China’s regulators restrict game monetization, sending Chinese game stocks down

23.12.2023 - 01:11 / venturebeat.com

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China has been tough on games in recent years and its regulators have now cracked down on monetization, sending the market value of both Tencent and NetEase downward.

Reuters said the new rules limit spending by players on online games and institute a ban on daily login rewards, first-time purchase bonuses and any incentives game developers create for repeat spenders. This comes amid a slowdown in the game industry and layoffs by many companies.

The drop in the market value is ominous as both Tencent and NetEase have been heavy investors in the games industry, particularly as they expanded beyond Asia into the West. If that source of funding dries up, then game startups around the globe could feel the impact.

Tencent’s stock fell from $40.45 a share on Thursday to $36.47 a share on Friday. It’s still worth $345.69 billion, but down 10% from a day earlier.

NetEase’s stock fell from $104.43 a share to $87.64 a share. The company is worth $56.52 billion, down 16% from a day earlier.

China also said that game makers cannot offer probability-based luck draw features to minors — possibly putting limits on something termed in the industry as “gacha.” Loot boxes have long been controversial in gaming, and now publishers are banned from enabling auction of and speculation on in-game items.

On top of that, games in China must now store their data on servers in side the borders of China. That could be a non-starter for those concerned about surveillance of people inside of China or even those outside of the country, given the Chinese government’s extensive surveillance system.

The changes are in a public review period until January 22. In previous regulatory crackdowns, China had also slowed down the approval of game launches in China and it had also limited the time that Chinese youths could play games to just a few hours a week.

Lisa Cosmas Hanson, president of Niko Partners, said she expects a lot of impact on the game economy, including an impact on games with high average revenue per user (ARPU) thanks to loot boxes. As for the gaming giant investments, Cosmas Hanson said, “I don’t know if they budget for investments out of cash or the fluctuating market cap. My guess would be out of cash, and that this would inspire Tencent and others to keep diversifying globally.”

In a message to clients, Niko Partners said the National Press and Publication Administration of China (NPPA) published a draft guideline titled “Measures for the Administration of Online Games” on December 22, 2023.

The draft regulations, if imposed, would be the most comprehensive and sweeping regulations since