The Impact of China’s Proposed Gaming Regulations

The gaming industry in China is set for a shakeup. Smaller game developers are bracing for a potential blow while the online advertising sector anticipates decreased revenues, says UBS. The recent fall of the shares of gaming giants such as Tencent, NetEase, and Bilibili to their lowest in over a year is an indication of the industry’s apprehension about the draft regulations proposed by China’s National Press and Publication Administration. These regulations intend to put a stop to certain revenue-driving strategies for these companies, like encouraging daily sign-ins for games.

The public can comment on the proposed gaming regulations until Jan. 24, but with Hong Kong’s markets closed for Christmas, responses may come slowly. Larger game developers and high daily active user games could weather these changes better, having more ways to keep players engaged. However, the rules could indirectly affect the ad industry, as it heavily relies on online games for about 20% of its revenue. This impact could be particularly significant for companies like NetEase, Tencent, and Bilibili, for whom gaming is a major revenue source.

Many other companies, from well-established giants to smaller startups, are involved in game development and publishing in China. But in recent years, the Chinese government’s desire to limit gameplay, especially among young players, has been increasingly clear. Encouraging daily sign-ins and offering benefits for initial in-app purchases are common strategies to boost user engagement and gather crucial user statistics, enabling developers to make adjustments to games as needed.

Yet, it’s challenging to estimate the financial implications of these draft rules due to the uncertainty over whether they would apply only to new games or affect existing ones as well. Interestingly, despite the looming regulations, the National Press and Publication Administration has recently approved over 100 new domestic games and 40 imported ones.