The Worst Hot Take On Loot Boxes Has Been Delivered

Are gamers being undercharged for games? Like all things, it's complicated.

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Loot boxes and microtransactions are the issue of our time. I would argue that gamers, who have maybe been a bit lax with regard to changes in the industry, are starting to wake up and realize that being squeezed for more cash at every turn is a bad future. Publishers and developers, on the other hand, are feeling heavy pressure from investors to further monetize their products as much as possible. It’s a time of clashing priorities and cultures.

Exactly how successful the games industry can be with turning people into whales, while limiting active disengagement from other consumers, shall determine a lot of things about the future of the industry. Players themselves are split on the issue. Some don’t care, and others have a habit of not caring about what their favorite developers do while deriding those same practices from developers they don’t like. Some are willing to accept cosmetics or limited application of the loot box systems, and others don’t want to accept anything at all. This is what happens when billions of people from different places, both on the globe and in their lives, come face to face with an industry change.

Hot Take Incoming

One of the more interesting, and poorly argued, takes I have seen on the whole thing comes from Evan Wingren of KeyBanc Capital. Evan is an analyst and believes what all analysts believe; the consumer can always be separated from more of their cash. As a former Analyst for a multi-billion dollar company, let me tell you, good data analysis is hard to find. Evan’s may just be a little off. In a note to investors, reported on by CNBC, Evan had the following to say:

We view the negative reaction to Star Wars Battlefront 2 (and industry trading sympathy) as an opportunity to add to Electronic Arts, Take-Two, and Activision Blizzard positions. The handling of the SWBF2 launch by EA has been poor; despite this, we view the suspension of MTX [micro-transactions] in the near term as a transitory risk,

I don’t disagree with Evan on this point. In fact, I think he is bang on the money. EA clearly handled this situation poorly, and have been honest in saying that MTX shall return to Battlefront 2. Recently, reports out of the UK do let us know that EA are on shakier ground than they appear, with boxed copies of Star Wars : Battlefront 2 suffering a severe downturn compared to the original game, and last year’s Battlefield 1. Truth be told, it is too early to know how much of a long term affect this will have, though. EA can still right the ship and have done it before. Where Evan starts to miss the mark, for me, is with the below.

Gamers aren’t overcharged, they’re undercharged (and we’re gamers) … This saga has been a perfect storm for overreaction as it involves EA, Star Wars, Reddit, and certain purist gaming journalists/outlets who dislike MTX.

For an analyst to write off one of the largest instances of consumer backlash in recent years as a non-issue is a huge mistake, and a surprising one from somebody in his position. The type of event we witnessed around Star Wars: Battlefront 2 is what we would normally refer to as a “tipping point”. When something unusual happens, it casts a degree of uncertainty upon the events that might follow. Righting them off as overreaction is a mistake.

This is then compounded by the following quote:

If you take a step back and look at the data, an hour of videogame content is still one of the cheapest forms of entertainment. Quantitative analysis shows that videogame publishers are actually charging gamers at a relatively inexpensive rate, and should probably raise prices.

Now for the fun stuff; the math and comparisons that Evan uses to back up this stance. Evan goes on to say that if a consumer pays sixty dollars for SW: BF2 , and invests a further $20 for loot boxes that, once they play the game for two and a half hours, every day for a year, the cost per hour of their entertainment is only forty cents. He then compares this to sixty cents per hour for television, eighty cents per hour for a movie rental, and three dollars per hour for a visit to the theater to see a movie.

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Sounds like a bargain, until you go about dismantling Evan’s idea as to the playing practices of the average gamer. The average player of online games, the fair comparison for SW: BF2, spends six and a half hours a week playing games. Evan’s value numbers have them playing for nearly three times this amount. He also has them playing the same game every day for a year. It’s a stunning mistake, or lie, depending on how generous you feel like being towards the guy. It’s a clear incident of someone trying to force a market trend with either accidentally or purposely flawed data. It is especially egregious when he is trying to use these numbers to argue that people should be charged more for the things they buy.

Flawed Methods

It is also a case of some very cherry picked comparisons. As a Star Wars fan I could go out right now and buy a soundtrack for any of the movies, a Blu-ray, one of the many Star Wars books or comics, and I would have these items forever. I would be paying for potentially decades of ownership and entertainment making them a much greater value proposition. If I wanted too I could analyze the value of Star Wars from the point of view of someone who was only interested in the campaign, netting you a massive per hour cost of twelve dollars. Basically, data viewed with an agenda normally needs to be ignored, because it is incredibly easy to skew numbers in the direction you want. With Evan’s ridiculous assumption about how many hours people would spend with a game it would seem that this was the goal here. Truthfully, I could pick any conditions I wanted to result in a data set that I wanted. It is why data analysis in academia tends to be subjected to peer review. Mistakes or biases in the methodology are then, hopefully, worked out.

One of the common arguments for games is that the price hasn’t really changed over the years, and this is true. People neglect to mention that it cuts both ways, though. During the recent global financial crisis, when many industries dropped the price of goods, the cost of games never went down. I don’t want to get into the nitty gritty of this particular argument, but I will also point out that games have benefited from things like a growing market, lower distribution costs, and other factors which have seen the industry grow by a billion dollars year on year for nearly the last decade. That is a lot of growth, and it implies that if you introduce new people to gaming as a pastime that they will opt in, and if you provide products that you’re already engaged user base wants, then they will buy them. All they really seem to want is something that they can consider a fair deal.

I also think that Evan, and I assume others, are missing a key point about all this. It has been a reaction to what gamers have perceived as freemium economies in premium games. EA pushed a bit too far and fans reacted with backlash. Many publishers, and EA themselves, have managed to include MTX in games without this reaction, on this scale, with this much impact. Most gamers are pretty understanding of the fact that publishers need to make money, and that investors need to see bigger dividends, they just don’t want to be squeezed too hard. And they certainly don’t want some analyst with a poorly thought out argument to tell them they should be thankful the industry doesn’t squeeze harder. Most gamers want to buy their five to six games a year, and play for six hours a week. That is what the actual data tells us. The fact that EA have had to roll back on their MTX systems in the new Battlefront and the new Need For Speed in the same week tells you that they simply misjudged how to implement these systems based off their goals and internal culture at this time.

Now, maybe I am just part of that purist media problem he mentioned, but I just want to see gamers pushing back against practices that are fundamentally unfair and this whole kerfuffle has been a nice start. As I said, I understand the need of companies to make money, but I would ask EA to take a look at that share price for the last few years. Games as a service can work for everyone if it is approached in a smart fashion, but there is a lot of work still to do for Triple A publishers finding the best way to marry that sixty dollar price tag with MTX systems. The games industry is growing, and has been for years. There will be more money made off it next year than any year before, if the trends keeps going. There will be no better way to kill that trend than by not learning from this mistake.

Games as a service cuts both ways after all. Gamers are now aware that when the support stops coming, and the servers are turned off, the money that we are investing in these games is gone. The future is filled with new consoles and PC hardware, new operating systems and online requirements that mean the games we play now will not be playable then. I don’t think it’s a massive ask for people like Evan to just keep things realistic when looking at how much people should be expected to pay in order to play.

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Whether or not gamers are being undercharged for games is a matter of perspective. It is normally best to offer some reasonably evidence for your argument when you agree or disagree. A recent report from an Analyst was a bit lacking, so Aidan explains why he felt the analysis itself was flawed.
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