Executive Summary
The U.S. Federal Trade Commission (FTC) has recently taken decisive action against Genshin Impact's developer Cognosphere (Hoyoverse), resulting in a $20 million settlement concerning their gacha loot box monetization practices. The FTC's findings uncovered that Genshin Impact engaged in misleading marketing tactics that targeted minors, obscuring the true costs and odds of winning items, which prompted enforcement actions to protect consumers. As a consequence, the company is now banned from selling loot boxes to teens under the age of sixteen without parental consent. The enforcement underscores the growing scrutiny of in-game monetization practices within the gaming industry.
Whom it may concern
- FTC Regulatory Affairs
- Compliance Departments of Gaming Companies
- Child Protection Advocacy Groups
- Parents of minor gamers
- Legal Teams in Gaming Development
Key Findings
- Settlement Agreement: Cognosphere agreed to a $20 million payment to the FTC and must implement measures to prevent youth under 16 from making purchases without parental consent.
- Deceptive Practices: The FTC determined that the marketing and sale of loot boxes amounted to unfair practices, leading to substantial financial exploitation of minors and misleading communication regarding the odds of winning, which significantly impacted player spending behavior.
- COPPA Compliance Failure: Cognosphere failed to comply with the Children's Online Privacy Protection Act (COPPA), necessitating the deletion of data of children under age 13 and ensuring compliance moving forward.
Risk Analysis
- Probability of Future Non-Compliance: High - Given the complex nature of regulations around loot boxes and in-game purchases.
- Impact Assessment: Critical - Finances from in-game purchases are a backbone of revenue models in the gaming industry. Non-compliance could lead to severe penalties.
- Rationale: As gaming companies increasingly move towards monetization via loot boxes, the landscape of regulatory scrutiny will intensify, potentially increasing future operational risks if not addressed.
Action Items
- Establish Parental Consent Framework: Implement a system to ensure parental consent is in place for all transactions involving minors. Target completion: 3 months.
- Improve Transparency in Marketing: Revise marketing practices to ensure clear communication of costs and odds associated with loot boxes. Target completion: 6 months.
- Compliance Training: Conduct training sessions for all employees regarding COPPA and new FTC regulations to mitigate risks of non-compliance. Target completion: 2 months.
Sources
- [FTC Cracks Down on Genshin Impact Gacha Loot Box Practices](https://www.bleepingcomputer.com/news/gaming/ftc-cracks-down-on-genshin-impact-gacha-loot-box-practices/)
