MSU ILR 320; Close and Lloyd 2021 Lifting the Lid on Loot-Boxes 3. 109 Mistry 2018 Rutgers U L Rev 568. 110 Kersley 2021 https://www.wired.co.uk/article/loot-boxes-new-gambling 2 with

reference to the developers of Fortnite that removed their loot boxes in the light of

imminent governmental review. Also see Tan 2019 Galactica 140. 111 This limitation is often aimed at avoiding their loot boxes being defined as gambling

in a specific jurisdiction (Perks 2020 Games and Culture 1017). 112 McCaffrey 2019 Business Horizons 490; Kao 2020 IEEE Transactions on Games

220. Perks describes the reaction of developers as an example of the role and power of journalistic critiques that can shape gambling cultures and consumption (Perks 2020 Games and Culture 1004). In South Africa, see the FPB Labelling Strategy para 6.2.

113 Macey and Bujić "Talk of the Town" 217. 114 Jones 2020 Chapman L Rev 254. 115 Xiao and Henderson 2021 Int J Ment Health Addict 184-185.

consumer protection, especially for minors.116 International Game Developers Association (IGDA) called for an industry commitment not to market loot boxes to minors, to disclose the odds and to launch an educational campaign to increase parental awareness of the games.117 However, their counterpart in Europe, European Games Developers Federation (EGDF) refused to make these commitments due to the variety of loot boxes and the legal uncertainties surrounding them.118

The South Korean Game Industry Association admits that changes to loot boxes are needed considering the criticisms and encourages the developers in their association to be more transparent by revealing their loot

119

boxes' contents and odds.

There has been some reaction to the controversy from external strategic partners. Games of the storefront companies such as Apple and Google Play App Stores must disclose the contents and odds of loot boxes.120 PayPal has responded to the risk to minors by strengthening its processes to prevent minors from using its platform to gamble.121 Sony, Nintendo and Microsoft, major console makers for gaming, have announced new policies that would require games for their platforms to be transparent about the odds of obtaining virtual items from paid loot boxes.122

Two further aspects deserve further discussion: the existing classification (also called the rating) of the games and the call for adopting an ethical set of guidelines by the industry and for the industry. Each is discussed hereunder.

116 Liu 2019 Wash Int LJ 787; GREF 2018 https://www.spillemyndigheden.dk/

uploads/2018-11/Declaration%20of%20gam-bling%20regulators%20on%20their

%20concerns%20related%20to%20the%20blurring%20of%20lines%20between%2

0gambling%20and%20gaming%20%28002%29.pdf. 117 Honer 2021 IELR 67. Also see IGDA 2019 https://igda.org/news-archive/igda

presents-to-ftc-about-loot-boxes-and-esa-adopts-igda-recommendations/. 118 Honer 2021 IELR 68. In 2021 they noted the concerns around loot boxes (EGDF

2020 https://www.egdf.eu/documentation/7-balanced-protection-of-vulnerable

players/consumer-protection/lootboxes/). 119 McCaffrey 2019 Business Horizons 489. 120 McCaffrey 2019 Business Horizons 489-490; Schwiddessen and Karius 2018 IELR

17; Moshirnia 2018 MJLST 94-95; Cerulli-Harms et al Loot Boxes in Online Games

8. In September 2021 a court ruled that the decision is possible as Apple has sovereignty over its App Store (Jungherr and Schlarb 2022 Social Media and Society 9). Xiao, Henderson and Newall 2021 SSRN Electronic Journal found that there was only a 64% compliance rate in the disclosure of loot boxes in games on the Apple platform.

121 NGB Potential Impact of 4IR 41. 122 Carvahlo 2021 Decision Support Systems 3; Fleming 2020 U Toronto Faculty L Rev 106.

3.2 Classification of games

Although there is no one single organisation that represents the video game industry, a few self-regulating game classification industry associations exist. Their age classification systems are akin to film and publication classifications and traditionally focussed on age-restriction warnings due to violence and sexual content.123 Classification is an important guide for purchasers and an incorrect classification has led to at least one claim in for damages, in France.124

Three of the biggest industry gaming organisations committed to industry self-regulation that are involved in the classification of games, the Entertainment Software Rating Board (ESRB),125 the Interactive Games and Entertainment Association (IGEA)126 and the Pan-European Game Information (PEGI)127 all initially opposed any suggestion that loot boxes may be potentially harmful or akin to gambling.128 Since 2020, however, ESRB and PEGI have included additional descriptors for games to inform purchasers, gamers and parents.129 These classifications include descriptions of simulated gambling, gambling and/or in-game purchases (including random items) where gamers can purchase digital goods or services with real-world currency.130 The ESRB has refused to rate games

123 The classification of these organisations is also crucial in South Africa as some reliance is placed on their classification, as is discussed hereunder.

124 Derrington, Starr and Kelley 2021 JGI 303 refers to this ongoing case against EA and their game FIFA Ultimate Team where the argument is that the classification should have included a gambling warning.

125 McCaffrey 2019 Business Horizons 489; Jones 2020 Chapman L Rev 246. ESRB is a US and Canadian video game industry organisation (Jones 2020 Chapman L Rev 251).

126 IGEA represents the video games industry in Australia and New Zealand (IGEA 2019 https://igea.net/2019/03/igea-statement-on-the-australian-governments-responseto-the-senate-environment-and-communications-references-committee-report-ongaming-microtransactions-for-chance-based-items-loot-boxes/ and New Zealand Government Classification Office 2023 https://www.classificationoffice.govt.nz/ classification-info/classification-labels/); Zendle and Cairns 2019 Plos ONE 3.

127 PEGI is a non-profit organisation aimed at the self-regulation and classification of games for 37 countries in the EU (McCaffrey 2019 Business Horizons 489; Cermak 2020 MSU ILR 285).

128 Moshirnia 2018 MJLST 95-96; Griffiths 2018 GLR 53-54; Cermak 2020 MSU ILR 286; Zendle and Cairns 2018 Plos ONE 2; Zendle and Cairns 2019 Plos ONE 3; Castillo 2019 Santa Clara L Rev 176; Jones 2020 Chapman L Rev 260. IGEA originally likened loot boxes to harmless Kinder Joy Surprise chocolates (Zendle and Cairns 2019 Plos ONE 3) but has since adopted a policy on loot boxes.

129 Castillo 2019 Santa Clara L Rev 197-198; Derrington, Starr and Kelley 2021 JGI 316.

130 PEGI 18 (Gambling) and PEGI 3 "In-game purchases (includes Random Items)" (PEGI date unknown https://pegi.info/what-do-the-labels-mean). Also see Lischer et al 2022 IJERPH 6. Vance 2019 https://www.esrb.org/blog/what-parents-need-toknow-about-loot-boxes-and-other-in-game-purchases/. Also see McCaffrey 2019 Business Horizons 489. IGEA 2021 https://igea.net/wp

with tradable loot boxes as "Adults Only".131 IGEA adopted a policy to promote a safe and responsible industry through education to protect minor gamers.132 Although these are positive developments, these classifications are ineffective as consumers do not understand the warnings133 and as classifications are inconsistently applied.134

The International Age Rating Coalition (IARC) aims to address the inconsistencies and streamline the classification process through a single procedure. The IARC is a collaboration of authorities and organisations already tasked with the classification of games and allows developers to obtain classifications for multiple territories and storefronts.135

The classification of games by itself is not adequate to address the concerns highlighted here. Research has shown that the labelling of games with an age restriction does not necessarily deter minors from playing games and may sometimes have the opposite effect.136 In addition, parents are also not always aware of the contents of the games or the meaning of the classifications.137 Shi argues that an age restriction should be combined with additional strategies to be successful, such as the education of parents.138

content/uploads/2021/06/IGEA-Policy-Briefs-Promoting-a-safe-and-responsibleindustry-1.5.pdf.

131 Castillo 2019 Santa Clara L Rev 198. When large retailers do not stock specific games, this entices developers to change their games (Castillo 2019 Santa Clara L Rev 198).

132 IGEA date unknown https://igea.net/useful-links/parental-controls.

133 Garrett et al 2023 CHB 13.

134 Jones 2020 Chapman L Rev 280.

135 Countries forming part of the initiative include Australia, Brazil, Korea, the EU and Germany. Classification organisations include PEGI, ESRB, the German Unterhaltung Selbkontrolle (USK) and the Korean Game Rating and Administration Committee (GRAC). Storefronts participating are Google Play, Microsoft, Nintendo eShop, PlayStation Store and Amazon Luna (IARC 2023 https://www.globalratings.com/ about.aspx).

136 Shi et al 2021 Frontiers in Psychiatry 1.

137 Garrett et al 2023 CHB 13. The FPB Conversion Survey Report 4.1 noted that 75% of South African parents have not played the video games their children play and are unaware of the contents. Xiao and Newall 2022 JGI 1 argue that the reward structures of most loot boxes are "too complex for consumers to be meaningfully protected by probability disclosures alone".

138 Shi et al 2021 Frontiers in Psychiatry 1. Also see FPB and UNISA Impact Research Report 30; FPB Conversion Survey Report 5.2. For an example of parental education, see the IGEA information and assistance with parental controls and classification (IGEA date unknown https://igea.net/useful-links/parental-controls).

The problem with these organisations is that they have no teeth to enforce any classification139 and with an impossible workload, they often rely on self-reporting by gaming developers.140

3.3 Ethical guidelines

Apart from the classification of games, it has been proposed that the voluntary adoption of ethical and socially responsible industry guidelines141 aligned with regulatory frameworks would be ideal to address the concerns about loot boxes.142 There is consensus that the guidelines should address competing interests and correct the identified problems without interference from legislators and courts.143 The details thereof are mired in uncertainty and controversy, however, inter alia because game designers view ethical monetisation differently.144

The following guidelines have been suggested:

Some suggest that loot boxes should be limited to non-competitive advantages by disabling pay-outs145 and that loot boxes should be obtained only through regular play,146 with all external trading markets for loot box items banned.147

Others call for more nuanced industry guidelines, including the explicit and uniform148 labelling of games to address the lack of transparency and protection of minors by adding an appropriate age classification on games.149 Warnings on the games should include general consumer

139 Honer 2021 IELR 72.

140 Xiao and Henderson 2021 Int J Ment Health Addict 188; Jones 2020 Chapman L Rev 285.

141 Xiao 2021 IELR 36. These possible guidelines can take the form of an ethical game design toolbox (Xiao 2021 IELR 41); King and Delfabbro 2018 Int J Ment Health Addict provides a blueprint of possible solutions.

142 Mistry 2018 Rutgers U L Rev 576; King and Delfabbro 2018 Int J Ment Health Addict 4; Gainsbury 2019 GLR 82. Xiao and Henderson 2021 Int J Ment Health Addict 178 are critical of King and Deltabbro's suggestions, but a full discussion of this aspect falls outside the scope of this article.

143 Mistry 2018 Rutgers U L Rev 577; Xiao and Henderson 2021 Int J Ment Health Addict 188.

144 Karlsen 2022 Games and Culture 652.

145 Liu 2019 Wash Int LJ 797; Xiao 2021 IELR 40-41.

146 King and Delfabbro 2018 Int J Ment Health Addict 5-6.

147 King and Delfabbro 2018 Int J Ment Health Addict 7.

148 Xiao 2021 IELR 36.

149 Moshirnia 2018 MJLST 108; Mistry 2018 Rutgers U L Rev 574.

information150 and educational data151 aimed at extending financial and parental controls to protect minors.152 Specifically, the warnings should advise customers, parents and classification agencies about the content153 and the age classification.154 Age verification would be essential for the effectiveness of these suggestions.155 In addition, it is proposed that the guidelines include advertising restrictions and transparency through upfront disclosures of the prizes and odds of winning the award so that the gamers' expectations are reasonable.156

Additional suggestions to consider in these guidelines include mechanisms to address excessive spending on loot boxes through education and in-game warnings.157 Gamers should be allowed to voluntarily limit their spending on loot boxes158 or to self-exclude from the game.159 In addition, "cool down" periods such as embedded disruptions and additional steps to the purchasing process could be included.160 Consumer information should automatically be added in the form of periodic statements on in-game spending, combined with tips on healthy gaming behaviour and a checklist for problematic gaming use.161 The display of the actual currency values and not just the virtual values is seen as essential to awareness of how

150 Moshirnia 2018 MJLST 109. Carvalho's solution is to use blockchain technology by coding loot boxes as smart contracts and running them on a public blockchain that allows a player to verify the randomisation mechanism to make it transparent and tamper-proof (Carvalho 2021 Decision Support Systems 2, 11). Delfabbro, Delic and King 2022 J Behav Addict 724, however, also with the use of blockchain technology, argues for increased transparency and consumer awareness of the risks of these models. Also see Delic and Delfabbro 2022 Int J Ment Health Addict 1-14.

151 Moshirnia 2018 MJLST 110. 152 Liu 2019 Wash Int LJ 798. 153 Zendle and Cairns 2019 Plos ONE 11; McCaffrey 2019 Business Horizons 487; King

and Delfabbro 2018 Int J Ment Health Addict 8; Belgium Gaming Commission 2018 https://gamingcommission.be/sites/default/files/2021-08/onderzoeksrapport-lootboxen-Engels-publicatie.pdf 18.

154 Zendle and Cairns 2019 Plos ONE 11; Zendle, Meyer and Over 2019 RSOS 17; King

and Delfabbro 2018 IJMHA 8; Drummond and Sauer 2018 NHB 3. 155 Liu 2019 WILJ 797. 156 Hong 2019 WSLR 80; Misty 574; McCaffrey 2019 BH 486; Belgium Gaming

Commission Research Report on Loot boxes 18; Moshirnia 2018 MJLST 107; King

and Delfabbro 2018 Int J Ment Health Addict 8; Liu 2019 Wash Int LJ 798. 157 Fleming 2020 U Toronto Faculty L Rev 107. 158 Zendle, Meyer and Over 2019 RSOS 17; King and Delfabbro 2018 Int J Ment Health

Addict 4-5.

159 King and Delfabbro 2018 Int J Ment Health Addict 9. Xiao and Henderson 2021 Int J Ment Health Addict 182 argues that these measures are unlikely to be adopted by gamers.

160 King and Delfabbro 2018 Int J Ment Health Addict 5; Xiao 2021 IELR 39. This would "reduce the automaticity or 'mindlessness' of purchasing behaviour" (King and Delfabbro 2018 Int J Ment Health Addict 5).

161 King and Delfabbro 2018 Int J Ment Health Addict 9-10.

much is being spent.162 What is suggested is the establishment of frameworks similar to responsible gambling initiatives.163 Online support could be helpful,164 as would reducing limited-time offers, repeat awards and the audio-visual design of opening a loot box.165 A more drastic guideline to be considered is a refund entitlement under certain circumstances.166

Xiao and Henderson argue that these proposed guidelines are unlikely to be adopted by the developers or the industry for various reasons, including vested financial interest and possible human rights violations.167 It is anticipated that there could also be player aversion to the suggested guidelines as paternalistic, especially regarding play interruptions.168

For the guidelines to create consumer confidence, enforcement is necessary.169 Voluntary self-regulation will never have the teeth to enforce adherence as such regulation could potentially be ignored by those whose actions are targeted for change.170 Enforceability of these self-regulating guidelines would be problematic and impractical.171 In addition, the guidelines would not address the problem of the potential abuse of random award mechanisms.172 What is needed is ethical game design,173 but the dilemma is how to achieve this.

3.3 Conclusion

Although there are positive movements within the industry to deal with the concerns pertaining to loot boxes, some pressure seems required to enhance their commitment to self-regulation.174 But unless this happens, the call for regulation will likely remain and even increase with numerous calls for a more holistic approach.175 This call is made notwithstanding the

162 King and Delfabbro 2018 Int J Ment Health Addict 5. Uddin argues that adolescents lose a sense of how much they spend when they use virtual currencies for loot boxes (Uddin 2021 Family Court Review 875).

163 Macey and Bujić "Talk of the Town" 217. 164 King and Delfabbro 2018 Int J Ment Health Addict 4. 165 King and Delfabbro 2018 Int J Ment Health Addict 7. 166 King and Delfabbro 2018 Int J Ment Health Addict 9. 167 Xiao and Henderson 2021 Int J Ment Health Addict 182. They argue that the setting

of age and financial limits may be discriminatory and have human rights infringement consequences (Xiao and Henderson 2021 Int J Ment Health Addict 186). Also see Xiao 2021 IELR 38-39.

168 Xiao and Henderson 2021 Int J Ment Health Addict 180. 169 Xiao 2021 IELR 37. 170 Xiao 2021 IELR 37. 171 Xiao and Henderson 2021 Int J Ment Health Addict 189. 172 Xiao and Henderson 2021 Int J Ment Health Addict 186. 173 Xiao and Newall suggest a more ethical game design by inter alia capping the

number of loot boxes per game and rewards per box and by equalising the winning

probabilities across the rewards (Xiao and Newall 2022 JGI 8). 174 Australian Senate Committee Gaming Micro-Transactions 65, 68. 175 McCaffrey 2019 Business Horizons 491-492.

speed at which the gaming world develops, with policymakers always on 176 In

the back foot in understanding the developments and consequences. the next section an overview is given of existing regulatory actions taken around the world.

4.1 Introduction

Most commentators agree that some form of regulation is defensible.179 Minors and other vulnerable gamers should be protected180 when the games are harmful and addictive.181 This is necessary as current self-regulation initiatives by the industry to deal with such concerns are inadequate.182

There are government-sponsored age-related classification systems for video games.183 As far as we could establish, it is only in Australia, Spain and Indonesia where gambling-related content and in-game purchases are specifically included in the government classification systems.184 This is

176 Kersley 2021 https://www.wired.co.uk/article/loot-boxes-new-gambling 4. 177 Abarbanel 2018 GLR 231. 178 Kolandai-Matchett and Abbott 2022 Int J Ment Health Addict 2024. Also see Leahy

2022 Journal of Consumer Policy 569. 179 Xiao 2021 IELR 34; Zendle, Meyer and Over 2019 RSOS 17. 180 Abarbanel 2018 GLR 234. 181 Gainsbury 2019 GLR 82. The argument that regulation is unnecessary and that it is

the parent's responsibility to protect minors from engaging with harmful content is no

longer accepted (Uddin 2021 Family Court Review 879). 182 Close and Lloyd Lifting the Lid on Loot-Boxes 4. 183 New Zealand Government Classification Office 2023 https://www.classification

office.govt.nz/classification-info/classification-labels/ issue the classifications and BBFC 2019 https://www.bbfc.co.uk/about-classification/classification-guidelines.

184 In August 2022 in Australia, for example, the Classification Board classified the games of Hard Rock World Tour, Shark Parimatch Attack, Domino Club – Casino, Aviator PinUp and jetx by givvy (to name a few) as Mature (M) (Simulated Gambling), not for children under the age of 15, as it includes a theme that requires a mature outlook (Australian Classification date unknown https://www.classification.gov.au/ classification-ratings/latest-classification-decisions?f%5B0%5D=latest-decisioncategory%3AC). Gonzalez-Cabrera et al 2022 CHB 6 argues for a change in the Spanish classification system to add an age limit of 18 to a game with a gambling classification.

where the industry classification initiatives are useful as many countries accept the industry classification systems discussed above.185

Leaving aside developments in the USA, it is expedient to note that although a few countries are currently investigating loot boxes,186 some jurisdictions have acted on loot boxes, although the solutions adopted differ. There is currently no uniform approach globally as to how loot boxes should be regulated.

An outright regulatory ban on all loot boxes is theoretically possible, but most commentators see this as too paternalistic an option,187 leaning towards over-regulation188 and being unjustified.189 There have been calls against an overreaction to possible addictive game designs as they will interfere with the standard gaming flow design that is neither unethical nor abusive.190 In addition, it is argued that a ban on all loot boxes may have unintended consequences and restrict the freedom of adults to make informed choices.191 There are also doubts about the possible success of enforcing such a ban.192

The regulatory actions in foreign jurisdictions can be summarised as follows:193

4.2 Overview of jurisdictions

There are two main groups of regulation, one focussing on consumer protection and the other on the national gambling regulatory framework. First the consumer protection initiatives.

Although loot boxes remain legal in Japan, South Korea, China and Germany, some limitations on loot boxes have been enforced.

185 See the discussion under 3.2. This is also done in South Africa. See the discussion under 5.4.1.

186 The Brazilian Justice Authorities have launched an inquiry into the possible banning of loot boxes at the behest of the Brazilian National Association of Child and Adolescent Defence Centres. The outcome is not yet available (Frascarelli 2021 https://archive.esportsobserver.com/brazilian-justice-loot-boxes/ 1).

187 Xiao June 2022 OSF Preprints; Xiao and Henderson 2021 Int J Ment Health Addict

186. 188 Moshirnia 2018 MJLST 111; Xiao 2021 IELR 35. 189 Xiao 2021 IELR 33. Okereke is an exception hereto and argues for a ban on loot

boxes (Okereke 2022 T Marshall L Rev 74). 190 Xiao and Henderson 2021 Int J Ment Health Addict 186. 191 Abarbanel 2018 GLR 234. 192 See the discussion hereunder about the Belgium attempt to ban loot boxes. 193 Derrington, Starr and Kelley 2021 JGI 311-312. Although now slightly outdated,

McCaffrey provided a table on policies in some jurisdictions (McCaffrey 2019 Business Horizons 487). See the risk assessment of various jurisdictions in Schwiddessen and Karius 2018 IELR.

In Japan194 the Act Against Unjustifiable Premiums or Unexpected Benefits and Misleading Representations resulted in the banning of "Kompu gacha" games, which contained multi-layered loot boxes, as being exploitative.195

In South Korea the 2011 Youth Protection Revision Act requires loot boxes to be transparent, requires the developers to disclose the prizes and odds of loot boxes and requires companies to limit players under sixteen from playing between midnight and 6 a.m.196 The South Korean Games Rating Board controls the loot boxes by preventing games from being approved for release in the country or giving them a classification of 18+.197 In 2018 the South Korean Fair Trade Commission fined three game developers almost

₩ 1 million for misleading players about loot boxes.198

In China, where dedicated game servers facilitate enforcement,199 loot boxes may not be purchased with cash and the transfer of virtual currency for real currency is prohibited.200 In addition, all loot boxes must be transparent and display all rewards and the odds of winning.201 Furthermore, the purchasing of loot boxes includes a more complicated two-step payment confirmation system with spending limits to make the purchasing process more complicated.202 Limits have also been imposed on the hours minors can spend playing games and the monthly amounts that may be spent.203 This approach has been described as a sensible

194 Hong 2019 W St U L Rev 69; Cermak 2020 MSU ILR 299; Fleming 2020 U Toronto Faculty L Rev 87.

195 Act 134 of 1962; Castillo 2019 Santa Clara L Rev 195; McCaffrey 2019 Business Horizons 487; Moshirnia 2018 MJLST 103; Liu 2019 Wash Int LJ 781; Derrington, Starr and Kelley 2021 JGI 314; Woods 2022 New Media & Society 1.

196 This Act is commonly known as the Gaming Shutdown Law; Hong 2019 W St U L Rev 70; Shen 2020 UIC John Marshall Law Review 1099.

197 One of the concerns was the "potential line-blurring ethics of online gambling" (Liu 2019 Wash Int LJ 782-783). Loot boxes were not mentioned, although they were among the concerns raised (Liu 2019 Wash Int LJ 783).

198 Shen 2020 UIC John Marshall Law Review 1100; Leahy 2022 Journal of Consumer

Policy 568; Derrington, Starr and Kelley 2021 JGI 314. 199 Xiao 2022 J Behav Addict 249. 200 Cermak 2020 MSU ILR 299; Shen 2020 UIC John Marshall Law Review 1098;

McCaffrey 2019 Business Horizons 487. Hong 2019 W St U L Rev 71 notes that this is being side-stepped by certain developers through the use of in-game currency which comes with free loot boxes.

201 Liu 2019 Wash Int LJ 784; McCaffrey 2019 Business Horizons 487; Mistry 2018 Rutgers U L Rev 564; Castillo 2019 Santa Clara L Rev 196; Moshirnia 2018 MJLST 103; Australian Senate Committee Gaming Micro-Transactions 14; Shen 2020 UIC John Marshall Law Review 1099.

202 This is aimed at mitigating possible addictive behaviour (Liu 2019 Wash Int LJ 783784).

203 Minors are banned from playing online games between 10 pm and 8 am; are limited to 90 minutes per day during the week and three hours per day on weekends. There is also a ¥57 spending limit per month (Shen 2020 UIC John Marshall Law Review 1098).

Germany's actions focus on minors purchasing and trading in loot boxes. The Commission for the Protection of Minors in the Media evaluated loot boxes and their impact on children.205 Since 2021 a new youth law is being considered to protect minors from purchasing video games with loot boxes by adding an 18+ classification.206

Most other Western countries focus on the ambiguous gambling legal status of loot boxes and whose regulatory responsibility it should be where it offends national legal gambling principles.207 Oversimplified, the three essential gambling elements in most national jurisdictions are one, a stake (a consideration given); two, where chance determines, three, a payout or prize.208 There is no uniform interpretation of these elements amongst jurisdictions, there are no unified outcomes within regulatory frameworks and there are no consistent enforcement mechanisms.209

On the one hand, in New Zealand,210 Ireland211 and France212 loot boxes are not considered gambling and thus not controlled by their gambling regulatory frameworks. The rationale in these countries is similar: one, there is always a prize to be won in a loot box; and two, the items do not have real-world value,213 although the last aspect is unconvincing.214

On the other hand, in Belgium the purchasing of all loot boxes is regarded as gambling in terms of its legislation.215 The Belgium Gaming Commission

204 Xiao 2022 J Behav Addict 249; Derrington, Starr and Kelley 2021 JGI 315. 205 Schwiddessen and Karius 2018 IELR 42. 206 McNulty 2021 https://screenrant.com/loot-boxes-banned-games-minors-germany/

4-5. 207 NGB Potential Impact of 4IR 42. 208 Mann 2020 WJLTA 202; Xiao 2021 IELR 34; Derrington, Starr and Kelley 2021 JGI

308. This is also the case in South Africa (Casino Enterprises (Pty) Ltd v Gauteng

Gambling Board 2011 6 SA 614 (SCA) para 29). 209 Xiao 2021 IELR 35. 210 Abarbanel 2018 GLR 232; Moshirnia 2018 MJLST 105; Australian Senate

Committee Gaming Micro-Transactions 14. 211 Columb, Griffiths and O'Gara 2022 Ir J Psychol Med 3; Evans 2022 Geo Wash L

Rev 381. 212 Zendle and Cairns 2019 Plos ONE 2; Honer 2021 IELR 67. 213 Liu 2019 Wash Int LJ 779. 214 Drummond et al 2020 Nat Hum Behav 987; Jones 2020 Chapman L Rev 267. Evans

2022 Geo Wash L Rev 70 argues that the solution is "valuing a virtual good based on the perceived benefit it can bring in the virtual world -irrespective of any real-world value". If this is done, he continues, loot boxes should be "regulated similarly to the gambling industry they mimic".

215 Belgium Gaming Commission 2018 https://gamingcommission.be/sites/default/files/ 2021-08/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf 3-4, 15-17; Honer 2021 IELR 68; Zendle and Cairns 2018 Plos ONE 1-2; Abarbanel 2018 GLR 232;

Research Report on Loot Boxes has recommended a ban on minors purchasing these games or using the payment platforms for those games until specific permits have been developed to safely accommodate loot boxes.216 The Gambling Commission has demanded the removal of all loot boxes from games sold in Belgium and most developers have complied, "albeit reluctantly".217 The choice given by the authorities to the developers was simple: remove the loot boxes, withdraw the game or face criminal prosecution.218 Xiao disagrees that the ban is successful and states that in mid-2022, 82% of the highest-grossing iPhone games in Belgium continue to sell loot boxes for real-world money and instead of improving consumer protection, it shifted gamers towards higher-risk illegal providers.219

In several countries a difference is made between tradable and non-tradable loot boxes with only tradable loot boxes meeting the legal definition of gambling of the applicable national gambling legislation. This was the case in Denmark,220 originally in the Netherlands,221 Sweden,222 Canada,223 Poland,224 the UK225 and Australia. Only in two of these jurisdictions, however, did this lead to any enforcement action.

Moshirnia 2018 MJLST 104; Liu 2019 Wash Int LJ 785; Cermak 2020 MSU ILR 283291.

216 Belgium Gaming Commission 2018 https://gamingcommission.be/sites/default/files/ 2021-08/onderzoeksrapport-loot-boxen-Engels-publicatie.pdf 17-18; Hong 2019 W St U L Rev 81; Drummond and Sauer 2018 Nat Hum Behav 3.

217 McCaffrey 2019 Business Horizons 488; Liu 2019 Wash Int LJ 786, 789; Hong 2019 W St U L Rev 74-75. The developer of Pro Evolution Soccer, Konami, for example, discontinued sales in Belgium as a direct result of the Belgium Gaming Commission Research Report on Loot Boxes (Garou 2019 https://www.resetera.com/threads/konami-removes-myclub-coin-microtransactionsfrom-pro-evolution-soccer-2019-in-belgium.99210/), as did Blizzard Entertainment by not publishing Diablo Immortal in Belgium (Xiao July 2022 OSF Preprints 120).

218 Liu 2019 Wash Int LJ 786; Hong 2019 W St U L Rev 75. 219 Xiao July 2022 OSF Preprints 120-122. 220 Australian Senate Committee Gaming Micro-Transactions 9; Abarbanel 2018 GLR

232; Moshirnia 2018 MJLST 105. The Danish Gambling Authority 2017 https://www.spillemyndigheden.dk/en/news/ statement-about-loot-boxes-loot-crates 1 stated that not all loot boxes are gambling in terms of the legislation – only where they are tradable for real currency.

221 Kansspelautoriteit Onderzoek naar Loot Boxes 2; 14. The report noted that four of the ten loot boxes examined were in contravention of the Wet op de Kansspelen. Also see Zendle and Cairns 2018 Plos ONE 2; McCaffrey 2019 Business Horizons 488; Australian Senate Committee Gaming Micro-Transactions 11-12.

222 Schwiddessen and Karius 2018 IELR 39-40. 223 Schwiddessen and Karius 2018 IELR 41-42. 224 Schwiddessen and Karius 2018 IELR 38-39. 225 Moshirnia 2018 MJLST 106; Hong 2019 W St U L Rev 73. In the UK only tradable

loot boxes at an external after-sale market are legally regarded as gambling. Standard loot boxes are not, as their content is usable only in the game, and the argument is that it cannot be gambling as there is no "prize" (Schwiddessen and Karius 2018 IELR 25; Cermak 2020 MSU ILR 293; Mistry 2018 Rutgers U L Rev 563; Abarbanel 2018 GLR 232). This does not take into account secondary markets

In Denmark the Danish Gambling Authority has since 2018 obtained court orders to force telecommunications companies to block illegal gambling sites, including some video-gaming sites with tradable loot boxes targeting minors and which operate without the licence required in terms of the Danish gambling statute.226

In the Netherlands, tradable loot boxes were regarded as gambling in terms of the gambling legislation,227 and the Dutch Gaming Authority required games to remove addiction-sensitive elements.228 The Authority has the power to impose a fine of up to € 830 000 or 10% of the company's worldwide turnover for any breaches, and should this not be sufficient it can resort to criminal proceedings.229 Some developers have updated their games according to these requirements, but others have refused and challenged the decision.230 On 9 March 2022 the final appeal by EA against the financial penalty imposed by the Gambling Authority was successful:

The Administrative Jurisdiction Division of the Council of State found that loot boxes in the Ultimate Team Mode of the FIFA video games (FUT) published by Electronic Arts (EA) did not contravene Dutch gambling law, contrary to the Netherlands Gambling Authority's (Kansspelautoriteit) previous 2018 interpretation of the law and overruling a previous 2020 judgment that affirmed the Kansspelautoriteit's previous interpretation.231

In short, the judge found that a loot box is not gambling as it does not meet the statutory requirement of an independent "game of chance": loot boxes should be seen in the context of the overarching video game and cannot exist separately from the game.232 This is a unique interpretation of loot boxes. Xiao and Declerck criticise the approach as over-reliant on how the majority of players engage with the game without taking into account the

for trading the loot box items (Zendle and Cairns 2019 Plos ONE 2). Schwiddessen and Karius 2018 IELR 25-27 disagree that there is legal certainty about tradable loot boxes for real currency, as the UK Commission statements, according to them, are subject to numerous interpretations.

226 Danish Gambling Authority 2019 https://www.spillemyndigheden.dk/en/news/ danish-gambling-authority-has-25-illegal-gambling-websitesblocked#:~:text=On%20March%2025%2C%202019%2C%20City,block%2025%20i llegal%20gambling%20websites 1 and Danish Gambling Authority 2021 https://www.spillemyndigheden.dk/en/skin-betting-and-loot-boxes-video-gaming-orgambling#skin-betting-and-loot-boxes-video-gaming-or-gambling?-3 with reference to a 2018 Frederiksberg court and 25 March 2019 Copenhagen city court decisions.

227 Section 1 of the Wet op de Kansspelen requires a licence for persons providing gambling games to the public (Shen 2020 UIC John Marshall Law Review 1097 with reference to "addiction-sensitive" games such as Hearthstone).

228 Liu 2019 Wash Int LJ 786; Hong 2019 W St U L Rev 73; Shen 2020 UIC John

Marshall Law Review 1096. 229 Australian Senate Committee Gaming Micro-Transactions 12. 230 Hong 2019 W St U L Rev 73. 231 Xiao and Declerck 2022 OSF Preprints 2. 232 Uitspraak 202005769/1/A3 (2022) Afdeling Bestuursrechtspraak Raad van State

[Judgment of the Administrative Jurisdiction Division of the Council of State in the Netherlands] (9 March 2022) para 8.5-9.

differences between purchased and earned loot boxes.233 The judgment also does not answer the question as to whether:

the de facto real-world economic value of loot box content gained through the use of the 'black market' satisfies the 'prize' (or equivalent) criterion of gambling law, despite the company explicitly prohibiting players from selling loot box content in exchange for real-world money (i.e., participating in black market trading) and thereby granting them real-world economic value.234

In the other jurisdictions where tradable loot boxes meet the gambling statutory requirements, no action has been taken to implement the provisions of the applicable gambling legislation.235 The gambling regulators in these countries do not regard it as part of their mandate to oversee loot boxes. They are either unable to or uninterested in dealing with the issue, notwithstanding the possible harm to minors and addiction fears.236 It seems as if the solutions to these concerns in these jurisdictions should be sought elsewhere. In the UK the official solution suggested focusses on classifying these games in such a way as to limit them to those above the gambling age and to use in educational programmes,237 although there are calls for pre-emptive regulation as a precautionary measure to limit harm.238 In Australia the official outcome was that regulation should be considered only after further research.239 The experts show a preference for consumer protection regulations to protect the vulnerable rather than using the

233 Xiao and Declerck 2022 OSF Preprints 16. 234 Xiao and Declerck 2022 OSF Preprints 15. 235 Xiao and Henderson 2021 Int J Ment Health Addict 188; McCaffrey 2019 Business

Horizons 487-488.

236 Liu 2019 Wash Int LJ 779; UKGC Young People and Gambling 91; Australian Senate Committee Gaming Micro-Transactions 12-13. Abarbanel 2018 GLR 232 argues that this "It's not my job" reaction is a frustrating customer service response. Also see Australian Senate Committee Gaming Micro-Transactions 37-38; UKGC Virtual Currencies 30; and Digital, Cultural, Media and Sport Committee Immersive and Addictive Technologies 163. Also see in general the following two reports for a detailed discussion of the United Kingdom: Digital, Cultural, Media and Sport Committee Loot Boxes and Digital Gaming and Digital, Cultural, Media and Sport Committee Loot Boxes in Video Games.

237 Digital, Cultural, Media and Sport Committee Immersive and Addictive Technologies 29; Zendle and Cairns 2019 Plos ONE 2; Australian Senate Committee Gaming Micro-Transactions 14; Larche et al 2021b J Gambl Stud 161. The success of the youth educational aspects of these programmes in the UK has been questioned by Van Schalkwyk in 2022 (Van Schalkwyk, Hawkins and Petticrew 2022 Population Health 1-20); Larche et al 2021b J Gambl Stud 160.

238 Close and Lloyd 2021 Lifting the Lid on Loot-Boxes 4; Xiao 2021 IELR 33; Digital, Cultural, Media and Sport Committee Immersive and Addictive Technologies para 79.

239 Hong 2019 W St U L Rev 76-77; Castillo 2019 Santa Clara L Rev 177; Australian Senate Committee Gaming Micro-Transactions 73; Liu 2019 Wash Int LJ 787. The Australian Government accepted this recommendation (Australian Government 2019 https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment _and_Communications/Gamingmicro-transactions/Government_Response 3).

gambling framework.240 EU Guidelines also suggest a consumer law approach rather than a gambling approach.241 Cartwright and Hyde argue that loot boxes can be viewed either as unfair labour practices or misleading practices, alternatively as deceptive or aggressive and immersion game design.242

Although a consumer protection approach may appear more accessible, Leahy argues against it. He notes that the focus should be on player protection and not on consumer protection and that the approach does not take into account the structural differences between gambling regulation and consumer laws: gambling regulation is about control, the imposing of regulations to protect players and regulatory supervision, all at the cost of the operator. Consumer law is less invasive, more informational and aimed at informing the consumer so that consent is informed.243

4.3 Conclusion

In conclusion, there is little uniformity in the jurisdictional responses to loot boxes, with divergent degrees of enforcement and protection.244 There are two main approaches to address the concerns: a consumer protection approach or a gambling framework approach.

What makes the route of existing gambling legislation enticing is that the national gambling regulatory frameworks have a proven history of promoting responsible gambling and harm-minimisation with established preventative measures.245 Game developers would loathe their games to be classified as gambling and have to submit to costly regulatory processes worldwide.246

From a broader perspective, it remains important for the loot box concerns to be addressed, irrespective of the legal avenue chosen.247

6.1 Introduction

As mentioned above, the video game market in South Africa is significant, and the loot box controversy and concerns are directly relevant. This includes the lack of transparency and information about the games, the targeting and participation of minors, and gambling-related concerns. Although there are existing statutes that are or should be applicable, there are broader constitutional, international and public policies that should also be considered – especially with regard to minors. These imperatives are highlighted before discussing the legislation.

6.2 Minors: constitutional, international and policy imperatives

Although research on loot boxes in South Africa is limited, we know that video games are an important part of the entertainment of children from different socio-economic backgrounds in the country between the ages of 7 and 17.267 With video games, there is evidence of the manipulation of minors for commercial purposes such as data collection, targeted advertising and gambling opportunities.268 Minors deserve more protection than adults because of their capacities are not yet fully developed. They are less able to assess the risks and consequences of their actions and less able to protect their data.269

The protection of minors against harm is a constitutional270 imperative: "A child's best interests are of paramount importance in any matter concerning the child."271 The protection of children is thus also highlighted in various pieces of legislation, including the statute dealing with the age classification of games, consumer protection, and the gambling statutes, as discussed hereunder.

Protecting the rights of children is also an international law obligation. In terms of section 39(1)(b) and (c) of the Constitution, when interpreting the Bill of Rights the court, tribunal or forum must consider international law and may consider foreign law.272 South Africa has ratified the Convention on the

267 It is worth repeating that FPB and UNISA Impact Research Report 30 found that

children in South Africa play games that have been classified for ages they have not

reached yet. See fn 18. 268 Sargeant "Rights-Based Approach to Online Economic Exploitation" 19. 269 Van der Hof et al 2022 Frontiers in Digital Health 4. 270 The Constitution is the supreme law of the country and binds all levels of

government, organs of state and individuals (s 8(1)-(2) of the Constitution of the

Republic of South Africa, 1996 (the Constitution)). 271 Section 28(2) of the Constitution. 272 Section 233 further imposes an obligation on courts, to "prefer any reasonable

interpretation of the legislation that is consistent with international law over an

alternative interpretation that is inconsistent with international law". International law

Rights of the Child (CRC),273 and one of the four goals of the CRC is to prevent harm to children.274 The CRC also contains the principle of the best interests of the child.275 Other relevant children's rights contained in the CRC are the right to play, the right to health, the right to be protected against economic exploitation and the right to data protection.276 The aim is not to discuss each of these rights but to focus on South Africa's obligation as a state party regarding children in a digital environment. It should be noted, however, that a child's right to leisure and play includes this caveat:

Leisure time spent in the digital environment may expose children to risks of harm, for example, through opaque or misleading advertising or highly persuasive or gambling-like design features. By introducing or using data protection, privacy-by-design and safety-by-design approaches and other regulatory measures, State parties should ensure that businesses do not target children using those or other techniques designed to prioritize commercial interests over those of the child.277

The Committee on the Rights of the Child that monitors the CRC278 issued

General Comment No 25 on Children's Rights in Relation to the Digital Environment. This General Comment explains to a State party how to implement and comply with its obligations under the CRC vis-à-vis minors in the digital environment.279 The guidance is comprehensive and includes: one, the involvement of national and local bodies to oversee and coordinate the fulfilment of these rights;280 two, taking appropriate measures to protect children from content risks,281 including consultations282 and amending

includes binding and non-binding law (Schäfer Child Law 84; S v Makwanyane 1995 3 SA 391 (CC) para [35]). 273 South Africa signed the documents in 1993, but the Convention was ratified and

assented to in 1995. 274 Van der Hof et al 2022 Frontiers in Digital Health 3. 275 Article 3.1 of the Convention on the Rights of the Child (1989) (the CRC), although

the principle is seen as the "primary consideration" in all matters dealing with the child. Also see art 12 of the General Comment 25 on Children's Rights in Relation to the Digital Environment UN Doc CRC/C/GC/25 (2021) (the General Comment).

276 Van der Hof et al 2022 Frontiers in Digital Health 3. See respectively arts 31, 28, 32 and 16 of the CRC.

277 Article 110 of the General Comment. State measures should not curtail a child's access to the digital environment as a whole, however, or interfere with the child's leisure opportunities or rights (art 111).

278 Article 43(2) of the CRC. 279 Article 7 of the General Comment. Also see Schäfer Child Law 79. The South African courts give substantial weight to these General Comments (Schäfer Child Law 81).

280 Article 13 as read with art 27 of the General Comment. There is an obligation on these bodies of independent monitoring regarding their fulfilment of these duties (art 31 of the General Comment).

281 Article 14 of the General Comment specifically mentions the risk of exposure to gambling.

282 Article 34 of the General Comment requires the involvement of civil society in the development and implementation of these rights. The General Comment promotes international and regional cooperation as well as the exchange of expertise and good

national legislation to bring it in line with the CRC;283 three, conducting research284 and providing information and education to all stakeholders;285 four, respecting and having due regard to the views and evolving capacities of the child when developing legislation, policies and programmes and when designing and applying appropriate safeguards;286 five, enforcing these measures and providing children with access to justice, effective remedies and appropriate reparations287 and ensuring compliance by the business sector also through developing industry codes to the highest standards of ethics, privacy and safety;288 and lastly, ensuring that providers apply "concise and intelligible labelling, for example on the age-appropriateness or trustworthiness of the content".289 This General Comment has been

practices to promote the protection of these rights (arts 123-124 of the General

Comment).

283 Article 23 of the General Comment.

284 Article 30 of the General Comment. This should include collecting data and mandating impact assessments to inform policies to address these issues (arts 2324 of the General Comment). To regulate against known harms, State parties must proactively consider emerging research and evidence in the public health sector to prevent inter alia services that may damage children's mental health, and to prevent unhealthy engagement in digital games designs that undermine a child's development and rights (art 96 of the General Comment).

285 This includes the duty to disseminate information and conduct awareness campaigns and educational programmes for children, parents, professionals, the business sector and policymakers (art 32 of the General Comment). Also see the art 49 obligations to provide children with child-sensitive and age-appropriate information about complaint mechanisms, services and remedies should their rights be violated in the digital environment. Art 55 has the same obligation vis-à-vis content labelling. There is a duty to provide training and advice inter alia to parents, caregivers and educators on the appropriate use of digital devices to prevent harm to children (art 15 of the General Comment.) This creation of awareness in parents should include respect for a child's autonomy, capacities and privacy (art 21).

286 Articles 17 and 19 of the General Comment.

287 Article 43-49 of the General Comment. Implement measures to protect children from risks by ensuring investigation of crimes and the provision of remedies and support for child victims including child-friendly information (art 25 of the General Comment). In addition, this includes providing specialised training for law enforcement for cross-border crimes (art 47 of the General Comment). State parties must also ensure that the appropriate enforcement measures are in place and must support children and parents' access thereto. "They should legislate to ensure that children are protected from harmful goods, … such as gambling. Robust age verification systems should be used to prevent children from acquiring access to products and services that are illegal for them to own or use" (art 114 of the General Comment).

288 Article 39 of the General Comment. There is a duty to protect children against the infringement by the business sector (arts 35-36 of the General Comment. This includes that State parties must require the business sector to undertake child right's due diligence and impact assessments and disclose them to the public (art 38)). The protection of privacy is also addressed in arts 67-78 of the General Comments, particularly where businesses rely financially on the processing of personal data as set out in art 40 and the aim in art 42 is to prevent the profiling and targeting of children for commercial purposes.

289 Article 55 of the General Comment.

published very recently and no action has been visible in the country as yet to implement its guidelines.

Several statutes reiterate a child's right to protection, including the Films and Publications Act 65 of 1996, the Consumer Protection Act 68 of 2008 and the ten gambling statutes discussed hereunder as a possible vehicle to include in the CRC requirements. The issue of children's rights in video games and specifically the concerns pertaining to loot boxes have not been given specific attention in South Africa, however. One of the questions to be answered is whether some of the existing frameworks and legislative provisions could or should be used or amended to deal with the specific loot box concerns.

Before considering the legislation it may be appropriate to make a brief comment on the gaming industry's response in South Africa to date.

6.3 Self-regulation and the gaming industry response

There is no single organisation that represents the South African gaming fraternity. There are two existing organisations: Interactive Entertainment South Africa (IESA), which has commented on possible policy changes to the Films and Publication Amendment Act of 2015,290 and the organisation Games Industry Africa, which is only an information source for the industry. Their impact on implementing changes in the industry seems to be minimal. South Africa does benefit from international industry initiatives, however, specifically where games are amended to be more ethical for whatever reason such as pressure from foreign jurisdictions and storefront policy changes; and classifications by foreign rating organisations that are adopted here.

6.4 Legislation

The existing legislation already directly or indirectly applicable to video games and potentially loot boxes is the following: the Films and Publications Act 65 of 1996, the Consumer Protection Act 68 of 2008 and the eleven gambling statutes. Each of these will be discussed hereunder.

290 IESA for example commented on the Films and Publications Amendment Bill [B 372015] (IESA date unknown https://pmg.org.za/files/160830iesa.pptx). The Games Industry Africa (GIA) of Vic Bassey is merely a source of information about the African games industry but does not provide any regulatory or evaluation support (GIA date unknown https://gamesindustryafrica.com/about/).

6.5 Conclusion

South Africa has existing legislation that could potentially deal with some of the concerns about loot box and could partially meet the constitutional and international law imperatives vis-à-vis minors.

The Films and Publications Act could be amended to include classifications for gambling, simulated gambling and in-game purchases, to inform minors and parents of the contents of games. In addition, the existing information and education programmes could be extended to these issues. This would address one of the many CRC obligations, namely to ensure concise and intelligible labelling with age-appropriate indications of the content.

In its current form customers, parents and other stakeholders may lodge complaints with the CPA to investigate, and the CPA could then issue compliance notices with the usual consequences for non-compliance. This individual approach would not deal with the concerns effectively, however.

The gambling legislation is applicable to tradable loot boxes and in theory the various gambling boards should be able to act against the game developers and distributors. Whether the regulatory boards regard it as part of their duties and whether there is the will to do so is debatable.

357 Section 12 of the National Gambling Act. 358 Section 14 of the National Gambling Act. 359 For an overview of their treatment services, see SARGF date unknown

https://responsiblegambling.org.za/treatment-programme/. They are geared to

adopt the newest research in treatment options such as the 2022 research by Andréa

et al 2022 Upsala J Med Sci 6. 360 Powers 2021 https://www.vgr.com/south-african-gamers-still-cant-access-the-gta

online-diamond-casino/; and ENUK 2019 https://esports-news.co.uk/2019/08/26/

countries-that-have-banned-the-new-gta-casino-and-why/.

These options are insufficient to protect consumers and especially minors against the potential harms of loot boxes, however. The obligations placed on South Africa by the General Comment of the CRC still need to be addressed: which national and local bodies will oversee and coordinate the fulfilment of these rights? What appropriate measures will be taken to protect children from content risks? Who will initiate and drive the consultations and amend the national legislation to bring it in line with the CRC? Which organisation will conduct the research and provide the information and education to all stakeholders? Who will consult with minors when developing legislation, policies and programmes and when designing and applying appropriate safeguards? Who will enforce these measures and provide children with access to justice, effective remedies and appropriate reparations and ensure compliance by the business sector? Who will develop the ethical codes for the industry?

Netherlands

Uitspraak 202005769/1/A3 (2022) Afdeling Bestuursrechtspraak Raad van State (9 March 2022)

South Africa

AK Entertainment CC v Minister of Justice 1994 SA 736 (E); 1995 1 SA 783 (EC)

AK Entertainment CC v Minister of Justice and Minister of Law and Order

1994 1 SACR 362 (E)

Astraton Investments CC v Premier of KwaZulu-Natal (NPD) (unreported)

case number 2795/00 of 2 October 2000 Casino Enterprises (Pty) Ltd v Gauteng Gambling Board 2011 6 SA 614 (SCA)

Murray v National Consumer Commission NCT/4570/2012/101(1)(P) [2012] ZANCT 17 (30 July 2012) Print Media South Africa v Minister of Home Affairs 2012 6 SA 443 (CC) S v Makwanyane 1995 3 SA 391 (CC)

S v Ramos 2005 2 SACR 459 (C) Van Wyk v Lottoland South Africa (Pty) Ltd) ARB Ruling 2236 of 1 November 2022

Legislation

The Netherlands

Wet op de Kansspelen (Wet van 10 december 1964, Stb1964, 483)

Japan

Act Against Unjustifiable Premiums or Unexpected Benefits and Misleading Representations Act 134 of 1962

South Africa

Constitution of the Republic of South Africa, 1996 Consumer Protection Act 68 of 2008 Eastern Cape Gambling and Betting Act 5 of 1997 Electronic Communications and Transactions Act 25 of 2002 Films and Publications Act 65 of 1996 Free State Gambling, Liquor and Tourism Act 6 of 2010 Gauteng Gambling Act 4 of 1995 KwaZulu-Natal Gambling Act 10 of 1996 Limpopo Gambling Act 3 of 2013 Lotteries Act 57 of 1997 Mpumalanga Economic Regulator Act 2 of 2017 National Gambling Act 7 of 2004 National Gambling Act 33 of 1996 National Gambling Amendment Act 10 of 2008 North-West Gambling Act 2 of 2001 Northern Cape Gambling Act 3 of 2008 Western Cape Gambling and Racing Act 4 of 1996

South Korea

Youth Protection Revision Act 11048 of 2011

Government publications

South Africa

GN R1514 in GG 19503 of 20 November 1998 GN R348 in GG 19848 of 15 March 1999 GN 83 in GG 36123 of 8 February 2013 GN 1174 in GG 43872 of 6 November 2020 GN 2218 in GG 46649 of 1 July 2022 GN R2432 in GG 46839 of 2 September 2022 GN 2682 in GG 47373 of 28 October 2022