China video games: Beijing crackdown ignores impact on creator profits

Games industry updates

Teenagers negotiating with their parents over how much time they can spend playing video games is often a fraught process. Beijing’s draconian restrictions take the argument up a notch. Watchdogs want gaming time for under-18s cut to just three hours per week. The announcement sends a threatening signal to China’s lucrative game industry.

About two-thirds of Chinese teenagers play online games. Minors are only supposed to play from 8pm to 9pm on Fridays, weekends and public holidays. Beijing says that this prevents gaming addiction, which it blames for increased nearsightedness and poor academic performance.

Clamping down further will deal an immediate hit to game makers’ revenues. For the big game companies such as Tencent, it will be manageable. Sales to minors contribute less than 3 per cent of local revenues. Longer term, however, restrictions may threaten player loyalty — the foundation of the $40bn local gaming industry. Game creators rely on starting players at a young age. Shares in NetEase, which gets three-quarters of its sales from games, are down 30 per cent from a February peak.

The Chinese gaming industry is unusual in paying gamers to win. Microtransactions — or in-game purchases of virtual weapons and clothes that can expedite success — account for most of online games spending. This remains true even after regulators limited the maximum monthly amount that Chinese minors could spend on microtransactions to $57. 

The figure spent on in-game transactions positively correlates to total gaming hours. This was demonstrated last year. When people spent more time gaming during lockdowns, virtual item purchases surged.

A second trend was the increase in viewing figures for game video-streaming channels. With gaming time limited, enthusiasm for those platforms may wane too. Expect further share price declines for Huya and DouYu, the largest game-streaming platform operators. Both have fallen more than two-thirds in the past year.

The rules are already in flux. Local game companies have little defence when Beijing shuts down play.

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