Some gaming companies are concerned about how the new restrictions might affect their bottom line.
Stock prices of Tencent Holdings Ltd (HKG: 0700) and NetEase Inc (HKG: 9999) fell by 4% and 7%, respectively, on Thursday after Chinese regulators summoned them to an interview to remind them of restrictions for minors. The Chinese government recently imposed restrictions on gaming for children under 18 years of age. In addition, regulators also prohibited illegal gaming content and called for a change in gaming designs that get users addicted. The Chinese government is taking this ban very seriously and suggested there would be severe consequences for violators. Under the new restriction rules, children can not play online games for more than three hours per week. Furthermore, they can only do so at specific times and days.
The Chinese government is concerned about the growing impact of gaming on the physical and mental health of minors. Regulators say that gaming companies need to assume more control of their content. In addition, they say these gaming companies should also ban ‘illegal’ content such as pornography. Generally, Chinese authorities frown upon unfair competition and monopolies in the gaming sector and recently stated that all internet companies should shun unfair competition.
On Thursday, some gaming companies pledged compliance with the guidelines from Chinese regulators. Speaking to CNBC, Tencent said:
“We believe in healthy game play and take very seriously the physical and mental health of minors. We appreciate the guidance and instruction from the relevant regulators, and will work hard to be in full compliance with all rules relating to youth game addiction and content regulation.”
Possible Effect of Chinese Regulators’ Restrictions on Stock Price of Tencent and Others
Some gaming companies are concerned about how the new restrictions might affect their bottom line. Much of the information contained in the regulators’ guidelines are not new or revolutionary. However, the part about compelling companies to change their game designs could stoke fears within the industry. This is because compliance may require changes to business models that rely on money spent by players. Chinese regulators currently view some of these gaming designs as ‘addiction triggers’ among young people.
An affiliate publication of the Xinhua newspaper ran an article last month that referred to gaming as “opium”. The publication later withdrew the article and republished it with all the drug references expunged. However, this was enough to raise concerns among investors in the gaming space that further regulation may be on its way.
Like Tencent, NetEase also issued a statement of compliance. The internet technology company said that it “will strictly follow the rules and instructions over anti-addiction measures for minors in games.” NetEase further promised to prioritize a wholesome gaming experience for its end-users. The firm told CNBC:
“We will continue our efforts to deliver more quality games and promote a healthy and responsible gaming environment for minor players, as we seek to build and promote a wholesome gaming environment in China.”
The Chinese gaming industry has gone through several regulatory periods over the years. Three years ago, regulators vetoed game approvals over concerns about children’s eyesight.
However, gaming giants seem unfazed by the growing regulatory trends with children. Tencent claims it gets only a small amount of revenue from young Chinese gamers. The company specified that players under 16 years old accounted for only 2.6% of gross game receipts.
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