Tencent, China’s leading online game company and operator of the popular WeChat messaging app, is caught in a regulatory minefield across both businesses.
Concerns over video game addiction among children prompted the government to halt new game approvals, while a crackdown on content considered harmful forced it to reduce the number of accounts WeChat users can register.
The internet giant’s share price tanked over the past four months and this month it reportedly made sharp cuts to its gaming division’s marketing budget.
China’s Education Ministry recently took steps to prevent primary and secondary-school students from “indulging in games”, and is preparing to issue guidelines for students. Xinhua News Agency reported the ministry reminded parents in a letter of their responsibility to “correct children’s internet addiction, game addiction and improper consumption behaviour”.
Pressure on earnings
The company generates the about a third of revenue from its gaming portfolio. Online games revenue fell 4 per cent year-on-year in Q3 to CNY25.8 billion ($3.7 billion) due to a 15 per cent decline in PC client games sales. Smartphone games revenue grew 7 per cent. The company attributed the decline in PC games sales to users’ migrating to mobile games and the high base in the 2017 quarter.
Tencent released ten new mobile titles during the quarter and has 15 games in its pipeline already granted regulatory approval. But Richard Windsor, founder of research blog Radio Free Mobile, expects Tencent’s pipeline to run dry soon, because even if the regulatory issue is solved soon, there will be a gap in the release schedule which will hurt its revenue outlook.
“I fear that the regulatory problem could persist for some time, so I think the next three quarters at least are going to be difficult,” he warned.
The company took steps to appease the government, issuing a statement explaining: “We are seeking to create a healthy game environment for children. We implemented stringent self-imposed limitations on game playing by minors and recently introduced measures, such as real-ID verification process and face recognition check, to enhance the implementation. We believe the initiatives put the game industry on a more sustainable foundation for future development.”
Social media censorship
Apart from pressure on its games business, the Cyberspace Administration of China (CAC) in early November removed nearly 10,000 social media accounts held by non-official news providers as part of a new censorship campaign. In a statement CAC explained the accounts were taken down for violations including “spreading politically harmful information”.
The cyber regulator also summoned the heads of the country’s largest social media companies, including WeChat and Sina-owned Weibo, to a meeting, warning “the chaos among self-media accounts has seriously trampled on the dignity of the law and damaged the interests of the masses”.
Tencent followed by cutting the number of official WeChat accounts a company can create from five to two and individual accounts from two to one.
With the government no doubt keen to maintain control and reduce the negative impacts of an increasingly connected society, similar diktats could certainly be on the cards for sectors beyond social media and gaming.
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