The Future of the Electric Vehicle Market: Challenges and Solutions

Tesla Cybertruck (photo from www.tesla.com)

Last week the world saw yet another one of Tesla’s creations, the Cybertruck. This electric pickup truck that looks like a prop from a futuristic science-fiction film can accelerate from 0 to 60 mph in 2.9 seconds and boasts a driving range of up to 500 miles. The Cybertruck can easily rival a conventional internal combustion engine (ICE) automobile in performance, however, with a price tag of $69,900 for such performance, it is far from being affordable to most people. Although the industry is putting out cheaper models every year, generally electric vehicles cost more than gasoline-powered cars. The long-standing issue of a limited driving range poses a significant barrier for potential consumers. Additionally, the current infrastructure is insufficient to provide for comfortable use of electric vehicles and to dispel consumer doubts. On the supply side of the market, manufacturers often face production issues when demand suddenly spikes and there is a shortage of materials. Given that the electric car manufacturers operate on thin profit margins these challenges, or rather the ability of the industry to overcome them, will shape the market over the next two decades. 

What is going on in the market today?

The electric vehicle industry is growing at an unprecedented rate. Last year, global EV sales were over 2 million units, a 63% jump from 2017. Out of 2 million units sold worldwide, China accounted for a lion’s share of sales. In the United States alone, the number of electric cars on roads has grown from barely a dozen thousand in 2011 to over 1.1 million cars in 2019 (reference figure 1 below). No doubt, electric cars are gaining increased popularity among drivers. Tesla Model 3 best showcases this trend as it became the best-selling electric car in the world in 2018 with 138,000 units sold, outselling its Chinese rivals BYD and BAIC as well as Nissan Leaf.

Figure 1

Tesla is still in the lead in terms of sales even surpassing the sales of luxury gasoline-powered car brands such as BMW in the United States. However, since Tesla unveiled its first electric car in 2008, other players have joined the race for EV dominance. Well-established automakers such as Volkswagen, BMW, GM, and Toyota are investing heavily in transitioning to electric vehicle production. Volkswagen is spending billions of dollars to reshape its factories for electric car production. The company has already revealed its first electric car model, ID. 3 1ST, which will start deliveries in 2020. It will offer free battery charging for a year and the vehicle will cost less than $45,000. Additionally, according to CNN Business, Volkswagen Group, which owns luxury car brands such as Porsche and Lamborghini, will spend $34 billion over the next half-decade to develop an electric or hybrid model of every car currently in production. Toyota claims 50% of its automobile sales will be electric in 2025 and plans to electrify all models by the same year. This year, BYD, a Chinese EV car brand that is barely mentioned in the west, began sales of its cheapest model, e1, starting at $8,950. Although the driving range is significantly lower than that of Tesla, the price provides an exceptional opportunity for the company to capture a sizable market share in China. According to Bloomberg, BYD Co. is now the largest producer of plug-in electric vehicles with monthly sales of 30,000 units in China. Favorable market conditions in China prompted the entry of startups as well. Premium EV startup, NIO, went public in the U.S. in 2018 and is already ramping up its production and deliveries in China. Multiple reports including Bloomberg predict Chinese EV makers will account for at least a third of the world’s production in a decade. 

The main driver of growth: incentives

Aware of the current state of climate issues, governments worldwide are implementing strict CO2 emission policies and subsidizing buyers to expedite the transition from ICE cars to electric. Multiple countries have announced various bans on new gasoline vehicles. Norway, for example, stated there will be no sales of gasoline cars by 2025. The Netherlands said all vehicles will be emission-free by 2030 while the United States plans to reduce car emissions to zero by 2050. In order to achieve these ambitious goals countries are heavily subsidizing consumers. The Chinese government has been especially active in encouraging development in the market, hence the visible progress. It has implemented license-plate restriction on gasoline cars in Beijing and, until recently, China incentivized consumers to purchase electric cars by providing credits of up to $7,400. This year China raised its 2025 sales target for EVs from 20% to 25% to spur progress. England is pushing regulation to discourage fossil-fuel car use as well. According to a McKinsey report, local authorities in London are placing $16 daily fees on overly polluting vehicles in “ultra-low-emission zones”. In the U.S., buyers of electric vehicles can get a tax credit from $2,500 to $7,500 when purchasing a new electric car. Buyers in California are eligible for even higher tax credits. Some cities such as San Jose provide extra purchasing subsidies of $2,500 in addition to IRS incentives. Even Ukraine, Europe’s poorest country, offers subsidies by waiving a 20% VAT on all imported electric cars. 

Current challenges: cost, range, infrastructure

As impressive as the progress looks, the global EV market is facing numerous challenges that currently limit the growth of the industry as a whole. The most noticeable issue is the high price of electric vehicles. This year, the average price of an electric car in the U.S. was $55,600, while the average price for a full-size gasoline car in 2018 was $34,925. Hybrid cars were even cheaper with the price hovering around $27,600. There are several reasons why EVs cost more than conventional vehicles. EV producers focus on building luxury models thus driving up the average price. BMW’s cheapest EV model starts at $44,500 while Audi’s SUV starting price is $74,800. In terms of economics, a major price driver is a high vehicle production cost. The battery pack is one of the main contributors to an overall high price. Batteries are expensive to make and the process behind manufacturing cells is incredibly complex. Today, manufacturers use lithium ion batteries in production. According to an Accenture report on the industry, because lithium is a rare metal sensitive to shortages and price shocks it creates certain risks and can cause production issues or delays. Ultimately, the main factor contributing to the high costs of producing batteries and assembling cars is the scale of production. Currently, the industry does not have the demand nor the funds to scale its production. Therefore, consumers assume the burden of cost. In addition to high upfront costs, two other major public concerns slowing down the growth of the industry are the range and availability of infrastructure. The first concern is tied directly into battery production. However, a Deloitte report analyzing the EV industry states that as next-generation electric vehicles are introduced, and the battery technology improves, the “range anxiety” will become obsolete (refer to figure 2 below). According to the U.S. Department of Energy, the median drive range has already increased from 73 miles in 2011 to 125 miles last year.

Figure 2 (graph retrieved from Deloitte)

A far more pressing issue is the charging infrastructure. As of 2019, there were only around 10,000 public charging stations in the United States. Center for American Progress, a public policy research organization dealing with economic and social issues, stated that in order to support an increasing number of EVs in the U.S. the country must dramatically improve its charging infrastructure. It cannot accommodate the increasing demand for electric cars. It is estimated that the U.S. will need to invest around $4.7 billion by 2025 to install 330,000 public charging stations throughout the country. 

How to address the concerns and challenges?

These challenges create substantial barriers for growth, however, there are several developments in the industry that will likely resolve issues with production, infrastructure, and consumer demand. Ultimately, it comes down to reducing costs for manufacturers without sacrificing the quality of production. The key factors are scale, location, and strategic partnerships. EV companies are already scaling up production. For example, Tesla’s Gigafactory is an expansive facility that produces batteries, car components, and solar panels and will eventually begin assembling cars. Furthermore, the company wants the factory to operate entirely on solar energy by installing solar panels on the factory’s roof. Since Tesla started building its first Gigafactory in Nevada, it has already built a second factory in the U.S. and a third in China. Moreover, recent plans were announced to build a Gigafactory in Germany. This will allow the company to minimize car manufacturing and shipping costs while expanding production on three continents. 

Partnering with other EV manufacturers and placing key production in advantageous locations will allow EV companies to reduce risks of battery shortage and decrease cost. NIO outsources its manufacturing and, according to The Verge, was able to start production quicker while its Californian competitors, Faraday Future and Lucid Motors, struggled to build their own factories. General Motors and LG are investing $2.3 billion into a battery plant in Ohio to jointly make batteries for electric cars. Toyota is investing $2 billion in Indonesia to manufacture electric cars. This strategy will place Toyota EV production in a country that is rich in key resources that make up batteries. Since other companies are investing in Indonesia as well, according to Businessinsider, establishing production in Indonesia will allow Toyota to work close to other EV manufacturers and: “lead to supply chain and infrastructure efficiencies that can drive down costs for components, such as batteries.” 

Government incentives will play a big role in helping the EV industry to grow. According to McKinsey, government subsidies and regulations decrease the gap between high costs and consumers’ ability to pay and directly stimulate investments in EV technology. Since 2016 the U.S. Congress has allocated roughly $8.9 billion to EV technologies R&D that includes battery and vehicle tech as well as sustainable transportation development. The funds that the U.S. Department of Energy (DOE) has been receiving from Congress has aided the development of EV technology. By 2014, DOE has helped cut battery costs by 50% which ultimately cut costs for manufacturers. In California, EV companies get a special incentive. The California Air Resources Board (CARB) enforces a cap-and-trade program to lower emissions in the state. Part of this program requires the automakers in the state to make a certain number of zero-emission vehicles a year. When companies produce more than required, they receive “allowances” which they can sell to automakers that did not meet the requirement. Such a program does two things: it encourages automakers to produce more EVs and generously rewards the EV manufacturers. By 2018, Tesla has sold $1.2 billion worth of “allowances”. Furthermore, the U.S. government aims to subsidize the costs of installing charging infrastructure. According to the Center for American Progress, 17 states have already implemented incentives to develop the infrastructure. These include tax exemptions and direct investments. The industry will, no doubt, require more robust investments and incentives on behalf of governments to develop the infrastructure to an appropriate level. To keep the industry growing it is vital for the world’s governments to directly subsidize costs for both the consumers and companies.

The future is near

Just like many other exciting developments in the modern world, the electric vehicle industry is widely discussed, especially given the climate circumstances all over the world. However, it is important to keep in mind that gasoline cars are still far more prevalent. It is estimated that non-electric passenger vehicles sales in 2018 exceeded 85 million units worldwide while electric vehicles only accounted for 2 million units. This will change, however, within two decades. The sales of EVs are expected to surpass ICEs in 2038. Already ICE auto sales are contracting in China while EV sales are growing and account for half of worldwide sales. China will, in fact, remain the largest market for the EV industry, although its market share will start declining in about 5 years (see figure 3 below). 

Figure 3

Every year the costs are subsiding, the range is increasing, the infrastructure is getting more widespread, therefore drivers are more willing to purchase an electric vehicle. An Accenture global study done in 12 countries involving thousands of people showed that 60% of those who wanted to purchase a car within 10 years will probably consider an electric vehicle. This indicates a shifting mentality among the population and will drive the demand for the EVs. Cost won’t be a major issue within a couple of years. Deloitte estimates that the costs of owning EVs will reach an equilibrium point with the costs of owning ICE cars as early as 2022. McKinsey stated that as battery efficiency and economies of scale improve, we can expect a cost reduction of at least $5,100 per vehicle. As these trends emerge, the EV brands will evolve and compete for supremacy; their ability to overcome previously mentioned challenges by taking advantage of location, partnerships, and scale will determine their fate in the market. The future is not as far as it seems but is much further than we would like it to be. 

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A Tale of Two Malls: the economics of an ailing American icon

Westside Pavillion, 2008., Los Angeles, California.

If you want to find an example of the current state of American shopping mall, you may want to take a visit to Westside Pavillion in Los Angeles. Like so many dying malls across the US, Westside Pavillion is an eerie, empty site during operating hours. In better days, the mall was the site for movie shoots and music videos. Now, anchor stores like Nordstrom and Macy’s have left the mall, leaving only the Landmark Theatre, Urban Home, and Macy’s Furniture Gallery behind. The mall is set to close in 2021, and will be remodeled for office space for media and tech companies. Westside Pavillion’s story isn’t unique. For instance,  a quarter of American malls are in danger of closing.

However, some other shopping malls tell a different story. If you take the twenty minute drive to The Grove, you’ll find a different sort of retail story. Customers flock towards it’s luxury department stores and stroll through a nostalgic boulevard with a matching emerald green trolly. Built in 2001, as a “Main Street for a city that does not have one” some may see the Grove as a shining example of the new american mall. You can find the same  open air, luxury stores, and experiential designs in other popular, revamped malls like Westfield Century City and Santa Monica Place.

The Grove, Los Angeles, California Source: Wikimedia Commons

So why are some malls doing better than others? While many American malls are closing, the survivors are adapting in order to accommodate the new offline retail experience: luxury goods and attractions.  As online retail continues to grow, dying malls and retail also affect labor demands and deplete a form of revenue for some vulnerable counties.

Symptoms

How does a mall begin to die? Data shows that one symptom was the Great Recession. plowing While the recession helped put brick-and-mortars like Toys ‘R’ Us, Sports Authority, and Circuit City out of business, it had a lasting effect on malls as well. General Growth Properties, which owned almost 18 percent of American malls during the recession, filed for bankruptcy in 2009. A lack of customer traffic drove profits down. It was difficult to turn dying malls into repurposed spaces due to declining property values and the subsequent end of the building boom. Online retail also aided in the decline of American malls following the Recession.  While internet retailers represent just about 10 percent of retail sales, mall stores like Claire’s, Radioshack, and Pacsun struggled to compete with online demands.

As both department stores and small tenants began to close, vacancy rates began to rise. In 2008, the total vacancy rate for US shopping malls was 7.1 percent, compared with 5.8 percent in 2007. However, there is some evidence that the mall development explosion in the 80s and 90s just created too many stores to survive through economic recession. For example, almost 60 percent of Macy’s closing stores today are within 10 miles of another Macy’s location.  

In contrast, Nordstrom, a department store with higher price-points, has adapting changes in online retail. In addition to opening more locations, Nordstrom generates almost a quarter of its sales online, that rate is higher than its competitors in Macy’s, Kohls, and Jacey Penney who hover around 15 percent. Even with the rise of e-commerce, sash-strapped middle and working class customers have found other avenues to find what they need for lower prices. Ulta Beauty, TJ Maxx, and the Home Depot have moved into fill the needs that these anchors used to fill and continue to open stores.

When anchors close, the smaller tenants close up shop, leading to more dying malls. As of October 2018, closings of anchors like Sears, Bon-Ton, and JC Penney and mall stores like J. Crew, Abercrombie & Fitch,have pushed the total enclosed mall vacancy rate to 9.1%.   However, while B, C and D class malls- or malls in “in less desirable locations and home to less coveted tenants with lower sales per square foot” are vulnerable to vacancy rates and closing, the luxury mall or A class, has shown signs of success.

 

Only the Strong (or Wealthy) Survive

“Within 10 to 15 years the typical U.S. mall, unless completely reinvented, will be seen as a historical anachronism, “said Grove developer Rick Caruso at a National Retail Federation’s annual convention in 2014.

The “typical U.S. mall” had a Macy’s, Boscovs or Dillards. It had parking lots, skylight, and a food court. It catered towards a growing middle class with cash to spend with stores that fit their income bracket. But, Class A malls, or the kind of retail experience that Rick Caruso has built with the Grove: luxury department stores, expensive brands, and fine dining with a walkable “main street.”

While other Class A malls may lack the Caruso’s visual flare, the bare bones of their business plan is similar.  The King of Prussia mall, the second largest mall in the US, underwent a 155,000-square-foot expansion and ushered in luxury tenants like Cartier and Jimmy Choo. While luxury department stores like Neiman Marcus, Saks Fifth Avenue, and Nordstrom have fewer stores, they have locations in the majority of the the nation’s most successful malls.

According to research by Boenning &  Scattergood, the 20 most valuable malls in the country make more than 21 billion in retail sales. According to Fung Global Retail & Technology, just a fifth of the nation’s luxury malls generate more than 75 percent of mall revenues.

At the same time, income disparities continue to widen in the US. According to Vox, in the years between 1980 and 2018, “the poorest half of the US population has seen its share of income steadily decline, and the top 1 percent have grabbed more.”

“It is very much a haves and have-nots situation,” said D. J. Busch, a senior analyst to the New York Times. Wealthier americans “will keep going to Short Hills Mall in New Jersey or other properties aimed at the top 5 or 10 percent of consumers. But there’s been very little income growth in the belly of the economy.”

Data also shows that millenials have less money than previous generations, as stagnant wages, debt, and rising housing prices cause millenials to spend “nearly $20 less every day than their counterparts roughly 10 years ago,” according to a recent Gallup poll.  And as almost three quarters of millenials prefer to spend more on experiences than material items, the malls have to adapt to that need with expensive renovations.

As anchor stores marketed towards working-to-middle-class clientele close and brick-and-mortar retail demands change, luxury malls remain. If all the business has flowed towards malls with the ability to finance opulence and entertainment, what happens to the communities that called those now dead malls home?  

A Post-Apocalyptic Future

As customers lose their shopping malls, local workers lose their jobs. According to the Bureau of Labor Statistics, Department stores have shed 500,00 jobs since 2002, which is almost is almost 18 times more workers than coal mining.

Before the Recession, 2.4 million workers were staffed in retail than manufacturing and health care. However, ten years later,  the education and health services industry employs more than 34.48 Americans, while the retail industry employs 20.3 million.   

 

 

The rise of e-commerce industry has also opened up job operuntities. Amazon and other companies continue to higher more and more workers to staff fufillment positions in warehouses, all the while holding competitions to develop even more effecient robots to work in those warehouses.  

Even as American workers adapt to changing demands, communities will have to adjust from the revenue benefits of brick-and-mortar retail. Montgomery County,PA gets 50 percent of its revenue from the King of Prussia mall, the 2nd largest mall in the US. However, the county is the second wealthiest in the state by income with around a $40,076 per capita income.Other counties across the mid-atlantic region stand to be affected by the loss of the revenue from regional malls and access to jobs. Berks, Columbia, Allegheny and other Pennsylvania counties all have dying malls in 2018 and have per capita incomes less than $29,000.

The labor force participation rate decreased by more than three percentage points from 2000 to 2015. While unemployment rates remain low, fewer workers will have to support a growing retired population in the future. At the same time when other emerging employment opportunities in the gig economy have a technological timestamp, the transformation of the American mall is more than just the end of food courts and your local department store, but also provides insight into the changing nature of work, income, and consumer behavior in the US.

Games as a service has the industry in a predicament

Long gone are the days of penny arcade rooms and basic computer games. Multi-million dollar blockbusters have since taken hold and given way to a worldwide industry generating nearly $100 billion annually. Mobile games, retail games, free-to-play games, virtual reality, and esports are all segments of an industry that shows no signage of stopping.

When accounting for inflation, gaming has never been cheaper. A 2013 article by IGN details the high cost of gaming in the past compared to today. Cartridges for the Nintendo 64 that once cost $70 would require the equivalent of $100 at the time of writing in 2013. The Atari 2600 cost $199.99 in 1977 and with inflation that same console would cost $771.83.

Inflation aside, programs such as BestBuy’s “Gamers Club” which shaves 20% on new video games and the rise of second-hand stores such as GameStop have allowed gamers of all financial statures to participate.

As the decades have passed not only have games become theoretically cheaper, but their production values have increased as well. The 8-bit sprites of yesteryear have since moved on to high-resolution graphics that parallel real life. These graphics are often matched by movie-like stories and gameplay segments. But, as production values have increased exponentially so have the cost of creating video games.

For example: Star Wars: The Old Republic which released in 2011 had a development budget of nearly $200 million according to a story published by the Los Angeles Times. Grand Theft Auto V cost $265 million and the reboot of Tomb Raider carried a reported budget of $100 million.

How viable are such microtransactions? Very. This is why publishers ditched expansions in favor of them. In some cases publishers doubled down and now offer both.

The numbers above represent production costs and in some cases, do not reflect the amount needed to properly market the game, or the cost to keep the game alive post-launch. Many of these games carry multiplayer features which require continued maintenance and upkeep.

More so, the above games only represent a fraction of dozens of titles released annually. When looking at Game Informer’s 2017 release calendar, an average of 2-3 AAA quality videogames are released monthly. In peak months such as the summer, that number can quickly rise to over five.

With such a high cost of production and dozens of videogames on the market, video game publishers find themselves in need of generating revenue past the initial $59.99 entry point.  To generate more revenue to meet the rising costs of games, publishers have employed all sorts of tactics including, post-release content and pay-for cosmetic items, however, have since moved on to what is being deemed as predatory tactics in the form of loot boxes. These contents of these boxes are entirely random and can provide in-game boosts to lucky players. The battle between publishers, gamers, and now the governments of the world has the power to change the landscape of gaming forever.

Fifa 18 costs 59.99, but to truly be competitive, one must buy into the game. Coins and other items to get marquee players are sold at retailers and within the games themselves.

Originally video games were items that you bought once, however, publishers now see video games as a service. In the same vein that fans of Netflix original shows subscribe to the service above Hulu, avid fans will continue to pay into the game for added content. The shift in the landscape has tripled the value of the industry according to VG247.  At the same time this idea creates strife in that, if games are indeed a service, where fans buy into a game over time, then the game should not cost as much as it does upfront. It’s unreasonable to expect someone to purchase a game once and devote that same amount of money into it through microtransactions to remain competitive.

The idea of games as a service and loot boxes boiled over during the release of Star Wars Battlefront 2. The game aimed to improve on all the misgivings of its previous entry, but it was everything but that. Following the current trend, it carried loot boxes. The loot boxes would carry cards that help enhance a player’s ability. It was an entirely possible to play the game without ever buying them, but it was just as possible for people to get ahead quickly, creating an uneven playing ground. The game in short resembled mobile games and their pay-to-win aspects.

Much of the Playstation store for Madden is for coins to purchase card packs to boost in game play.

EA would remove the feature to purchase with real cash after gamers spoke out in droves, but those who had already acted in the lead up to the game were free to keep their earned items. It is still possible to purchase said boxes, only with in-game currency earned from playing.

As a result, it has been reported by CNBC that EA’s stock has been wiped of 3.1 billion. Still, even with such a high magnitude loss, the company is still up 39% year to date because Star Wars is only one of its many franchises and is not the only game to feature such transactions that boost revenue.

In the time since, many governments have been attempting to deal with how to tackle the issue. Loot boxes by nature tread the line of gambling. Much like a slot machine, a player pays for the box and through RNG, three or more items appear in the same vein that numbers would in casinos. And just like a casino, the odds of winning the big one, or in this case the best perks are never disclosed. More so, unlike casinos there is no oversight.

In China, the Commerce Government requires that the odds of loot boxes are disclosed to gamers. Where games such as StarCraft and League of Legends are most popular, players found that the odds of getting rare items were slim. In Dota 2, it was revealed that an epic skin, had a 2% chance of dropping. Unfortunately, publishers have found a loophole as only the Chinese version is required to do so and it is possible for such drop rates to be boosted.

Other governments have also hopped on board including Belgium where the Gaming Commission announced it has opened a case regarding the boxes and their gambling nature. Companies involved with gambling are required to have a license to operate. More so, minors and those suffering from addiction are forbidden to play or purchase

How did loot boxes come about? It wasn’t overnight. Honest post-release content became an unreliable source of income in the wake of multiple AAA titles being released monthly.

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No ruling has been met, however, a transcription from Belgian news site RTBF and a concurrent report states that the country recognizes the difficulty in regulation utilizing current laws. It calls for “closer cooperation between governments, software developers, and rating agencies.” It also states that “with the right rules and consistent enforcement,” it should be possible to “protect players from the harmful effects of gambling without compromising,” the games.

In the United States, Representative Chris Lee (D) of Hawaii held a press conference days after the release of Battlefront 2. In it he denounced the predatory tactics utilized by EA and hoped to introduce legislation to combat of boxes found not only in Star Wars, but other games as well.

Lee, an avid gamer, said in an interview, “There’s a huge portion of the population outside what we might consider the die-hard gaming community.” Citing large discounts on video games during the holidays Lee continued, “…They’re looking for good deals on Christmas gifts not knowing what kind of mechanisms are built into games and ultimately systems their unaware of. It’s that large market space that continues to drive revenue.”

In a video published on YouTube, Lee outlined his proposed legislation, which includes prohibiting videogame sales containing “gambling mechanisms” to anyone under the age of 21. It would cover titles that carry a “percentage chance” of obtaining an item, rather than the item itself. He’s also seeking an “accountability piece” to ensure that drop rate changes do not occur, almost ensuring that such rates be revealed like in China.  Lee hopes that other states can join in to help drive change.

Grand Theft Auto’s “Shark Card” currency is utilized to buy new clothes for characters and vehicles. It has no impact on the game whatsoever, but is a cash cow. Now imagine if such cash did have an impact on play.

Currently, the Entertainment and Software Rating Board does not label games with such features as gambling. The ESRB which assigns ratings to games from E for Everyone to M for Mature with descriptors has categories for both Real and Simulated Gambling. The criteria for them to be utilized would necessitate that real cash be involved or that players can wager without real cash. Any game with either would receive an Adults Only rating which prohibits anyone under the age of 18 from purchasing. Just as major movie theatres shy away from showcasing NC-17 films, major retailers refuse to sell AO rated games.

While many are questioning the legitimacy of the ratings due to the nature of the boxes, a spokesperson said in a statement to Kotaku: “While there’s an element of chance in these mechanics, the player is always guaranteed to receive in-game content (even if the player unfortunately receives something they don’t want). We think of it as a similar principle to collectible card games.”

However, unlike collectible card games, the items received in such boxes do not have much, if any resale value. EA’s Ultimate Team mode allows the resale of lesser tier cards for values less than the initial purchase, while other games do not.

A few lucky players received cards that made the Boba Fett character nearly invincible. Other players who rolled loot boxes received emotes which do not boost the in-game abilities of players. RNG mechanics help determine the winners and losers.

What’s most concerning about videogame ratings is that the ESRB is an organization part of the larger Entertainment Software Agency. The ESA is a trade industry that carries members from the top publishers and developers in the world.

While the governments of the world work towards outlawing such predatory tactics, gamers across the globe currently find themselves stuck in the middle. While it would appear easy enough to not purchase a game like Star Wars Battlefront 2, it is difficult for avid fans to stay away.

Joseph Mellinger, a student at Penn State University and Star Wars fanatic has staved off buying the latest release in response to the loot box controversy. Still, he admits to having participated in the practice before, particularly in EA’s “Madden” series of titles. “That rush of possibly pulling something great grabbed me.”

That risk-reward nature is what grabs players and what governments are trying to combat. The hope of getting something good after receiving less than stellar items is what drives them to continue buying. It’s what drove players such as Reddit user, Kensgold to dump over $10,000 into microtransactions. Players like him are classified as ‘whales’ and according to Venture Beat make up less than 2 percent of gamers, but drive more than half the revenue through microtransaction purchases.

Kensgold posted an open letter on Reddit denouncing the loot boxes in Battlefront 2, citing his own experiences as cause for concern. In an interview he said, “At that point I had already set the precedent that dropping 100 bucks was not all that big a deal…I was in high school with almost no bills to speak of.”

Kensgold receipts for purchases on items

He hopes that publishers can take note of stories like his and help push the industry forward positively. “I would love to see publishers as a whole take a step back and look at what methods and strategies they are using to make money, how those strategies work, and what positive or negative effects they can have on their consumer base.”

The next few weeks and months of gaming will prove to be highly interesting. While EA has stated on record that they will bring back the microtransactions present in Star Wars Battlefront 2, it has yet to be seen when they will do so. It can be inferred that they are waiting for the theatrical release of the Last Jedi to boil over before doing so.

It will be equally as interesting to see what occurs in next year’s slate of titles. EA will once again be releasing its annual slate of sports titles, all of which will continue the trend. Likewise, games such as Call of Duty, which recently incorporated such boxes will also be released.

Finally, as we head to the future, should such practices be outlawed, it remains to be seen how games will be priced or developed to generate profit. It is entirely plausible that games become more expensive to make up for money lost. Likewise, it is equally as plausible that production values of games drop.

For an industry that shows no signs of stopping it has quite the dilemma on its hands.

SOURCES:

https://kotaku.com/ea-temporarily-removes-microtransactions-from-star-wars-1820528445

https://kotaku.com/battlefront-overwatchs-loot-boxes-under-investigation-1820486239

https://kotaku.com/hawaii-wants-to-fight-the-predatory-behavior-of-loot-1820664617

http://www.pcgamer.com/belgium-says-loot-boxes-are-gambling-wants-them-banned-in-europe/

https://www.rtbf.be/info/medias/detail_non-la-belgique-n-a-pas-qualifie-star-wars-battlefront-ii-de-jeu-de-hasard?id=9769751

https://ds1.static.rtbf.be/uploader/pdf/d/d/b/rtbfinfo_5c742f9b8996afe274e39ad9b4acb453.pdf

https://www.cnbc.com/2017/11/28/eas-day-of-reckoning-is-here-after-star-wars-game-uproar.html

The Video Game Loot Box Problem Goes Deeper Than Star Wars: Battlefront II

http://www.gamesindustry.biz/articles/2016-03-02-eas-ultimate-team-earning-around-usd650-million-a-year

Battlefront II goofed, but gamers are still spending more on additional content

https://www.giantbomb.com/dlc-season-pass/3015-7186/

https://www.thedailybeast.com/an-obituary-for-the-online-pass-why-you-cant-charge-us-for-used-video-games

http://www.eurogamer.net/articles/2013-03-26-tomb-raider-has-sold-3-4-million-copies-failed-to-hit-expectations

Worldwide game industry hits $91 billion in revenues in 2016, with mobile the clear leader

https://kotaku.com/how-much-does-it-cost-to-make-a-big-video-game-1501413649

Star Wars: The Old Republic — the story behind a galactic gamble

https://www.cinemablend.com/games/Capcom-Gets-Busted-Disc-DLC-Discovered-Street-Fighter-X-Tekken-40114.html

http://www.rollingstone.com/glixel/features/loot-boxes-never-ending-games-and-always-paying-players-w511655

Videogames Can’t Afford to Cost This Much

What it means to be a ‘whale’ — and why social gamers are just gamers