Source: Securities Times
Author: Wu Zhi

On December 22, the A-share and Hong Kong stock gaming sectors fell sharply.$TENCENT (00700.HK)$It fell by 12.348%, and the intraday decline was more than 15% at one point;$NTES-S (09999.HK)$It fell 24.598%, and the intraday decline was close to 28% at one point.

In the A-share online game sector, 9 companies fell by more than 10%, and more than 10 companies fell to a standstill by 10%, of which$Hubei Century Network Technology Inc. (300494.SZ)$Decreased by 17.52%,$Shenzhen Bingchuan Network (300533.SZ)$Decreased 17.28%. A share$Guotai CSI Animation Game ETF (516010.SH)$Decreased by 10.04%,$Huatai-PB CSI Animation Game ETF (516770.SH)$Decreased by 10.03%,$Penghua CSI Media ETF (159805.SZ)$Decreased 9.08%.

On December 22, the State Administration of Press and Publication issued a notice to publicly solicit comments on the “Measures for the Administration of Online Games (Draft for Comments)” (hereinafter referred to as the “Administrative Measures”).

Industry insiders: Influential but no need to overreact

In an interview with the Securities Times · e Company, many industry insiders believe that if some provisions of the “Administrative Measures” are strictly implemented, it may indeed have an impact on the operation of game products, but the current overall market reaction is a bit excessive.

“We are also still studying and researching specific terms. Currently, I am mainly concerned about the stock market's reaction. It's a bit frightening and overreacting. The market is very pessimistic, so I personally don't think there's any need to overinterpret it.” An industry insider told reporters.

“Even without these regulations, as a pastime business, the entire game market space is already being occupied by products such as short videos. The game's opponents are not new regulations; the market reaction is essentially a matter of managing expectations.” The person mentioned above said.

A person from a listed company told reporters, “These content requirements were actually issued a few years ago; this is not the first time they have been put forward. This time, it is estimated that after adjustments have been made by industry authorities, the results of the previous system have been consolidated on the basis of the original content requirements. Friends who are unfamiliar with the situation will worry about whether the policy trend has changed again.”

“In fact, over the past five or six years, standardizing self-regulation has become an industry consensus, and industry system construction and enterprise practices have been quite effective. The more trust is weak, the more we must calm down, unswervingly believe in the Party, and work hard to seek a new situation within the country.” A person from the listed company said.

Another analyst pointed out that the “Draft for Solicitation of Comments” is also a kind of macro-control baton. Essentially, it encourages game manufacturers to retain users through innovative gameplay and experiences, rather than using marketing methods to routinely follow users.

Tencent also stated on December 22 that the draft solicitation of comments on the new management measures did not fundamentally change the game's reasonable business model, operating pace, and other key elements. The new version of the management regulations issued by the regulatory authorities this time clarifies the attitude of support for the industry, and in particular gives guidance on encouraging premium original games.

“In terms of overall content, the “Administrative Measures” combine the two major parts of online game management by government departments previously in charge of online games: game publishing and game operation, and add some new regulatory regulations. Among them, the regulations governing the publication section mainly come from the “Publication Administration Regulations” (2020 revision) and the “Internet Publishing Management Service”. The content is very continuous. This section should not have a significant impact on the current regulation of the game market.” Attorney Si Binbin of Beijing Taoan Law Firm told reporters.

“Among the regulations governing game operations (mainly in Chapter III), some of the provisions come from the “Interim Measures on the Administration of Online Games” (2017 Revision) and the “Notice of the Ministry of Culture on Regulating Online Game Operations and Strengthening In-Case Supervision Work” issued earlier. The new “Administrative Measures” draw on parts from the two regulatory documents mentioned above, continue the scientific and reasonable nature of the regulatory rules, and are in line with the normal expectations of the online game industry.” Si Binbin said.

However, Si Binbin also told the reporter that the “Administrative Measures” have added some new regulatory measures and requirements to the supervision of game operations. If these regulatory requirements are implemented, many game operation methods or activities that are now mature and implemented, and even game operation methods or activities that are commonly used around the world have been explicitly prohibited by legislation, which will have a major impact on the normal operation activities of the vast majority of domestic games at present.

A number of regulations have attracted attention

The reporter learned that many of the provisions in the “Administrative Measures” have already been mentioned or covered in the relevant administrative regulations introduced earlier. The content that attracted widespread attention this time mainly focused on Article 12, Article 17, Article 18, etc., covering various aspects such as the game's initial recharge, recharge limits, mandatory battles, and version launch.

Article 12 imposes requirements on the time for online games to be launched and operated after obtaining a version number. After obtaining the online game approval documents, the online game publishing and operating unit shall, in accordance with the requirements of the approval documents, organize game publishing and operation within one year from the date the approval documents are issued. If the publication and operation is not possible beyond the period of time, it shall promptly explain the reasons in writing to the relevant provincial publishing authorities.

Currently, after a game product has obtained a version number, there is no fixed time for the launch of a game product. According to the new requirements, game products need to be launched within one year after obtaining a version number. Industry insiders believe that this aspect will speed up the pace at which new games are launched, and at the same time put an end to the phenomenon of version accumulation. However, due to uncertainty about version release, this will place higher demands on game companies' development, testing, and product launch arrangements.

Article 17 mentions that online game publishing and management units shall not set up compulsory matches in online games. Currently, there are differences in the industry's understanding of “forced battles.” There are opinions that the requirement for “forced combat” may affect game activities such as “gang wars” and “national battles” that exist in some games; however, there are also opinions that some SLG (strategy game) categories based on forced battle gameplay may face major adjustments.

“There is no need to ban all forced matches.” Si Binbin said that currently, for most regular games, the settings for forced battles are generally for users to independently choose whether to enter the forced battle activity or area. Users can simply turn off this feature if they think their rights and interests are being infringed upon. The so-called mandatory battle gameplay settings are also not an important cancer in the game industry that infringes on players' rights and interests. There is no need to make mandatory regulations on specific gameplay functions and settings, and carry out additional supervision.

Also causing widespread controversy is Article 18, which mentions restrictions on excessive use of games and high spending. Online games are not allowed to set inductive rewards such as daily logins, initial recharges, or continuous recharges. Online game publishing and business entities shall not offer or condone high-priced virtual items in the form of hype, auctions, etc. All online games must set user recharge limits and publicize them in their service rules. Users should be warned in pop-up windows about their irrational spending behavior.

Previously, the relevant regulations only required recharge for minors, but did not require initial recharge renewal, recharge limits for adult players, etc. Some people in the game industry told the reporter that daily login rewards, first charge and renewal discounts, etc. are currently important marketing methods for many game products, and they are also a mature business model. If this regulation is implemented and strictly enforced, it may indeed have an impact on the revenue of game products.

“The first charge reward is used by many apps, including discounts on the first month fee for many products on the market. It is a reason that this is an important way to attract users to pay. It is not yet clear how much the recharge limit will be; this is the key. If the limit is too low, the impact will be significant, especially for some games that rely heavily on top players, and the impact will be even more obvious.” According to the person mentioned above.

Si Binbin also told reporters that the rewards of “daily login, first recharge, and continuous recharge” are a very common business model in various industries and are difficult to define as “inductive rewards”; furthermore, game recharges are not specific, and adult gamers do not need to be restricted.

Article 21 mentions that before obtaining approval for publication from the competent state publishing authority, an online game operator shall ensure that the online game content complies with the relevant requirements of these Measures, that the number of test users is limited to 20,000, and that the test user data is deleted.

Currently, some games are being launched under the name of testing before they get a version number, but they just don't open up features such as recharge. The “Administrative Measures” require no more than 20,000 test users. In the future, game products will not be able to go online and operate under the name of testing.

A number of companies responded to the impact

On December 22, the A-share Hong Kong stock gaming sector fell sharply. On the interactive platform, many investors are concerned about the game business operations of related companies. On the afternoon of December 22, a number of A-share companies responded through interactive platforms or public means.

$Kingnet Network (002517.SZ)$He told the Securities Times e-Company reporter that the “Administrative Measures” currently have no substantial impact on the company's operations. The company will carefully study, research and actively follow up on feedback. It is believed that the game industry will achieve high-quality development on a more standardized basis and contribute to the country's economic development.

Tencent said that since the release of the new uninsured regulations in 2021, Tencent has been strictly implementing management requirements. Currently, the gaming time and consumption data for minors are at the lowest level in history. Tencent Gaming will continue to adhere to a quality strategy led by technological innovation and culture, and implement the high-quality development of the Chinese game industry with the support of the competent authorities.

$Tianyu Digital Technology (002354.SZ)$According to the interactive platform, as of June 30, 2023, the revenue of the company's data traffic industry accounted for 95.87% of the company's revenue. The company's overall business is more focused on the direction of the data traffic industry, and the “Management Measures” have less impact on the company's overall operations.

$Shenzhen Hifuture Information Technology (002168.SZ)$According to the interactive platform, since 2021, the company's game business, especially the mobile game purchasing and distribution business, has poor profitability due to increased competition in the industry, so the company is gradually reducing the scale of the game business and shifting the focus of strategic development to the intelligent manufacturing business. According to the company's 2022 annual report, the share of the company's main business revenue from the game business is only 7.7%.

$Shanghai Stonehill Technology (002195.SZ)$It said that the company's main business includes Internet information service business, artificial intelligence business, and diversified investment business. Among them, the Internet information service business is centered on 2345.com, mainly website promotion and marketing services. Game promotion and marketing services accounted for less than 10% of revenue in 2022. Other than that, the company has no other game business or game products. The “Administrative Measures”, if implemented, will have little impact on the company.

$Three's (605168.SH)$It said that the company has no online game-related business and no customers in the game industry. The company mainly serves customers of central enterprises and state-owned enterprises. The marketing content and brand positioning are in line with and promote the core values of socialism, develop advanced socialist culture, promote revolutionary culture, and pass on outstanding traditional Chinese culture.

$Hengxin Shambala Culture (300081.SZ)$It said that the company's business does not involve online game publishing and business activities related to the “Online Game Management Measures (Draft for Comments)”, and game regulation has no impact on the company's performance.

$Fuchun Technology (300299.SZ)$It also said that overseas revenue accounted for 88.59% of the company's game revenue in 2022. The “Administrative Measures”, if implemented, will have little impact on the company's existing operating game products.

Furthermore,$Beijing Yuanlong Yato Culture Dissemination (002878.SZ)$,$Visual China Group (000681.SZ)$,$Guiyang Longmaster Information & Technology (300288.SZ)$,$Dook Media (301025.SZ)$,$Omnijoi Media Corporation (300528.SZ)$Other companies all responded that there is no game-related business involved or that there is currently no game-related business, and the “Administrative Measures” have no impact on the company's operations.

Editor/jayden