China’s $28b games industry in ‘limbo’ amid radical government shakeup

GIF by Tech in Asia, from video by Arena of Valor

The video game industry may be all about entertainment, but right now, nobody in China’s gaming biz is having any fun.

The once-booming industry has been paralyzed since March, when the government ordered what was expected to be a relatively short-term freeze in gaming licenses. It’s illegal to launch a video game in China without government approval, so the move shelved game releases that haven’t been greenlit. And now, government sources are telling reporters that it could take another four to six months before the government starts granting licenses again.

Why the long delay?

The cause of the lengthy delay is bureaucratic: authority over gaming licenses is being shifted away from the Ministry of Culture and the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), which the government broke up earlier this year. Control over gaming licenses will now rest with the Communist Party’s Central Propaganda Department and the State Administration of Press and Publication, one of the smaller bureaucratic organizations that has risen from the ashes of SAPPRFT. But until the power transition is complete, authorities are reportedly hesitant to stick their necks out by approving anything, which means that the lockout for China’s game companies – including US$380 billion giant Tencent – is set to continue.

Additionally, government figures and state media have repeatedly expressed concerns about many popular video games, fearing they may be too violent and violate socialist core values. Beijing has also been concerned about the addictive effects of gaming on children, and has pushed gaming firms to implement increasingly strict measures to restrict the gameplay time of minors.

Earlier this month, Tencent announced plans for a real-name age verification system in “Honor of Kings,” its smash-hit mobile game. Set to go live on September 15, the system will link the game to China’s police database to verify players’ ages and restrict underage users’ daily playtime. Eventually, the same system will be integrated into Tencent’s other games as well.

Industry smackdown

The effect on China’s gaming industry has been brutal. Tencent, China’s largest and most successful gaming firm, has seen its stock sink from a high of over US$60 per share in January to under US$40 as of this writing, shedding approximately more than US$160 billion in market capitalization over the course of that slide.

It has been forced to shelve probable hits like Monster Hunter: World.

Photo credit: BagoGames

And Tencent has been prevented from monetizing other titles. Analysts estimate that the restrictive policies cost the company more than US$1.5 billion in lost sales from April to June alone, and it looks likely that the freeze will continue through the fall and possibly the entire year.

In other words, Tencent could end up losing nearly US$5 billion in sales, thanks to the regulatory shake-up and licensing freeze.

“The industry is basically in limbo,” a source who works in China’s games industry told Tech in Asia. “New games are not being started, and developers are either focusing on Western markets or abandoning game dev altogether,” added the source, who asked for anonymity.

China is the world’s largest game market, with 558 million mobile gamers plus 349 million PC online players, according to market intelligence firm Niko Partners.

What’s the new normal?

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