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Breather for Chinese gaming industry as Beijing resumes license approval process

The resumption of license issuing does not mean a quick pick-up for the industry. To start with, there is a lot of backlog to clear.

Dec 29, 2018 by Mengjuan Li
Breather for Chinese gaming industry as Beijing resumes license approval process

Graphics: Mengjuan Li / The Passage

The Chinese video game industry breathed a sigh of relief after nine dormant months. Feng Shixin, deputy director of the Chinese Communist Party’s propaganda department, on Friday said the process to issue new licenses has restarted.

Gaming stocks saw resurgence after the news broke out. Tencent saw a 4.51% rise till the end day of 21 December as CEO Pony Ma was reinstated as the richest man in China. Other gaming companies such as iDreamsky, Gamehollywood and FingerTango also witnessed an increase in value in the range of 1.17% to 9.88%.

A year of fluctuating fortunes

Since Tencent got the exclusive publishing right of PUBG in December last year, gamers have been waiting with baited breath for the Chinese version.

In March, Tencent’s blockbuster game Kings of Glory came under fire after the Communist Party’s mouthpiece accused the game of twisting history. In August, Tencent pulled “Monster Hunter: World” just days after the launch. In September, gaming stocks plunged as government instituted play time regulations over health concerns. In October, Beijing halted the approval process for new games. The crackdown also impacted the game live streaming firms leading to downsizing in Douyu and smaller players going belly up.

Santa came early for the gaming companies with the Central Propaganda Department’s establishment of a body to review ethical issues in gaming – Network Game Ethics Committee. The panel appraised 20 controversial online games. The first good tidings came in late December after the propaganda ministry announced the recommencement of approval process.

The China Game Industry Report from January to June 2018, showed the overall revenue of the game market stood at 105 billion yuan, up only 5.2% year-on-year, compared with the growth rate of 21.9%, 30.1% and 26.7% in the past three years. As of September 5, among the 52 listed, stock prices of 45 game companies fell with 38 companies losing 20% of valuation, according to Wind data.

Tencent’s third-quarter earnings report showed the game revenue was down 4% year-on-year at CNY 25.81 billion (USD 3.75 billion). PC games fell 15%. Tencent’s value-added services accounted for only 55% of total revenue, the lowest since 2015. KingNet’s revenue went down 14.91% year-on-year to CNY 1.11 billion (USD 160.79 million) and the net profit dropped 10.36% to CNY 371 million (USD 54 million). Giant Interactive Group’s revenue from games slid to 67.9% from 99.72%.

Overseas opportunities

Netease’s “Knives Out” tops the overseas game revenue list for five months with USD 370 million and overseas profits accounting for 10% for the first time in total profits in Q3. Besides, Netease has invested USD 100 million in American game studio Bungie and USD 50 million in British game engine architecture company Improbable.

Tencent announced a strategic cooperation with Japanese publisher DeNA to introduce “AOV”, the overseas version of “Kings of Glory”, in the Japanese market. Tencent also signed an intentional cooperation agreement with Southeast Asian game company Garena. Tencent’s PUBG has topped the most downloaded list in more than 100 countries. As of October, PUBG recorded overseas revenue of USD 113 million.

In the first half of 2018, China's online game industry saw 5.2% year-on-year increase of revenue at USD 15.3 billion as opposed to a 15.8% year-on-year increase of overseas market revenue at USD 9.59 billion. As many as 243 overseas Chinese games have clocked a yearly income of more than 1 million US dollars, according to the China Game Industry Report.

Uncertainty continues

The resumption of license issuing does not mean a quick pick-up for the industry. To start with, there is a lot of backlog to clear. According to Financial Times’s report, now the games waiting for license in China have exceeded 6000. Around 9800 games got approval in 2017. The waiting time is especially tougher on minor players without much runway.

Next issue is the tighter regulation and social responsibility. Among the 20 games being reviewed in early December, 11 games were required to modify elements, and 9 were disqualified for release. Zhang Yi, CEO of iiMedia Consulting Group, told the 21st CBH that the future direction for the secondary market is not clear.

However, big players are keeping their fingers crossed. “It is definitely exhilarating news for Chinese gaming industry,” Tencent games remarked immediately after Feng’s announcement. Also, more regulations could mean better quality games: Lot more effort would go into the production of games, and the copycat games would no longer fly.

Mengjuan Li

Mengjuan Li is an intern at The Passage. She's a graduate from the University of Warwick, with a major in global media and communications.

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