China’s video game makers come out of the cold Pipa News

China’s video game makers come out of the cold

Hong Kong: The end of China’s sweeping crackdown on its video game market is expected to reinvigorate the battered industry this year, but remaining restrictions on some ingredients and economic headwinds will limit the extent of the recovery.

Beijing’s draconian sanctions ravaged the once-booming industry in 2021, slashing more than half the market value of sector leaders such as Tencent Holdings and NetEase Inc and shrinking the world’s biggest gaming market for the first time.

Shares of Tencent and NetEase, the world’s biggest gaming companies, rose this week after China’s video game regulator granted the first gaming licenses in 2023, the latest sign that the clampdown is coming to an end.

Analysts expect China to sanction 800 to 900 games this year, potentially more, with 512 titles released in 2020 and a topping 755 in 2022.

Between August 2021 and March 2022, no title was approved. “We believe the approvals signal a more benign regulatory environment for the China gaming industry,” analysts at JP Morgan wrote in a note Wednesday.

“With rich game supply, we are more positive on the overall online game market growth during the Chinese New Year, which is a traditional strong season for China’s online game market.” The crackdown was aimed at curbing youth gambling addiction and purging content that was not approved by the government, with companies being asked to remove content that was violent, that celebrated wealth or featured celebrities. believed to promote the worship of

Sports sales in China are set to fall more than 10% to 269.5 billion yuan ($40.1 billion) in 2022, according to a report by government-backed industry data firm CNG, the first decline since figures were available in 2003.

In November last year, Tencent, the world’s largest gaming company, reported a 7% drop in its domestic gaming revenue in the third quarter.

Its total gaming revenue fell 4.45%. Shares of Tencent, China’s most valuable company, are set to decline 24.7% in 2022 but are up 21% so far this year, recouping nearly all of last year’s losses.

NetEase’s Hong Kong stock, which fell 27.3% in 2022, is up 21.4% this year. Tencent and NetEase did not respond to requests for comment.

thaw regulator

As well as providing investors some reason for hope, bigger budgets for games are now being approved, a sign publishers are willing to invest more in a better regulatory environment. Since December, titles like Tencent’s Valorant, NetEase’s Justice Mobile and miHoYo’s Honkai: Star Rail have been licensed, the biggest ticket items since August 2021.

In December, Chinese regulators approved 44 foreign games, the first given the green light in 18 months and widely seen as the last regulatory hurdle to be removed, opening the way for foreign developers to re-enter China. Got inspiration.

Citi analysts said that if approval announcements return to normal, more sports will be approved than their current forecast of potentially between 800 and 900 licenses.

“Among gaming studios, we see high upside risk for Tencent on a game revenue rebound,” he said.

That said, some of the regulatory restrictions imposed by Beijing are here to stay. Notably, in September 2021, China banned under-18s from playing games for more than three hours a week, a rule that forced Tencent and its partners to target younger gamers.

Tencent said the total time spent by under-18s on its games had dropped 92% in November.

For the upcoming Lunar New Year holiday, Tencent and NetEase implemented rules limiting under-18s from playing games for more hours than is legally permitted, in line with recent practice for other major holidays.

Strict controls on game content will also remain in place, preventing popular but violent games such as Grand Theft Auto from entering China.

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Whether the gaming market can bounce back in form also depends on the recovery of the Chinese economy, which has been hit by a surge in COVID infections.

Citi analysts said the unprecedented game sales decline last year was likely due to mobile gamers being “more price-sensitive on discretionary entertainment spending amid a weaker” macroeconomic environment.

However, data shows that China’s total gamer population has remained stable, slipping only 0.33% from 2021 to 664 million in 2022.

“In 2023, China’s online gaming will return to growth, but it won’t be huge,” said Chenyu Cui, an analyst at research firm Omdia. “Growth will be slow and gradual.”

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