China’s Proposed Gaming Rules Impact on Small Developers

         

China’s potential new gaming rules are expected to have a larger impact on smaller developers than on larger ones, along with reducing overall online advertising revenue, according to UBS analyst Kenneth Fong.

Overview of China’s Proposed Gaming Rules

China’s gaming industry faces potential new regulations, as the National Press and Publication Administration has published draft rules that would prohibit incentivizing daily sign-ins for games and other revenue-generating practices. This has led to a significant drop in shares of major gaming companies like Tencent, NetEase, and Bilibili.

Impact on Big and Small Game Developers

UBS analyst Kenneth Fong suggests that the proposed rules would likely impact smaller developers more than larger ones. Larger developers with big daily active user (DAU) social games are expected to fare better due to their ability to boost gamer engagement, reach out to users, and stronger research and development capabilities. On the other hand, smaller developers heavily reliant on incentivizing daily sign-ins and other practices targeted by the rules would face greater challenges in retaining users and generating revenue.

Effects on Online Advertising Revenue

UBS estimates that online games contribute to about 20% of the online advertising industry’s revenue. With the potential decline in revenue from online games, there would also be a significant impact on the advertising industry. The reduction in revenue for online games would likely lead to a decrease in advertising spending within the sector, affecting various stakeholders and platforms involved in online gaming advertisements.

Financial Impact and Potential Strategies

UBS’s Fong mentioned that while it’s difficult to quantify the financial impact of the proposed regulation, it is unclear whether the rules would apply only to new games or also extend to existing ones. He expects that new games would be more affected than old ones, and emphasizes that game developers are likely to explore alternative means of attracting and retaining users. Despite the challenges posed by the regulations, Fong remains optimistic about the creativity and adaptability of game developers in finding new ways to engage users.

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