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Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

Federal Ban on Microtransactions

Our views regarding a federal ban on microtransactions

Federal Ban on Microtransactions

This proposed federal bill sets a dangerous precedent for online transactions and is an overreach of government regulation in the private sector. Below are my reflections on this topic and its implications not only for gaming but online transactions at large.

> What happened: Senator Josh Hawley of Missouri plans to introduce a federal bill that would ban loot boxes — a random collection of items that players can buy in a game — and other types of microtransactions in video games (full article here).

> Why is he doing this: the senator tweeted on Wednesday his firm belief that "video game companies are using 'pay-to-win' and 'loot box' systems to addict children to their games and spend their parents’ money.”

3 Key Components & Views on Each

1) Loot Boxes - even though countries like Germany, Sweden, and the UK have deemed these as not gambling in nature, there is an argument to be made that the randomness of loot boxes mimics a slot machine in Las Vegas and should, therefore, be regulated as gambling. However, unlike slot machines, you still receive something of value (vs nothing) when you buy a loot box. I believe that the government should mandate more transparency but should not ban loot boxes. When you buy a loot box, you should have more insight into the odds of winning the more scarce items. If we haven’t banned the sale of packs of Pokemon cards or baseball cards yet, then we shouldn’t ban loot boxes.

2) Pay to Win - in the aftermath of EA’s debaucle with Battlefield (i.e. I spend money in-game and have an advantage over other players), you’ll be hard pressed to find an industry person who thinks “Pay to Win” is a good idea for developing a loyal fan-base or a thriving community of players. However, this merely falls into the category of a “bad business idea” but that doesn’t mean that it should fall under the umbrella of government regulation. In my view, it’s not the government’s role to keep businesses from creating less-than-optimal marketplace dynamics for their platforms and product offerings.

3) Microtransactions - buying items in a digital marketplace is no different than buying products at the mall, movie theatre, or amusement park. If the government wants to stop game developers from selling to those under the age of 18, then what’s to stop the government from banning the youth from purchasing anything that is even remotely “addictive”: candy, burgers, toys, arcade coins, movie tickets, fashion, collectibles, baseball cards, and the list can go on & on.

3 Macro Reflections

1) A Dangerous Precedent: this bill sets up a dangerous precedent for merchant liability for online transactions across almost every industry. The regulations set forth in Senator Hawley’s porposed bill would inevitably lead to a merchant being liable for letting that credit card be charged without verifying that the purchaser is over 18 (near impossible to verify remotely).

Today, even for items that have an age restriction (gambling, tobacco, alcohol), any online activity or purchase is a self-verification process where the purchases says that they are above the legal age to purchase (check the box). This absolves the merchant of the liability and is standard. For other merchants across a variety of industries, they don’t have to verify that the credit card owner is actually of legal age or that the card owner is actually standing right there at the point of transaction (i.e. if a kid has their parent’s card). The fact that this regulation is trying to force this on game developers is inconsistent with other industries that allow the purchaser (youth included) to absolve the merchant of the liability.

2) Spending Limits = Bad Idea: Game developers should not be liable if a credit card keeps spending money in their platform. Other industries are not held to this standard and neither should video gaming. However, if a game developer chooses to include spending controls for users under 18, that’s their choice (at their expense) and it will likely be a welcomed feature (not mandated regulation) attracting more families and parents to that merchant (game developer).

3) Gaming will echo Facebook’s pain: it’s highly unlikely that this bill will pass, yet it’s not the last we’ll see in this space. There is an education gap between the legislators and the video gaming industry. I foresee a similar amount of backlash to video gaming that will have echoes to Washington’s reaction to Facebook in recent history and congressional hearings.