Impact on Smaller Developers and Advertising Revenue
The proposed gaming rules in China are expected to have a more significant impact on smaller developers compared to their larger counterparts. These regulations are also likely to result in a reduction in overall online advertising revenue, according to analysis by UBS. While gaming constitutes a substantial part of NetEase’s revenue and accounts for approximately one-fifth or less at Tencent and Bilibili, the implementation of stricter rules could lead to substantial challenges for smaller players in the industry.
Concerns for Game Developers
Given Beijing’s aim to restrict game playing, particularly among minors, there is growing concern among game developers regarding the financial implications of the proposed regulations. Although the National Press and Publication Administration has approved new domestic and imported games, the exact scope of the regulations and their impact on both new and existing games remains uncertain.
Strategies for Larger Developers
Larger game developers with popular daily active user (DAU) social games are expected to fare better amidst the proposed regulations. These companies are better positioned to engage with gamers, leverage alternative methods to attract users, and have established research and development capabilities. Incentivizing daily sign-ins and offering rewards for initial in-app purchases are common practices in the industry to encourage user retention. Kenneth Fong, head of China internet research at UBS, emphasized the creative nature of the gaming industry and expressed confidence that game developers would adapt by designing innovative approaches to attract and retain users. The impact of the regulations on the financial performance of the industry as a whole is yet to be determined.