Are you worried that China’s loot box raid will leave you empty-handed? If your game counts on loot box revenue, you should be. Fortunately, there is still a lot you can do to stay profitable.
In this article, we’ll work on answering the following questions:
- How does loot box monetisation or “gacha” work?
- What is changing and how will it impact games?
- How can I comply with China’s loot box law without losing revenue?
- How can I prepare for future regulations in China’s market?
For starters, here’s an easy way to tell how much of an impact China’s gacha law will have on you:
The more revenue you drive from selling loot boxes to your players, the more you will be affected by these regulations when you bring your game to China.
Before getting into the intricacies of how these regulations will impact games and giving you suggestions on how to comply while still holding onto your revenue, let’s shed some more light on how loot box monetisation works.
How does loot box monetisation or “gacha” work?
The term “gacha” comes from a Japanese toy machine of the same name. When a customer puts money inside a gacha, they get to twist the knob and receive a prize - usually an egg containing a collectible toy or some other surprise item.
In games, gachas work similarly: players can either spend money, wait time, or win “loot boxes” in-game. The loot inside, which aims to enhance gameplay in some way, might include weapons, playable characters, or skins. Items tend to vary in quality, rarity and impact on the game experience.
Getting a loot box with highly desirable content is a bit like winning the lottery: the more desirable the loot is for the player, the lower their chance is of getting it.
Given that many top-performing games use gacha as a monetisation model, we have to ask how this kind of monetisation will be affected by the new China loot box regulation.
Before and after the new regulations
Before recent regulations, China’s gacha law was much less restrictive. Before the new loot box regulation, games could have:
- Unrestricted loot box open incidents. There was no limit to how many loot boxes a player could open.
- No regulation of “static” probability. The chance of a player getting a specific loot box item (known as the drop chance) could remain the same for every open incident.
However, when the new restrictions are enforced, games will have to adapt to a whole new regulatory environment.
After the new loot box regulation, games must have:
- Daily limits on how many purchased loot boxes a player can open:
- No more than 30 single loot boxes;
- No more than three “10x” loot box bundles;
- No more than 50 boxes in total;
- Clear in-game display of a player’s daily limit showing how many loot box opens they have left.
- Drop chances that gradually changes in a player’s favour in correlation to how many loot boxes they have purchased.
Besides single opens, players can also buy “10x” loot boxes. This is a bundle of 10 loot boxes that open consecutively or all at once. With the daily cap of 50 box opens, a player that has opened three “10x” boxes will only be allowed an additional 20 single loot box opens. Free loot boxes, such as the ones you get for leveling up in a game, do not count toward this daily limit.
Drop chance has also been regulated, meaning the chance of obtaining a specific item can no longer remain static. Instead, a player’s chances of obtaining the desired item must increase with every loot box they open.
In short, with the new regulations, a rare item must be guaranteed to drop within no more than “X” amount of loot box opens. Developers can determine this maximum number “X” at their discretion but are required to be clear about it in the game. In a moment, we’ll elaborate on how to strategically set this number for your loot boxes.
Impact on games
The impact these changes will have on games monetised heavily by loot boxes must not be understated. In fact, the change to drop-chance mechanics alone has the potential to cut total revenue in half for some games.
Games with higher quality and pricier loot boxes will be better off, while those that rely on cheaper loot boxes with smaller drop chances are set to get the short end of the stick.
Add to that the daily limit on box opens - which will curb your players’ binge-box-opening habit - and loot box revenue is practically guaranteed to take a heavy hit.
It is also important to note that certain loot box designs will be more heavily impacted than others. Games with higher quality and pricier loot boxes will be better off, while those that rely on cheaper loot boxes with smaller drop chances are set to get the short end of the stick.
So what can you as a developer do?
How to hold onto your revenue under China’s gacha law
As a developer, your priority should be diversifying revenue sources and looking into how you can start moving away from - or at least relying less - on loot box monetisation.
If China’s gaming regulations trends have taught us anything, it’s that we should keep expecting more. If you want your game to remain successful in China, the best thing you can do is preemptively move away from the practices current regulations are starting to condemn.
Instead of relying on loot boxes, you can set up or prioritise other avenues for monetisation. For example, you could move toward time-based incentives and get players to pay to speed things up. Other monetisation options to lean toward could be subscription models or direct purchases.
That being said, another immediate step you should take to hold onto your “gacha” revenue is redesigning your loot boxes.
Suggestions on how to redesign loot boxes
Here are three tips on redesigning loot boxes to comply with new regulations while maintaining revenue.
- Reduce loot box open incidents but increase the cost per box.
- Segment purchase options for different buyers.
- Use a fusion mechanic.
Reduce loot box open incidents
Your overall strategy should be to greatly reduce the number of loot box open incidents while going for the same results in terms of revenue.
To work through this strategy, let’s look at the example of fictive game Apple Bomber Crusade.
In this game, let’s say the super rare and highly prized “Triple Apple Canon” has a one per cent drop chance in loot boxes that are being sold at 50 cents.
If the maximum number of box opens to guarantee an item is too high, players might not go for it. But if this number is too low, you’ll limit your game’s revenue potential.
With new rules, this monetisation strategy is pretty awful for two reasons. Firstly, the price is low and will cap revenue because of the daily open limit. Secondly, with the regulated drop mechanics, the item must be guaranteed after a certain number of opens - which must be displayed to the user.
However, simply increasing the price and chance to get the item might not be the best strategy. By doing so, you could be leaving money on the table. Instead - because the new drop chance mechanics favour the player as they buy more loot boxes - you could choose to increase the loot box price accordingly.
For example, if the loot box now costs X amount with a 10 per cent drop chance for Triple Apple Canon, the next loot box the player buys should be priced X times Y, where Y is a factor based on the increase in drop chance but also considering what players will accept.
What’s also important to keep in mind when setting drop chances is player incentive. If the maximum number of box opens to guarantee an item is too high, players might not go for it. But if this number is too low, you’ll limit your game’s revenue potential.
Segment purchase options
A solid strategy will also take different types of buyers - minnows, dolphins and whales - into consideration. Ideally, you would want the purchase options to appeal to all of them while maximising game revenue.
Let’s look at the Triple Apple Canon again. Say the first box purchased costs $5 and the drop chance for this desirable item is 10 per cent. Minnows might buy one, dolphins would purchase a few and whales wouldn’t stop until they got what they wanted.
If the price increases with every loot box purchase, you could still walk away with a handsome profit. Just keep in mind that even for whales, the new rules dictate that the loot must be guaranteed within a certain number of opens.
Besides going for an option that appeals to all buyers on their level, you can also directly target specific groups. Try designing separate loot boxes, each with one buyer group - and their spending habits - in mind.
Use a fusion mechanic
Another great strategy that could help you hold onto your revenue under China’s loot box law is what we call a fusion mechanic. This refers to the fusion of two revenue sources. In this case, we suggest combining loot boxes and premium currency.
The trend we have seen so far is that China is becoming increasingly restrictive on what games are allowed to do. Thus, we can safely assume that there will be further restrictions on the horizon.
Offering players a premium in-game currency, purchased with real money, to get higher quality loot boxes (or even just higher odds) is yet another way to have fewer loot-box opens and minimal loss of revenue.
This is not the first time the Chinese government has regulated in-game monetisation. Instead, the trend we have seen so far is that China is becoming increasingly restrictive on what games are allowed to do. Thus, we can safely assume that there will be further restrictions on the horizon.
As we’ve suggested here, you can redesign your loot box mechanics to have less box opens with the same result. Additionally, by segmenting the purchase options and using a fusion-mechanic, you can comply with the new regulation with the least potential impact on game revenue.
Ultimately, however, we recommend moving away from loot box monetisation. Redesigning them might be easy now but who knows what the next set of regulations will have in store.
In summary, here are a few steps we recommend taking right away to comply with and prepare for these and further China loot box regulations.
- Move away from loot box monetisation if you are able to and diversify as fast as possible into other sources of revenue, such as:
- Time-based incentivised monetisation
- Subscription model
- Direct purchases
- Redesign how loot boxes work to comply with the new regulations:
- Adjust loot box mechanics to achieve the same results with fewer opens
- Segment purchase options for buyers with different spending habits
- Use a fusion-mechanic to combine loot box revenue with premium currency
At the end of the day, the new China loot box law is going to impact any game that uses loot boxes, and the more you use them, the greater it will affect you.
Don’t be caught unprepared: get in touch with the Yodo1 team to figure out your best strategy for legal monetisation in China.