Caixin
Aug 31, 2018 09:19 PM
BUSINESS & TECH

Update: Sector Consolidation to Accelerate After China Caps Number of Games

Photo: VCG
Photo: VCG

The fast-growing video-game industry in China could see an accelerated consolidation after one of the harshest policy changes in years was announced to cap the number of online games, analysts said.

The comments came as China’s General Administration of Press and Publications announced late Thursday it will control the total number of online video games and new titles in operation, explore establishing an age-reminder system, and take measures to restrict the amount of time that minors spend on the games.

The measures aim to address the worsening eyesight among the country’s young people who are addicted to video games, cellphones and other electronic devices, the statement said. It said the rules had been approved by the State Council, China’s cabinet, and have taken effect, without saying when.

The cap “will likely accelerate market consolidation toward top developers and quality games at the expense of smaller players,” said analysts Karen Chan and Nelson Cheung of investment firm Jefferies Hong Kong Ltd. in a note Friday.

The move followed the freeze of new-game approvals in the world’s largest video-game market since March. Tencent Holdings Ltd. was banned this month from selling the blockbuster game “Monster Hunter: World” just five days after its release due to a large number of complaints about its content. The gaming giant currently has several other titles pending official approval.

The limitation also covered mini games on Tencent’s social and entertainment app WeChat, which late last year started publishing mini-programs that are able to circumvent government’s scrutiny of mobile app stores.

The policy changes is “certainly a crucial timing point” for game companies to go abroad, said Turian Tan, a gaming analyst with market researcher IDC in Beijing.

Developing regions like Southeast Asia and India will be an option, he told Caixin, as their game-market sizes and user numbers are growing fast, and the local game companies do not hold a dominant position.

However, launching and promoting games outside China requires a totally different formula, said Chen Shuwei, co-founder and chief operations officer of Neuronads, a Chinese company that helps promote mobile games abroad.

Chen said foreign markets focus on both game contents and advertising, while Chinese companies mostly deal with distribution channels in their homeland. In addition, domestic companies have a severe shortage of talent who have mastered foreign-market know-how, he said.

In the wake of the news, Tencent closed down 4.87% Friday in Hong Kong. American depositary shares (ADSs) of NetEase Inc. dropped by 7.19% to $194.39 overnight. Changyou.com Ltd.’s ADSs plunged by 6.32% to $13.50. The U.S.-listed shares of Tencent, which trade over the counter, fell about 7% on high volume.

The e-sports board, including 15 gaming-related companies listed on the Chinese mainland tracked by information provider Wind, declined more than 2.5% on Friday.

Yang Ge and Jason Tan contributed to this report.

Contact reporter Coco Feng (renkefeng@caixin.com)

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