In Beijing, China’s proposed gaming regulations are anticipated to have a more significant impact on smaller developers compared to larger ones, while also potentially reducing overall online advertising revenue, according to a recent analysis by UBS.
Shares of major gaming companies such as Tencent, NetEase, and Bilibili experienced a substantial decline, reaching their lowest levels in over a year. This decline followed the publication of draft rules by China’s National Press and Publication Administration, which outlined measures that would prohibit practices such as incentivizing daily sign-ins for games, among other revenue-generating strategies.
Kenneth Fong, Head of China Internet Research at UBS, noted that larger game developers, especially those with substantial daily active user (DAU) bases, are likely to weather the impact more effectively. These companies possess alternative methods to enhance gamer engagement, reach users, and maintain robust research and development capabilities.
Fong expressed concern about the potential impact on the advertising industry, estimating that online games contribute approximately 20% to the overall revenue of the online ad sector. The proposed regulations could lead to a decrease in revenue for online games, consequently affecting the advertising ecosystem.
Gaming constitutes a significant portion of NetEase’s revenue, and around one-fifth or less of Tencent and Bilibili’s revenue, according to third-quarter releases.
While numerous companies engage in game development and publishing in China, the government has signaled its intent to impose restrictions on gameplay, especially among minors.
The proposed regulations aim to curtail practices commonly found in online games, such as encouraging daily sign-ins and offering rewards for initial in-app purchases. Fong highlighted that daily sign-ins boost engagement and enable developers to gather valuable user statistics, facilitating real-time adjustments to games.
The financial impact of the proposed regulations remains uncertain, as it is unclear whether they would apply solely to new games or extend to existing ones. UBS’s Fong anticipates that new games might be more affected than older ones, given the dynamic and creative nature of the online gaming industry. He believes that game developers would likely innovate alternative methods to attract and retain users in response to regulatory changes. The comment period for the proposed rules is open until January 24.
