HONG KONG, Jan 20 (Reuters) – China’s recovery from a major slump in its video game market is expected to revive the battered industry this year, but other economic restrictions and economic pressures will slow the recovery.
Beijing’s tough measures in 2021 destroyed the once-booming industry, shaving half the market value of group leaders such as Tencent Holdings ( 0700.HK ) and NetEase Inc ( 9999.HK ) and shrinking the world’s biggest gaming market. time.
Shares of Tencent, the world’s biggest games company, and NetEase rose this week after China’s video game regulator issued the first game licenses in 2023, the latest sign that the failure is over.
Analysts expect that China will approve between 800 and 900 games this year, possibly more, on top of the 512 titles issued in 2022 and 755 in 2022. Between August 2021 and March 2022, no titles were approved.
“We believe the approvals indicate a better regulatory environment for Chinese companies,” JP Morgan analysts wrote in a note on Wednesday. “With rich games, we are optimistic about the growth of the online game market during the Chinese New Year, a strong season for the Chinese online market.”
The breach was aimed at tackling the problem of gaming among young people and removing content that was not approved by the government, where companies were asked to remove content that is violent, that is said to celebrate wealth or promote the worship of celebrities.
That sent China’s game sales down more than 10% to 269.5 billion ($40.1 billion) in 2022, the first decline since statistics were available in 2003, according to a report by CNG, a state-backed industry firm.
In November last year, Tencent, the world’s largest gaming company, reported that its domestic gaming revenue fell 7% in the third quarter. Its total gaming revenue was down 4.45%.
Shares of Tencent, China’s most valuable company, fell 24.7% in 2022 but are up 21% so far this year, recouping almost all of last year’s losses. NetEase’s sales in Hong Kong, which fell 27.3% in 2022, rose 21.4% this year.
Tencent and NetEase did not respond to requests for comment.
REGULATORY THAW
Also giving investors reason for hope are the big game deals being approved, which shows that publishers are willing to invest more in improving management.
Since December, titles such as Tencent’s Valorant, NetEase’s Justice Mobile and miHoYo’s Honkai: Star Rail have been licensed, big-ticket items from August 2021.
In December, Chinese authorities approved 44 foreign games, the first to be given the green light in 18 months and widely seen as the last hurdle to prevent a boycott, raising hopes for foreign manufacturers to re-enter China.
Citi analysts say that if the approval announcements continue, more games will be approved than the estimated 800 to 900.
“Among the game studios, we see serious threats to Tencent’s return on investment,” he added.
That said, some restrictions imposed by Beijing remain. In particular, in September 2021, China banned 18-year-olds from playing more than three hours a week, a law that has forced Tencent and its partners to stop targeting young players.
Tencent said in November that the total time spent by 18-year-olds on its games dropped by 92%.
For the upcoming Lunar New Year holiday, Tencent and NetEase have implemented rules to prevent children under the age of 18 from playing games for more hours than is legally allowed, in line with recent developments on other major holidays.
Strict controls on games will remain, banning popular but violent games like Grand Theft Auto from entering China.
Whether the sports market can return to form also depends on the recovery of China’s economy, which has been affected by the number of COVID-19 infections.
Analysts at Citi said last year’s unprecedented decline in gaming sales was also due to mobile gamers remaining “more reluctant to spend on entertainment than the financial sector”.
However, projections show that the number of players in China will remain stable, decreasing by 0.33% in 2022 from 2021 to 664 million.
“In 2023, China’s online games will start to grow again, but (it may not be) big at all,” Chenyu Cui, an analyst at research firm Omdia said. “Growth will be slower and slower.”
Josh Ye reports; Edited by Anne Marie Roantree and Sam Holmes
Our Standards: Thomson Reuters Trust Principles.
