China Woes Hit Japanese Games Developers

Judy Cobb
August 16, 2018

Tencent surprised investors with its first profit drop in at least a decade as a Chinese regulatory freeze on game approvals hurt its ability to make money off marquee titles.

China has one of the world's most stringent approval processes for video games, an extension of Beijing's obsession with maintaining control over online content so it can root out dissent and other ideas it considers undesirable, from sex to graphic violence.

Apart from the uncertain gaming revenue outlook, Tencent also needs to prepare for falling interest income from its payment business in the next six months due to a new central bank policy that will raise the non interest-earning deposit ratio for China's payment service providers to 100 percent by January 2019, eroding their interest income.

Bloomberg reports that sources close to the regulatory company are sure that a restructure of personnel has resulted in a clampdown, with bureaucrats "reluctant to take risks or initiative new steps that could become controversial". In the past, two departments have handled game licensing: the National Radio and Television Administration (NRTA) and the Ministry of Culture and Tourism (MCT).

The hold-up has battered shares of market leaders like Tencent, which have plunged since the company said it had been ordered to remove hit game "Monster Hunter: World" from sale, only days after its debut.

Just as Tencent had to end up altering PUBG for release in the Chinese market, that's probably what will end up having to happen here if Monster Hunter: World is to be sold in the country, though there's no indication of that happening just yet.

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They could choose to continue playing but there would be no guarantee the service would continue, it said. The stock has slid more than 17 per cent this year, while New York-listed rival Alibaba Group Holding remained mostly unchanged.

Logo of Tencent is displayed at a news conference in Hong Kong, China March 22, 2017. The majority of this is attributed to Fortnite: Battle Royale and PlayerUnknown's Battlegrounds, as Tencent has been unable to market the desktop versions of either game, and PUBG's mobile variant, without approval. The game has more than 169.7 million installations as of August, Bloomberg said.

China is the world's largest gaming market, with an estimated US$37.9 billion (£30 billion) in revenue, according to research by Newzoo.

"We don't think that the regulation will impact the sector forever", he said. A closely watched Communist Party newspaper publicly chastised Tencent past year over the game, claiming it caused addiction in young people.

The NRTA hasn't granted any new game licenses for four months while the MCT is thought to have greatly enhanced the requirements for obtaining a license, so there's far fewer of them being issued.

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