China Drafts New Rules for Online Gaming and Softening Stance After $80 Billion Rout

China is undergoing regulatory changes that are reshaping the industry for developers and investors alike. Recently proposed gaming rules have shocked the industry, impacting major players like Tencent, NetEase, and Bilibili.

China Drafts New Rules for Online Gaming and Softening Stance After $80 Billion Rout

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The National Press and Publication Administration’s draft rules, released in late December, aim to address concerns related to excessive spending on online games, particularly among minors.

The proposed regulations include restrictions on daily log-in incentives, in-game spending limits, and the prohibition of certain revenue-generating practices.

The rules would ban game developers from offering rewards for daily log-ins, initial in-app purchases, and spending on a game.

According to analysts at UBS, big game developers with a daily active user (DAU) base and robust research and development capabilities are better positioned to navigate the changing industry.

These industry giants, including Tencent and NetEase, have diversified means to engage gamers beyond the targeted practices.

The draft rules has concerns among developers who commonly use daily sign-ins and rewards for in-app purchases as strategies to boost user engagement.

Kenneth Fong, head of China internet research at UBS, said the importance of these practices in enhancing user engagement and collecting valuable user statistics for real-time game adjustments.

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Gaming accounts for a portion of revenue for major players like NetEase and Tencent. The proposed regulations, if implemented, could lead to a decline in revenue for online games, impacting the online advertising industry.

UBS estimates that online games contribute about 20% to the online advertising industry’s total revenue. The decline in online gaming revenue may make developers to explore alternative means of user engagement and revenue generation.

Analysts expect that new games might be more affected than existing ones, as the dynamic nature of the gaming industry often leads developers to innovate and adapt to regulatory changes.

China’s gaming industry has been subject to regulatory in recent years, with a focus on curbing excessive playtime among minors.

The proposed rules reflect Beijing’s continued efforts to balance the growth of the gaming industry with concerns about gaming addiction and its impact on younger players.

In 2021, Beijing implemented strict playtime limits for individuals under 18 and suspended approvals of new video games for about eight months.

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While the regulations were eased in 2022, the industry continued to face problems. The latest rules indicate an approach, aiming for a diverse gaming industry with high-quality content while curbing excessive monetization practices.

The size of China’s gaming market makes regulatory developments in the country reverberate globally. The $80 billion market meltdown following the announcement of the proposed rules had a cascading effect on gaming stocks worldwide.

Share prices of major Chinese gaming companies, including Tencent and NetEase, experienced declines. The global video games market could face long term consequences as regulatory uncertainty in China is unpredictability to the industry.

While several U.S. and European game developers saw minor declines in share prices, the focus remains on the long-term impact on the Chinese gaming giants and their global influence.

Chinese authorities indicated a willingness to revise and improve the proposed rules. The National Press and Publication Administration addressed that it would carefully study feedback from all parties, including companies and players.

This responsiveness suggests a flexibility in the regulatory approach, allowing for adjustments based on industry input.

The approval of 105 domestic games, including titles from Tencent and NetEase, signals a softening of the regulatory stance.

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