Regulators in China have ended issuing game licenses through a stopgap approval process. This closes the last known official path for making money from new titles in the world’s biggest gaming market. Known as the green channel, licenses are no longer being granted. This is used for both domestic and foreign games. The approval mechanism had been in place since at least August, following the government’s decision to restructure how it reviews video games for violence, gambling, and sensitive topics. Is this just another form of censorship by the Chinese government? Or is this a legitimate way to ensure that people aren’t being subjected to unnecessary violence?
These restrictions threaten the fortunes of game companies like Tencent Holdings Ltd., and NetEase Inc. The entire value of the market is around $38 billion, which adds to the uncertainty about the Communist Party’s long-term plans for regulating the industry. The previous crackdown affected online, mobile and console games, also hit China’s Bilibili Inc., while Japan’s Capcom Co., Nexon Co., and Konami Holdings Corp all saw their shares decline. This whole thing is a bit much, as Tencent has lost about $160 billion in market value this year, which is more than any other company worldwide, and it’s likely connected to this game license approval process.
While it’s unclear why this is happening, the government has stepped up its oversight of an industry that it claims leads to addiction, myopia and other issues related to the youth of the country. Some analysts had believed that this larger freeze would have ended by September, it doesn’t show any signs of stopping. The green channel had been a temporary solution to carry the industry over until it could get it sorted out.
Tencent, as you know, is the maker of the popular game Player Unknown Battle Grounds (PUBG), but what hurts is the fact that they can’t offer any new in-game spending options. China represents a huge player base for any game, but it represents 33% of PUBG Mobile’s more than 225 million downloads to date through Google Play and the App Store. The U.S. and India are the next biggest download markets for PUBG Mobile. The U.S. makes up 11 percent of its total, and India represents 8 percent. In terms of revenues, the U.S. makes up about a quarter of the total with $24.3 million. So with China having three times as many players, you can see the revenue potential that Tencent is leaving on the table.
Industry players have been seeking alternatives to counter the setback. The freeze has given rise to a grey market where Chinese gaming companies have been selling their publishing licenses for as much as 500,000 yuan ($72,000), said one of the people. Prices have dropped to about 200,000 to 300,000 yuan recently, suggesting some people expect the ban to end soon.
All of this has also caused gamers to flock to Steam, which is an online platform where people can play unlicensed titles. The site, which is owned by a U.S company, has escaped the government crackdown thus far. Its games are now available via overseas servers, so it’s unclear if that will continue once Steam begins using local servers as the Chinese government requires.
All that said, it doesn’t look like the Chinese government is going to pull the reigns back on this one, so it will be interesting to see how this plays out.