Level up: Tips for businesses from the FTC’s settlement with Genshin Impact developer HoYoverse

Any marketer will tell you: great storytelling sells. Whether your product is a sports drink, a service, or a videogame loot box, the more your ads draw people in, the more likely it is they’ll buy whatever you’re selling. But, especially when you're marketing to kids and teens, you need to think carefully about your design practices. Consider today’s proposed settlement, filed by the Department of Justice on the FTC’s behalf, where the FTC claims the developer of videogame Genshin Impact enticed people to spend real money on the chance to win prized characters, but obscured the odds of winning and cost of playing.

According to the complaint, Cognosphere Pte. Ltd. and its subsidiary Cognosphere, LLC, doing business as HoYoverse, entice children and teens to download Genshin Impact with bright, colorful ads featuring adorable anime-style cartoon characters and paid influencers that are most familiar to the under-18 set. The download is free, but once players become immersed in the game, they find they can’t get far in the quest to find their lost sibling in the land of Teyvat without a team of heroes to help along the way. But, 5-star heroes generally don’t come free. Instead, players have to try to win them by buying loot boxes, mystery prizes awarded by luck, that are only available to purchase with virtual currency. The process of trading real money for virtual money involves various steps and exchange rates. It’s hard for anyone to follow, but the complaint says it’s particularly confusing to children and teens who, by the time they get their virtual currency in virtual hand, don’t fully understand the amount they’re spending. And that’s not the end of the confusion. The complaint says it isn’t clear upfront what players’ odds are of getting strong heroes in their loot boxes, but, in general, they’re pretty low. So, children and teens keep replenishing their virtual currency, buying dozens of loot boxes and racking up hundreds of dollars’ worth of charges in the process.

The FTC says HoYoverse’s practices crossed the line in three ways. First, HoYoverse has an obligation to comply with the Children’s Online Privacy Protection Rule (COPPA) by providing notice of the information Genshin Impact collects from children, and getting parental consent before collecting or using that information. According to the complaint, that wasn’t happening. Second, the complaint alleges HoYoverse misleads people about how likely it is they’ll win particular prizes by opening loot boxes, and how much they’ll need to spend to get those loot boxes, violating the FTC Act in the process. And, finally, the complaint says HoYoverse also violated the FTC Act by unfairly offering and selling bundled and multi-tiered virtual currency and loot boxes to children and teenagers, who have a harder time evaluating the cost of winning the best prizes.

To resolve the case, HoYoverse has agreed to pay a $20 million penalty, stop selling loot boxes to kids under 16 without their parents’ consent, and make other changes. The proposed order - which must be approved by a federal judge before it can go into effect - requires HoYoverse to comply with COPPA, tell the truth, and make mandatory disclosures when it comes to loot boxes. It also prohibits HoYoverse from selling loot boxes using virtual currency without an option for people to buy them directly with U.S. dollars.

How can your business avoid similar problems? All advertising is storytelling. Consider these tips as you write yours.

Avoid dark patterns. The complaint says HoYoverse used confusing systems of virtual currency exchanged for loot boxes and deceived people about the low odds of desirable prizes to trick players into spending much more than they meant. Check out the FTC’s staff report, Bringing Dark Patterns to Light, and avoid the temptation to use digital design tricks to enhance sales.

COPPA coverage is broad, and extra requirements apply. Among other things, the COPPA Rule requires covered business to get verifiable parental consent before collecting, using, or disclosing personal information from children under 13 years old. Whether your business is covered depends on several factors, outlined in the rule, but even if your website isn’t specifically directed to children, you may still be covered. Take this opportunity to review the rule’s detailed definitions and requirements, particularly if your site involves child-oriented content or activities, animated characters, or celebrities who appeal to children. And know that, regardless of your intended activity, if you have actual knowledge you’re collecting, using, or disclosing children’s personal information, the rule applies.

Tell the truth when it comes to loot boxes (and all of your advertising claims). Mystery prizes can be a fun surprise, but if you’re offering a videogame with loot boxes, make sure you’re telling the truth about how likely it is players will win top prizes, and how much the loot boxes actually cost. Today’s complaint describes representations within Genshin Impact that led players to believe they had a good chance of winning specific 5-star heroes. In reality, the odds of winning those characters were significantly lower. That meant people spent more money trying to get the characters and won them less often than expected. It may be dressed up in the language of videogames, but this is just another variation on basic FTC compliance: don’t make claims for your products or services unless they’re true and you have a reasonable basis for them.