China crackdown on video games is costing publishers billions

“Honor
of Kings” is China’s most popular video game, earning more than
$100 million a month.
Reuters

• China is the world’s largest
  video game market, but
  regulators in the country haven’t approved any new games for
  sale since March 2018.
• Chinese officials are reconsidering the impact gaming
  has on the country’s young people, which could lead to limits
  on playtime and additional censorship.
• Companies making games for Chinese audiences have
  reported more than $1 billion in lost sales due to the halt in
  approvals.

With about one-fifth of the world’s total population, China is
the largest video game market on the planet. Despite heavy
regulations on media and online content in the country, Chinese
gamers spent nearly $38 billion on video games in the past year,
according to New Zoo.

But while China’s audience for video games has seen consistent
growth, officials in the country have expressed concern about
potential gaming addiction and the impact video games have on the
country’s youth. As a result, Chinese regulators have slowed the
approval process for new games in the country. The Wall Street Journal
reports that less than 5,000 games have been approved so far
this year, compared to more than 14,000 games released during
2017.

Approvals have primarily been reserved for major companies, and
China is home to the biggest gaming company in the world,
Tencent. However, Asia’s largest company posted a decline in
profits for the first time in more than a dozen years during
August 2018, noting that Chinese regulators blocked the
sale of major releases. Tencent’s overall market value
has tumbled more than $200 billion since peaking in January.

China’s government is unapologetic about its efforts to monitor
the release of new media in the country. There are strict
limitations on the number of films that are imported from the
U.S. each year, and films and games alike are deeply scrutinized
for their portrayals of violence and offensive
content. China overhauled its approval process in March
2018, establishing the State Administration of Press and
Publication, but the new agency has been less than aggressive in
addressing video games. Some Chinese officials believe the
increased popularity of video games has had a negative impact on
children, keeping them away from school and promoting addictive
behavior.

Last year, in an effort to preempt new regulations, Tencent
implemented oversight features for its most popular game, “Honor
of Kings.” The game automatically limits children under the age
of 12 to one hour a day, adolescents between 12 to 18 are allowed
two hours a day. Parents can also monitor the amount of time
children spend playing and block their access to the game on
specific devices. Tencent is now considering using facial
recognition software to identify players by comparing their photo
and information with a police database.

Mobile games dominate the Chinese video game market and the most
popular games, like “Honor of Kings,” earn more than a hundred
millions dollars every month through microtransactions. Still,
with the government reluctant to approve new games or allow
monetization for popular titles, Tencent and other video game
publishers are losing billions in potential revenue. The Wall
Street Journal reports that gaming companies are currently losing
as much as $200 million a month due to the lack of approvals.

Right now there are few signs that China is willing to expedite
the approval process for video games and the issue raises a
greater cultural question for Chinese officials. The country will
eventually need to decide whether it wants to embrace video games
as a growing part of the national culture, or continue to
scrutinize the medium for possible negative influences. In the
meantime, game developers will have to keep struggling to reach
the world’s largest market.