Just when they were expecting a lump of coal for Christmas, Tencent’s investors got an early gift from Beijing.Shares in the Chinese games and social-media giant jumped 4.5% Friday on local media reports that the government would soon approve a batch of new games. Approvals have been frozen since a reshuffle of government departments in March. State media have blamed videogames for being too violent and addictive for young people.
The freeze was hurting Tencent. Its sales from smartphone and computer games, which account for two-fifths of the group total, fell 3% last quarter compared with the same period in 2017. Even after Friday’s move, the $380 billion giant’s stock is down 22% this year, putting it on track for its worst year since it was listed in Hong Kong in 2004.
The latest approvals aren’t a complete surprise. State media said earlier this month that a new “online game ethics committee” had been set up to review games and set out guidelines for companies on how to “abide by social morality.”
But it may not be all roses from here. Regulators could always impose tighter rules on how aggressive game makers make money. The mobile-games business model has often been criticized as akin to gambling in its exploitation of players’ addictions. Most mobile games are free to play, but generate revenue from selling in-game items to a small group of gamers. Less than 10% of players contribute all the profits of a typical mobile game in China, Deutsche Bank estimated last year.
And China’s games market is becoming saturated. There are already 626 million gamers—nearly half the country’s population—according to research firms GPC and CNG. The nascent slowdown in the Chinese economy could also hurt an industry that is so geared toward big spenders. Sales of big-ticket items such as cars have already slowed sharply.
The approvals suggest 2019 will be a better year for Tencent. But the Chinese tech giant may still struggle to deliver the stellar returns investors got used to in previous years. More scrutiny of tech stars is one thing Beijing and Washington have in common.
Source: The Wall Street Journal
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