Gaming series #8: Challenge of regulating in-game spending to protect online child safety

In-game purchases, dark patterns, and online harms are a growing concern for consumers and regulators alike. In-game spending has overtaken traditional revenue streams such as video game purchases and now represents the biggest share of the gaming industry’s revenues. Given increasing potential for reputational harm and regulatory scrutiny, understanding the relevant harms and the regulatory landscape, which is evolving to address those harms, has never been more critical. 

In this post we explore the growing phenomenon of microtransactions, examining the regulatory framework in the UK and the broader implications of the choice architecture surrounding these types of revenue-generating features in video games.

Some terminology: [click the arrows]

These include:

Microtransactions may be encouraged by:

Consumer concerns, increasing regulatory scrutiny and litigation

Due to high costs of the technology and talent necessary to create video games, alongside increasing competition, it is becoming more expensive for video game publishers to develop games. Gaming companies therefore seek to offer in-game purchases to drive revenue once players are significantly immersed in a game. These in-game monetisation strategies have now become a major source of revenue for the industry, with in-game purchases expected to generate more than $ 74.4 billion by 2025. 

There are growing concerns about the impact of in-game spending on children and young people. A 2022 report by the UK Safer Internet Centre found that 70% of young people who play games online have made a purchase within a game, with 31% reporting that they do this at least once a week. As more and more young people play video games online, in-game spending naturally becomes a greater concern – the graph below shows the growth of youth-focused online game platform, Roblox:

A recent study conducted by Newcastle University and Loughborough University evidenced “loot boxes, can and do cause harm to children and young people, including forms of financial and emotional harm.” So it’s unsurprising that governments and regulators across the globe have also been focusing on these issues for some time. 

As early as 2019, a UK government inquiry into addictive and immersive technologies heard stories of children who’d built up debts over £1000 from in-game spending. And in March 2023, Epic Games agreed to a settlement of half a billion dollars with the US Federal Trade Commission for its deceptive game design (equating to dark patterns that encouraged microtransactions) as well as its use of children’s data.

Concerns have also led to major private litigation – just last October, Epic Games, the publisher of the vastly popular game Fortnite, paid out 2.75 million Canadian dollars in a class-action settlement over loot box spending.  

UK Regulatory Approach: Pro-innovation and the bigger picture

In July 2022, following a review of in-game spending, the UK’s Department for Digital, Culture, Media & Sport (DCMS) set out their plan to improve protections for children from the potential harms of in-game spending and related addictive technologies (including mental health, financial and gambling-related harms). In particular, the DCMS considered the following questions:

• Does lootbox spending amount to gambling?
• Do design and marketing techniques in video games amount to dark patterns that mislead or take unfair advantage of players?

The government stopped short of labelling loot box spending as gambling. Instead, it stated that microtransactions should be unavailable to children unless enabled by a parent or guardian and it sought to encourage spending controls and transparency measures, while promoting longer term research into the impacts of video games.

Focus on dark patterns

In its gambling white paper of April 2023, the DCMS maintained that loot box spending does not amount to gambling. But they reiterated that there is still more to be done to make game play more transparent, whilst reducing deceptive design and behavioural nudge techniques akin to dark patterns. Certainly the issues at stake are far greater than the simple question of whether loot box spending is gambling. 

As the digital ecosystem develops and dark patterns become embedded in the user journey of online platforms, the real question is what does it mean for children to grow up with increasingly addictive and immersive technologies that rely on soaring screen time? Recognising the complexity of this issue, the Information Commissioner’s Office (ICO) and the Competition Markets Authority (CMA) issued a joint paper in August 2023 about harmful design in digital markets – exploring how online choice architecture undermines free decision making and individual control of personal data. The paper set out the regulators’ concerns and expectations in the field of dark patterns:

• Certain design practices influence consumers’ decisions in ways they are not aware of and may not want.
• These practices can encourage users to provide more personal information than they would otherwise choose to as part of receiving those services. 
• These design practices can make it difficult for consumers to make informed decisions, which risks violating consumer protection law and data protection law.

Based on the public statements from the CMA and ICO, it’s likely that we’ll only see regulatory scrutiny increase in the area of dark patterns throughout 2024, whether in the gaming sector or beyond.

The future of gaming: VR and beyond

With the advent of new hardware, such as the Apple Vision Pro and Meta Quest 3, virtual reality (VR) and augmented reality is set to take off in online gaming. A key selling point of global VR games is that they allow players to feel as though they are in the same room, no matter where they actually are. However the regulatory approach to in-game spending remains territorial and diverse. For instance, Activision Blizzard launched a popular mobile version of the game, Diablo Immortal in 2022 but declined to publish it in Belgium and the Netherlands, given the stricter regulatory environment in these jurisdictions. 

VR games targeted at a global audience which are marketed as transcending national borders, will need to navigate the varied territorial regulation in this sector. Gaming companies will not be able to escape national regulation when designing VR games for a global audience.

The path forward

As the industry pushes new boundaries, the obligation to protect consumers – especially children – from online harms and dark patterns only becomes more critical. We are likely to see further regulatory developments, particularly in the UK, with the ICO and CMA paying close attention to these developments.

Video game companies will need to commit to ethical practices, consumer protection, and engagement with the developing regulatory process. The conversation around in-game purchases, dark patterns, and online harms is intensifying, as different stakeholders strive to ensure that video games remain fair, transparent, and enjoyable for all. As the industry evolves, regulators, gaming companies, and consumers must all play a role in shaping an environment that promotes healthy gaming habits.