Get ready to immerse yourself in the world of mobile gaming in China, where popular titles like Honor of Kings have taken over the market. According to UBS, China’s proposed gaming rules have the potential to impact smaller developers more than larger ones and could reduce overall online advertising revenue.
After the National Press and Publication Administration published draft rules that would prohibit incentivizing daily sign-ins for games, companies like Tencent, NetEase, and Bilibili saw their shares plunge to their lowest in over a year.
The proposed rules are open for public comment until Jan. 24. This news comes as Hong Kong markets are closed Monday and Tuesday for Christmas.
But not all game developers will be affected equally. “Big game developers or big DAU [daily active user] social games should fare better,” said Kenneth Fong, head of China internet research at UBS. However, with lower revenue for online games, the ad industry would take a hit too, with online games representing about 20% of the online ad industry’s revenue.
While the majority of NetEase’s revenue comes from gaming, Tencent and Bilibili rely on gaming for about one-fifth or less of their revenue, according to third-quarter releases. This will also impact other companies that develop and publish games in China, as Beijing has made clear its intentions to restrict game play, especially among minors.
Despite the potential impact on revenue, it’s “very common” for online games to encourage daily sign-ins and offer rewards for initial in-app purchases, according to Fong. The National Press and Publication Administration approved more than 100 new domestic games on Monday, in addition to 40 imported games approved on Friday. Fong expects new games to be affected more than old ones, but he also believes that game developers will find other means to attract and retain users in this creative industry.
