April 24, 2019 / 3:11 AM / 3 months ago

Breakingviews - China’s game makers face a shapeshifting boss

A child plays the game "Honour of Kings" by Tencent at home in Dezhou, Shandong province, China July 2, 2017. Picture taken July 2, 2017. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA.

HONG KONG (Reuters Breakingviews) - China’s video-game industry needs a predictable boss. After a freeze on approvals for most of last year, officials last week issued new guidelines for applications that point to a future of fewer titles and blander content. That should prove a manageable outcome for the $475 billion Tencent, backer of PlayerUnknown’s Battlegrounds, as well as the $35 billion NetEase. Yet the whims of a revamped regulator finding its feet mean the industry still deserves a discount. 

A bureaucratic reshuffle last year, in part to give greater authority to the Chinese Communist Party’s propaganda department, may have led to the surprising regulatory halt for licences that allow firms to earn income from titles, for instance, via in-game purchases. The education ministry also took aim at developers in its effort to combat myopia among children. The latter move alone shaved about $20 billion off Tencent’s market capitalisation the day after the news broke. Although approvals resumed in December, fewer than 800 titles were approved in the first quarter to the end of March this year, down from nearly 2,000 during the same period last year, according to Niko Partners, a research and consulting firm.

Officials’ broad push for uncontroversial content will be less than enticing for gamers. Yet regulation that weeds out some of the copy-cat clutter and discourages titles that promote perceived social ills, including gambling, might be a boon to more established and innovative players: poker and mahjong titles seem to have absorbed the brunt of the first-quarter approval decrease, for example. 

The bigger worry is that last year’s sudden lurch towards more conservative oversight came with little warning and seems to be a work in progress. The industry’s political uncertainty casts an uncertain shadow over even Chinese video-gaming streaming platforms like DouYu International, which this week filed for an initial public offering in New York; sources have previously told Reuters that the outfit was aiming to raise about $500 million.

DouYu’s documentation warns of the “complex” and “evolving” regulatory environment. As it should: the platform was reportedly pulled last year from a number of app stores, after Beijing cracked down on allegedly inappropriate content. Video-game characters often have special powers, and the regulator is taking that to heart. 

Breakingviews

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