Tencent and NetEase are Losing Billions of Dollars; China Wants to Cut Spending in Gaming
The Chinese government is preparing regulations to curb spending in online gaming. The regulations have yet to take effect, but the announcement alone was enough for Tencent and NetEase to lose heavily on the stock market.
China has shaken the game market hard. In the worst moment after the announcement of the Chinese government's decision, the value of Tencent's shares fell by more than 15%, and NetEase's by more than 25%.
The former company was expected to lose $46 billion in stock market capitalization first. In total, the market value of the two companies was expected to drop by $80 billion (via Nikkei / The Economic Times India).
This panic among investors is the result of the Beijing government's announcement of new video game regulations (via Nikkei).
- Developers will be required to ensure that all of their network titles have an imposed limit on account top up amount and to introduce notices warning users against "irrational" spending.
- Publishers will be required to have servers, technical equipment and databases located in China.
- In addition, games will not be allowed to offer "incentives" such as login rewards and topping up account.
- It is also to be forbidden to "raise" transaction prices with virtual items.
All this (mainly the first point) means a de facto restriction of online game companies' revenues, mainly from microtransactions. Admittedly, some representatives of Chinese market giants have tried to play down the significance of these changes, pointing out, among other things, the lack of details regarding tup up limits (including Tencent CEO Vigo Zhang; via Nikkei). Chinese authorities are also encouraging people to share their opinions on the new regulations by January 22.
Nevertheless, the investors are clearly not happy. Steven Leung of Hong Kong brokerage group UOB Kay Hian explains (via Reuters) that they were surprised to see a renewed "look at the fundamentals" of the online gaming market in a situation where such "risks" should have been resolved long ago.
It should be recalled that a year ago China resumed approving licenses to publish Western video games in the country, after a break of several months. A little earlier, Beijing boasted victory in the fight against game addiction. Admittedly, more regulations followed, but until now none of them have been too good for Chinese giants.
The only consolation for Tencent and other companies is a provision requiring the administration to process game license applications within 60 days (via Reuters).
