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Tencent Loses Billions After China Calls For New Gaming Rules

Team Gossip | Dec 23, 12:35 PM | 6 min read

Highlights

China has proposed to limit the amount of money and time gamers spend online by reducing daily login incentives.
Commenting on the kind of changes that Tencent Games might have to incorporate, Vice President Vigo Zhang said Tencent will not have to make a lot of changes in how they function.
According to Reuters, the administration is looking for public comments on this new draft and is welcoming suggestions till January 22, 2024.

China has proposed to limit the amount of money and time gamers spend online by reducing daily login incentives and other engagement tactics in video games. Under the new draft, developers will not be allowed to incentivize daily logins or reward players for spending their money in the game multiple times. This one move aims to curb the rewards system that gaming companies often use to lure players to their games daily.

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Tencent And NetEase Set To Lose $80 Billion In Market Value

Tencent loses over $43 billion in market value after China proposes new online gaming rules.

Online games will now be banned from giving players rewards if they log in every day, if they spend on the game for the first time or if they spend several times on the game…
— letsgrowesports (@letsgrowesports) December 22, 2023

In a report published by Reuters, the new rules have only been proposed right now and will undergo changes before they are implemented next year. However, just the news of changes has affected the two gaming giants in China. Tencent's shares fell as much as 12% in market value and NetEase plunged 25%.

With the new laws, gamers that are minors will not be allowed to take part in luck-based draw systems. According to Reuters, the administration is looking for public comments on this new draft and is welcoming suggestions till January 22, 2024. Morningstar analyst Ivan Su analyzed the situation and said that it would affect the company's earnings in the long run.

The removal of these incentives is likely to reduce daily active users and in-app revenue, and could eventually force publishers to fundamentally overhaul their game design and monetisation strategies.

Commenting on the kind of changes that Tencent Games might have to incorporate, Vice President Vigo Zhang said Tencent would not have to make a lot of changes in how they function because of its "reasonable business model or operations." He also added that the company follows strict policies, keeping in mind their audience of players that are under 18 and the time they spend playing the games made by them. Talking about this move, Brian Tycangco, analyst at Stansberry Research told CNBC:

The most recent regulatory move on the online gaming industry is the last thing the market was hoping to hear out of Beijing. While well intended, the move casts doubt on the viability of existing business models that mostly are built around incentive or rewards to attract users and boost loyalty.