The latest proposed regulations by the Chinese authorities could have the most deleterious effect on small-scale developers, while also causing a reduction in total online advertising income, according to UBS analysts. The stocks of Tencent, NetEase and Bilibili dropped to their lowest point since more than a year ago on Friday, following the circulation of regulations issued by the National Press and Publication Administration prohibiting activities such as promotional daily logins for video games that generate income.
China's proposed gaming rules have the potential to affect smaller game developers more than larger ones, according to UBS. This sent Tencent, NetEase, and Bilibili's stocks tumbling to their lowest level in more than a year upon the rules becoming public. The National Press and Publication Administration is open to comments until January 24, but due to the Christmas holiday, the Hong Kong markets will not be open on Monday or Tuesday. Kenneth Fong, the head of UBS China's Internet Research, commented that larger game developers may be able to endure the effects due to their other means of enhancing user engagement. He further noted that a decrease in revenue for online games would have a ripple effect on the online advertising industry which his research shows accounts for around 20% of their revenue.
A majority of NetEase's revenue comes from gaming, Tencent and Bilibili making up one-fifth or less, as per their third-quarter reports. While other firms in China publish and make games, Beijing has made its intention of curtailing game activity, particularly for the younger generation, known. UBS's Fong stated that it is "very common" to offer day by day sign-ins and benefits for initial in-app purchases, noting that it'll help with engagement, gleaning user statistics, and the chance to adjust the game in real time. To get a financial estimation of the proposed regulation however, it is unknown whether it'll apply to new or existing games. The National Press and Publication Administration, in charge of releasing new games, announced approvals for more than one hundred domestic ones on Monday, following up with forty foreign games on Friday. Fong concluded that the more recent games are probably going to be more affected, although he believes developers have other methods to draw and hold users, noting the flair of the online game industry.
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