December 9, 2023


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China Ends Game Freeze by Approving First Titles Since July

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(Bloomberg) — China has approved the first batch of new video game licenses since July, ending a months-long hiatus that put the world’s largest mobile gaming arena on edge.

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The National Press and Publication Administration published a list of 45 domestic titles on its website late Monday, confirming an earlier Bloomberg News report. Industry leaders Tencent Holdings Ltd. and NetEase Inc. were noticeably absent from a lineup that included a Baidu Inc. game, XD Inc.’s “Flash Party” and iDreamSky Technology Holdings Ltd.’s “Watch Out For Candles.”

The long-awaited resumption in licensing is likely to quell investors’ worst fears about Beijing’s intentions for the gaming sector, which had come under fire for encouraging addiction and undesirable behavior among youths. Bilibili Inc. gained 7.2% in U.S. trading, while DouYu International Holdings Ltd. rose 2.4%. NetEase closed 2.1% higher after climbing as much as 8.8%.

“We believe the market has been waiting for game approvals and the news is a positive catalyst since the suspension in Aug-21,” wrote Jefferies analysts including Thomas Chong. “According to our channel checks, we expect games of different genres will be released in future approvals.”

Beijing’s far-reaching tech crackdown — which has ensnared sectors from e-commerce to fintech and even online education — spread to online gaming in August, when regulators introduced stringent measures capping play time for minors and imposed new requirements aimed at curbing addiction. The media watchdog has also been reviewing new titles to determine whether they meet stricter criteria around content and child protection, an effort that’s slowed rollouts, Bloomberg News has reported.

The list had been distributed privately to developers ahead of the announcement on Monday, people familiar with the matter said, asking not to be identified discussing a private communique. NetEase declined to comment while Tencent had no immediate comment. Representatives for the agency weren’t immediately available for comment after business hours.

The resumption of gaming approvals is likely to quell investors nervous about the prospects for Tencent’s largest business. Titles approved were only from domestic companies, which also included 37 Interactive Entertainment and Youzu Interactive Co. Of the 45 approved titles, five are for PC, one for the Nintendo Switch console, and the rest are mobile games. Many of them appear to be casual games with lower player spending.

Read more: Tencent Declares ‘Reckless’ Tech Era Over as Growth Tanks

“The resumption of game approvals is a positive sign for China’s video game market and could indicate that more titles than expected might launch in the second half of the year. We forecast 500-700 games to be approved in 2022.” analysts including Daniel Ahmad at game research firm Niko Partners wrote in a note.

Investors who had suffered losses during a 10-month freeze on game monetization licenses in 2018 experienced deja vu in 2021, when a state-backed newspaper accused the industry of peddling “spiritual opium” before walking back that charged description. In September, regulators summoned the top game publishers to discuss further oversight of their titles and the need to de-emphasize profits, the official Xinhua news agency reported. In November, the 21st Century Business Herald reported game approvals may restart soon, sparking a rally in gaming stocks.

But the slowdown has already started to weigh on Tencent’s most lucrative division, which is still heavily reliant on the longevity of hit titles Honor of Kings and Peacekeeper Elite. Domestic gaming revenue climbed just 1% during the December quarter, lagging the 34% increase in its international business, dragging Tencent’s overall sales growth to its slowest pace since 2004.

Executives have stressed they see the domestic challenges as “temporary,” adding that they had a large backlog of games ready for launch once uncertainties ease. After weeks of delay, the company introduced the highly anticipated League of Legends mobile title in China in October, while the franchise’s e-sports tournament and new anime series have attracted hundreds of millions of views.

But uncertainty continues to dog the online social media and entertainment sector. China last week kicked off a formal campaign to rein in the potential abuse of algorithms by internet giants from ByteDance Ltd. to Tencent, taking aim at the way social media platforms serve up ads and content to hook users.

(Updates with trading from third paragraph)

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