China Enforces Online Gaming Regulations, Resulting in Publisher Losses in Millions

Tencent, the second largest gaming company in the world, suffered a massive blow after the Chinese government published new guidelines for online gaming. The guidelines were aimed at curbing excessive spending on microtransactions and protecting young and vulnerable players from developing addictions. As a result, Tencent’s shares plummeted by 15.7%, equivalent to a staggering $54 billion. Other gaming companies like NetEase also suffered a significant drop in their stock prices.

The new guidelines proposed by the National Press and Publication Administration of China were aimed at controlling the exorbitant rates of spending on online games. The regulations were designed to protect young and impressionable players who could easily develop addictions to microtransactions. The guidelines included several key rules, such as setting spending limits on online games, prohibiting daily login rewards, and restricting large rewards for live-streaming players.

Microtransactions are the primary source of revenue for most free-to-play games. These transactions typically involve the sale of cosmetic items, level upgrades, and battle passes. While some microtransactions can be as low as $0.99, they can quickly escalate to prices as high as $200, making them very attractive to players who are unwilling to put in the effort to progress in the game.

The new regulations affected several games directly, including Forge of Empires, Genshin Impact, State of Survival, Clash of Clans, Hero Wars, Fallout Shelter, Rise of Cultures, and Candy Crush Saga. The Chinese government intends to eliminate addictive tactics, excessive microtransactions, and unlimited spending on free online games.

The new guidelines proposed several rules that online games must follow, including setting spending limits, prohibiting daily login rewards, restricting large rewards for live-streaming players, and prohibiting games from offering minors functions based on probability. The regulators must process online game approvals within 60 days.

Since many of Tencent’s games and brands have similar features and mechanics that are being targeted by the Chinese government, it remains to be seen whether these changes will be effective in curbing potentially harmful spending on free games. The question that arises is whether it was necessary to be so restrictive to protect consumers.