How New Government Policies in China Disrupted the World’s Biggest Games Market
The games industry in China has been significantly disrupted by a new policy that was implemented in March, resulting in a sudden halt in the licensing of new games. More recently, government officials have indicated that, in general, fewer new games will be licensed in the future, and children’s daily playtime may be restricted. Officially, this policy is based on health and safety concerns — in particular, reducing the risk of myopia (nearsightedness) for children.
As well as addressing genuine health concerns, the government is possibly asserting its control over the thriving Chinese games market, which has become a major part of the overall media and entertainment industry. In this article, we will share our views on this disruptive development and discuss how it will affect the biggest games market in the world, which generated revenues of $32.4 billion in 2017 and, before the policy change, we expected to reach $37.9 billion in 2018.
What Exactly Happened?
To publish games in China, publishers must first get approval from both the State Administration of Radio, Film and Television (SARFT) and the Ministry of Culture & Tourism. In March this year, SARFT stopped issuing new licenses, and the Ministry of Culture & Tourism followed suit in June. Licensing is expected to resume at some point in the near future, but there has been no official confirmation so far. This had a major impact on the Chinese games market, as new game releases are the main driver of growth.
At the end of August 2018, the Government of China elaborated further, confirming that authorities will regulate and more closely monitor existing games, and will explore an age-appropriate reminder system to limit children’s playtime. It specifically mentions a maximum daily session time of 15 minutes with a maximum daily playtime of one hour. South Korea implemented a similar policy back in 2011, stopping children under the age of 16 from playing online video games between midnight and 6:00 am. The restrictions will particularly affect publishers of immersive competitive titles like Tencent’s Honor of Kings, one of the country’s most popular mobile games. Across the board, fewer new games will be licensed in the future according to government officials.
What’s more, Tencent recently announced it will be stricter with age-verification checks for China’s new Honor of Kings players, requiring them to register under their real names. The system will link new players’ profiles to the Chinese Government’s public security database, meaning the game can precisely identify underage players and apply the government’s new restrictions. This is the first time a firm has used such a system to reduce minors’ playtime. Although the verification check is launching first in Honor of Kings, Tencent has confirmed it will be progressively rolled out for the company’s full range of titles.
What Is the Impact on Consumers and Companies?
Of course, China’s 620 million gamers are already noticing the effects of the new licensing policy, as the once-abundant supply of new titles has suddenly dried up. For enthusiastic gamers, this is likely disappointing, but companies that generate most of their revenues from new games are bearing the real brunt of the new restrictions. Many of China’s leading game companies, which work on several games at once in collaboration with different studios, are directly affected, as they are now unable to secure licenses for their growth-driving new titles. Companies focusing on fewer titles with longer life cycles, including Supercell and Blizzard, are less affected.
The financial consequences of the disruptive policy are already becoming visible, with most Chinese public game companies reporting significantly less-than-expected H1 growth compared to last year. This has also impacted share prices, as highlighted by Tencent’s recent stock price drop. Only a few publishers with a mainly overseas focus, such as Ourpalm and Efun, reported higher growth in H1 this year (compared to last year).
What Is the Impact on the Games Industry in China?
Publishers focusing on the Chinese games market must now walk the fine line between entertaining and monetizing players and adhering to the new policies. If the government indeed continues to issue fewer game licenses overall, the market will change fundamentally, with an increased focus on big AAA releases and popular IP, with quality trumping quantity. Publishers will also double down on the already growing “games-as-a-service” model, offering the potential of a virtually endless life cycle, typically based on the free-to-play model with in-game monetization options. The new policy will also increase the incentive for Chinese publishers to expand overseas. Even the largest players, such as Tencent and NetEase, are still heavily dependent on their local market.
Will the Situation Affect Newzoo’s Forecasts?
Although revenues for H1 have already been affected by the new policies, we are optimistic that the issuing of licenses will resume in H2. This would — in part — help the growth rate recover. Our latest Global Games Market Report predicted that 2018 would see year-on-year growth of 17.1%, compared to 19.4% in 2017. Regardless, the overall revenue growth for 2018 will likely be lower than what we anticipated. The extent to which the full 2018 and future revenues will be affected is still uncertain, depending on how strictly the new policy will be followed and enforced. Given the relative size of the China games market, any material change in the country’s game revenue growth will also impact the global forecasts.
Newzoo will continue monitoring the situation, and we will report our conclusions in the upcoming October update of our Global Games Market Report. For now, we are keeping a close eye on the market — as we always do.
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