September 9, 2018

One in the eye. Tencent’s kingdom is under assault from China’s regulators

An edict on childhood myopia casts gloom over video gaming

LAST December, at a conference in the southern city of Guangzhou, Pony Ma joked that he felt a little nervous to be parted from his phone while on stage. He was responding to criticism about the addictive nature of smartphones, fuelled by what some in China call “electronic opium”: video games, among Tencent’s best-known products and its single-biggest revenue source. Mr Ma, its boss (and China’s richest man, according to the latest annual ranking from Forbes, a magazine), added that his myopia had worsened of late and that eye strain was “also a problem”.

Xi Jinping, it emerged, takes such things more seriously. Last week, according to state media, China’s leader read with dismay a report on the poor eyesight of his young citizens. Late on August 30th the ministry of education and other bodies published a plan to prevent myopia in children and teenagers. Among encyclopedic instructions to beef up the training of optometrists and to adjust the height of school chairs, one sentence directs regulators to curb the number of total online games as well as that of new releases. It also guides them to restrict teens’ playing time. Tencent’s stock promptly took a tumble, losing 5.6% on the following day of trading, thus shaving around $20bn from the market value of the world’s largest gaming company. On September 6th the firm announced a new system to identify minors and limit their daily gaming time.

The recent crackdown is not the first blow Tencent has suffered. Regulators froze new game approvals in March without explanation. The freeze has stopped Tencent making money in China from a mobile version of one of the world’s hottest titles, “PlayerUnknown’s Battlegrounds” (PUBG), a South Korean game in which players scavenge on an island for weapons with which to slay each other. In mid-August Tencent reported its first quarterly profit decline in nearly 13 years, which it blamed chiefly on the regulatory limbo.

“Monster Hunter: World”, involving the killing of fearsome beasts, was expected to be another bestseller in China for Tencent, which licensed the game from Capcom of Japan. Regulators, apparently thinking it too gory, pulled it within a week of its release in August (it had been approved just before the freeze began). To David Dai of Sanford C. Bernstein, a research firm, the regulatory hold-up and the ensnarement of “Monster Hunter” are no coincidence. Seven in ten internet users—or 560m people—play games in China, estimates Newzoo, a research firm. Since last year communist-party mouthpieces have been excoriating games companies for poisoning young minds. In response Tencent set up an “anti-addiction” measure for “Honour of Kings”, one of its own blockbusters, to limit the playtime of Chinese teenagers to two hours a day and that of under-12s to one hour. In the Chinese-language version of PUBG (on desktops and consoles), blood is rendered green to appease regulators.

Lisa Cosmas Hanson of Niko Partners, a tech consultancy, thinks the ministry of education may have viewed this broader regulatory hardening as a chance to further its own quest to shield youngsters from the gaming frenzy. After all, the myopia directive makes no mention of putting controls on other recreational screen-time activities that might harm eyes, such as enormously popular short-video apps. (Recent research suggests myopia may have more to do with insufficient sunlight—acknowledged in China’s injunction to schools to step up outdoor sports).

For all this, a view prevails among some analysts that tighter control will strengthen the position of Tencent and other big players, such as NetEase. UBS, a bank, expects game approvals to start up again in October or November. In the long run, a limit on the number of new titles should favour those with the biggest budgets to lavish on their development. If larger compliance teams are needed to keep censors happy, that too will help incumbents.

As one bit of the industry is crimped, however, another flourishes. A form of competitive video-playing called eSports, with 200m fans in China, is helping the country to shine. In the same week as the myopia memo, China’s national team became the first to win gold in an eSports demonstration event at the Asian Games in Indonesia. China defeated Taiwan at playing the international version of Tencent’s “Honour of Kings”. This year the medals do not count in official tallies. When Hangzhou, a Chinese city, hosts the next games in 2022, they will.


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