Gaming Giants Brace as China's Proposed Rules Threaten Small Developers and Ad Revenue

25.12.2023 posted by Admin

China's Gaming Regulations: Impact on Developers and Online Ads

China's potential gaming regulations are anticipated to disproportionately affect smaller game developers, placing a heavier burden on them compared to larger industry players, and simultaneously leading to an overall decline in online advertising revenue, as indicated by UBS.

Shares of major gaming companies such as Tencent, NetEase, and Bilibili experienced a significant drop to their lowest levels in over a year following the release of draft rules by China's National Press and Publication Administration. These rules aim to prohibit certain revenue-generating practices, including incentivizing daily sign-ins for games.

The draft rules are open for public comments until January 24, with Hong Kong markets closed on Monday and Tuesday for Christmas.

According to Kenneth Fong, Head of China Internet Research at UBS, prominent game developers and those with high daily active user (DAU) counts in social games are expected to weather the impact more successfully. Larger developers possess alternative methods to enhance gamer engagement, connect with users, and have robust research and development capabilities to attract and retain gamers.

Fong expressed concerns about the potential fallout on the advertising industry, estimating that online games contribute around 20% to the revenue of the online advertising sector.

NetEase relies heavily on gaming for its revenue, while Tencent and Bilibili generate approximately one-fifth or less of their revenue from gaming, based on third-quarter releases.

Despite numerous companies participating in game development and publishing in China, there has been a consistent push by Beijing to restrict gameplay, especially among minors.

The common industry practice of encouraging daily sign-ins and offering rewards for initial in-app purchases may face limitations if the proposed regulations are implemented, impacting user engagement and the real-time collection of user statistics for developers.

Kenneth Fong acknowledged the challenge of quantifying the financial implications of the proposed regulations, citing uncertainty about whether they would apply solely to new games or extend to existing ones.

The National Press and Publication Administration, responsible for overseeing new game releases, recently announced the approval of over 100 new domestic games, following the approval of 40 imported games on Friday.

Fong anticipates that new games will bear a greater impact than existing ones, emphasizing the creative nature of the online gaming industry and suggesting that game developers are likely to devise alternative strategies to attract and retain users in response to the regulatory changes.
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