China has recently proposed new gaming rules that would prohibit companies from incentivising daily sign-ins for games and other revenue-generating practices. Last week, China’s National Press and Publication Administration published these draft rules. Stock values of the Chinese gaming giants Tencent, NetEase and Bilibili have gone down since the announcement. According to a new report by UBS (seen by CNBC), China’s proposed gaming rules are expected to hit smaller developers more than large ones and may also reduce overall online advertising revenue in the gaming industry.
What UBS said about China’s proposed gaming rules
In a note, Kenneth Fong, head of China internet research at UBS said: “Big game developers or big DAU [daily active user] social games should fare better: This is because they have other means to boost gamers engagement, reach out to users and have stronger R&D capabilities to attract and retain gamers. With a lower revenue for online games, the ad industry would be impacted too.”
UBS claims that online games account for about 20% of the online ad industry’s revenue. Fong also said that it’s “very common” for online games to encourage daily sign-in and offer rewards for the initial in-app purchase. He also noted that incentivising users to sign in every day not only boosts engagement but also allows for the collection of user statistics, which can help developers adjust games in real-time.
Fong also mentioned that it is hard to quantify the financial impact of the proposed regulation since it’s unclear whether it would apply only to new games or will also include existing ones.
However, Fong expects new games to be affected more than old ones. He said: “As the online game is a very creative industry, we believe the game developers would likely design other means to attract and retain users.”
Importance of gaming industry in China
The majority of NetEase’s revenue is generated by gaming. Meanwhile, third-quarter releases of Tencent and Bilibili show that gaming also accounts for about one-fifth or less at these companies as well. Apart from them, many other companies develop and publish games in China. However, in recent years, Beijing has made it clear that it would like to restrict gameplay, especially among minors.
The National Press and Publication Administration, which controls the publication of new games in China, said that it has approved more than 100 new domestic games and 40 imported titles.
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