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.
regulatory thaw
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.
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 also likely due to mobile gamers remaining “more price-sensitive on discretionary entertainment spending amid a weak economic 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]big at all,” said Chenyu Cui, an analyst at research firm Omdia. “Development will be slow and gradual.”
