(Bloomberg Opinion) -- It’s tempting to mark this week’s news of video-game restrictions in China and a U.K. law intended to make the internet safer for children as just another episode in the long, ludicrous history of moral panic in gaming.
Over the decades, depictions of pixelated blood, virtual car-jackings and sex with aliens have sparked all kinds of outrage that would seem quaint today. Arcade classic Space Invaders was once described in the U.K. Parliament as an addictive trigger for “theft, blackmail and vice.”
Yet some of the growing anxiety over gaming’s gambling-style mechanics, data collection and exploitative business practices is justified. Especially considering that after a pandemic boost, the industry has become bigger than movies and sports combined. China’s approach looks uniquely extreme, but even in the U.S. and Europe it seems like self-regulation will only go so far.
The focus of the U.K.’s recent “Children’s Code” on specific data-privacy standards for under-18s is a step in the right direction, even if it’s only a starting point. The proliferation of free-to-play apps squeezing billions out of downloadable add-ons and other forms of gaming “hypermonetization” rely on rich seams of user data, often mined from kids.
This can be a competitive advantage, as Joost van Dreunen’s book “One Up” points out. But it also brings the harms of data breaches, advertising targeted to minors and addictive gameplay loops that hook players the wrong way. One game developer compared the power of data-driven profiling to handing a “micro-targeted cigarette” to vulnerable smokers.
The boundaries between gaming and gambling are also getting blurred. The industry is right alongside the new breed of financial-trading and sports-betting apps in using cuddly graphics and dopamine-stimulating rewards systems to keep customers hooked. The U.K. government is even considering whether to regulate loot boxes — virtual treasure chests you buy to get randomized goodies to use in games — as gambling products. Belgium and the Netherlands have already declared them illegal.
Although loot boxes are often described as “surprise mechanics” by the likes of Electronics Arts Inc., akin to a Kinder Egg, a research project earlier this year found they can encourage what looks like problematic gambling behavior. They are estimated to generate $20 billion annually by 2025, according to Juniper Research.
Consumer harm will be an ongoing issue as financial rewards continue to flow into gaming. Thanks to the pandemic, more of our lives are spent online, and tech firms’ ambition to combine always-on virtual worlds into an immersive “metaverse” will bring some hair-raising possibilities.
Gaming platform sensation Roblox Corp.’s digital Lego-style worlds clearly inspire fun and creativity. But its creator economy is also inextricably tied to the labor of under-13s (54% of users) and developers who receive a nominal 25% cut for their efforts. The firm has pointed to hundreds of developers who earn over $85,000 a year from their work, yet it’s still unnerving to see one disillusioned 11-year-old take to YouTube to say people are being “lied to” about how easy it is to be successful on the platform.
It also won’t be too long before we see the same “play-to-earn” mechanics seen in cryptocurrency-fueled games like Axie Infinity — which rewards players for breeding and battling digital monsters — into the mainstream.
To be sure, even if more scrutiny on the gaming industry makes sense, it’s hard to see the benefit of China’s regulatory approach, which combines censorship, paternalism and protectionism without taking into account the benefits of gaming, as my colleague Tae Kim has written. Better for regulators to focus on practices that carry privacy and financial risks to underage gamers, including mechanics that resemble gambling at a time when betting apps are booming.
For the time being, game publishers’ stock prices look fairly resilient, even if moves like China’s are seen as a threat to chunky valuations like Roblox’s, according to Mirabaud Securities analyst Neil Campling. But investors talking the talk on ESG concerns should be more willing to walk the walk on gaming. And there’s a long way to go here. Bloomberg Intelligence’s Matthew Kanterman cites recent high-profile departures at gaming companies linked to allegations of sexual misconduct, as well as slow progress in the sector’s workforce diversity.
Companies know which way the regulatory wind’s blowing. Just look at Epic’s purchase of kid-tech platform SuperAwesome, which aims to build “kid-safe services.” Political pressure isn’t going away: Loot boxes and in-game purchases respectively score a net concern of 62% and 51% among U.K. members of parliament, according to Greenstone Research polling.
Making money from games isn’t going to be as easy as getting kids to pump quarters into an arcade machine. Maybe that’s just as well.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.
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