In 2022, the industry changes and breakouts of game companies

Authors 丨Cai Shuyue, Sun Yu, Wu Liyang

Editor 丨Zhu Yimin

Figure Source 丨 Figure worm

Since July 22, 2021, the State Press and Publication Administration's game approval results page has been discontinued.

This week, a message about the online game version number has once again become the focus of attention in the industry and the market.

On February 21, some media reported that online game version numbers will not be issued in 2022. A few hours before the news broke, the market was still talking about another rumor: the regulator issued new guidance on the same day, and the supervision of some types of games will be further tightened.

In this regard, the relevant person of the State Press and Publication Administration said that the version number application is "still receiving normally", and the relevant person in charge of the Game Working Committee of the China Music and Data Association responded that "there is no such news". Although the authorities clarified and debunked the rumors in time, the secondary market game sector on the 21st and 22nd was greatly affected.

On February 21, Tencent Holdings (00700. HK), NetEase (09999. HK), Heartbeat Company (02400. HK) Bilibili (09626.HK) and other Hong Kong-listed game-related companies fell sharply, and the A-share 37 Interactive Entertainment (002555.SZ) also fell 6.46% on the same day.

On February 22, game companies such as Hong Kong-stock Tencent Holdings, NetEase and Heartbeat continued to fall, and the A-share online game sector (replaced by the Wind online game index) also fell 3.94%...

In addition, in the rumors of game supervision discussed in the market this week, several non-compliant game categories mentioned in the mobilization meeting of the online game content management training class held in September 2021 were mentioned again.

Although many game companies have pointed out that there is no "regulatory meeting" this week, from the trend point of view, the recent supervision has indeed strengthened the attention to some game categories such as fishing, chess and cards. The uncertainty of game version issuance and content supervision directly affects the business planning of game companies. Continue to optimize the stock and compete for the domestic market, or vigorously go to sea to seek new opportunities? More and more game companies need to think about such multiple choices.

The authorities were quick to clarify the rumors

As one of the necessary qualifications for the online operation of the game, the online game version number has been affecting the sensitive nerves of the game industry and the market since its emergence. As soon as the news of "no edition number in 2022" broke out, it immediately became the focus of market attention.

Although shortly after the news broke, the relevant person in charge of the Game Working Committee of the China Music and Digital Association responded that there was "no such news", and the relevant person of the State Press and Publication Administration also said that the application for the version number was "still received normally", but this news still affected the stock prices of many game companies the next day.

On February 22, Hong Kong stock NetEase opened 2.32% lower, Tencent fell 2.74% intraday, and Heartbeat Company fell 8.38% intraday, and finally closed down 5.17%.

In terms of A-shares, the online game index plunged 3.94%, the constituent 37 Mutual Entertainment fell 9.96%, and Century Huatong (002602. SZ) fell 5.63%, Perfect World (002624. SZ) fell 4.19 percent.

The 21st Century Business Herald reporter recently asked a number of large and medium-sized listed game companies in A-shares and Hong Kong stocks for verification.

The companies surveyed said that they have not received the news of the suspension of this year's version number.

At the same time, a number of interviewed companies said in their replies that the "regulatory guidance" circulating on the Internet is September 2021 information, not recent content, nor information increment, and the regulator did not issue new guidance this week.

The reporter's inquiry found that the relevant departments last announced the list of domestic online game approval information on July 22, 2021, more than 7 months ago.

In August 2021, the State Press and Publication Administration issued the Notice on Further Strict Management and Effectively Preventing Minors from Addicting to Online Games, which requires strict restrictions on the time available to minors for online game services, and all online game companies can only provide 1 hour of service to minors from 20:00 to 21:00 every day on Fridays, Saturdays, Sundays and statutory holidays.

Since the promulgation of the new regulations on the prevention of addiction in online games, the State Press and Publication Administration has not published the list of approval information for domestic online games.

A US dollar fund game investment researcher told reporters on February 23 that under the influence of successive policy news/rumors, the current market confidence in the Internet industry such as games is relatively limited.

"If last year (the game) was a policy market, this year it was a policy plus trading market. Long-term fundamentals have been diluted, and there has been a decline in market interest in the long-term performance guidance given by the study. There are still people who are more optimistic about the industry, but such views are also easy to be shaken after industry exchanges. The person said.

"On the other hand, the game at the transaction level has been further strengthened, and both policies and rumors have become a catalyst." The person added.

The 21st Century Business Herald reporter noted that the theme of the newly released research report by the seller's institution is also to soothe emotions and emphasize the long-term trend of the industry.

Feng Cuiting of Cinda Securities said on the 23rd that there is no need to worry too much about the supervision of the game industry, and the game industry can grow healthily for a longer period of time after the supervision.

The staff of the State Press and Publication Administration also refuted the rumors after hours on the 22nd. We believe that the purpose of the version number approval is to better promote the improvement of the quality of games in the mainland, protect minors and cultural output, not to kill the game industry with a stick, but in essence, it is an important institutional cornerstone for the long-term improvement of China's game strength. Feng Cuiting said.

Chess and fishing games will face strong regulation

In this "regulatory guidance" rumor, there is news that non-compliance topics will face strict supervision.

In fact, the above content has long been mentioned in the mobilization meeting of the online game content management training class held in Beijing in September 2021.

At that time, the "content review" part of the conference focused on the criticism of various types of non-compliant content of published games. At that time, many games were named for containing the above content.

In response to the 21st Century Business Herald reporter, a number of game companies said that the regulator has not issued new guidance recently.

"If this kind of news is true, it is long overdue for an internal meeting to discuss the response plan." A head game manufacturer employee told reporters. At the same time, he also revealed that the company's two-dimensional game project is in normal operation and has not been affected.

Although the rumors of "regulatory guidance" have been "clarified" by major game companies, the tightening of supervision has become a gradually clear industry trend. The reporter combed and found that the regulatory authorities have recently tightened the supervision of some games that contain a large amount of guided consumer content. The fishing and board games in the previous version approval of the "three types of games" were the first to bear the brunt.

As early as last September, when the online game content management training class was mobilized, the relevant parties had made a clear criticism of the phenomenon of money supremacy and comparative consumption in the game, and pointed out that many games encourage consumption and comparison, resulting in all the behaviors in the game will be linked to money payment.

In the near future, many games involving fishing and chess and card content will face removal, suspension or fines.

Tencent's fishing game "Fishing Is Coming" announced that it will be officially suspended on January 27, 2022, and will delete all account data and character profiles in the game.

Android mobile phone manufacturers have also introduced new access mechanisms to strengthen the review of fishing games. For example, Huawei's "Huawei Application Market Intermodal Service Agreement" updated on January 28 mentioned that "for fishing games involved in gambling, once discovered, it will directly take permanent sealing measures".

In this regard, Zhu Junchao, the founder of the Nuocheng Game Law and a game lawyer, pointed out in an interview with reporters that the reason why chess and card and fishing games are strongly regulated is that these two types of games mainly use shooting luck play, and in practice, they are easily made into gambling games.

"In recent years, the public security organs have destroyed dozens of 'game-banker-agent/group owners' and gambling black and ash industrial chains based on these two types of games, involving hundreds of thousands or even hundreds of millions of dollars, so in order to combat crime, they will inevitably be strictly supervised at the source." Zhu Junchao said.

Businesses should first ensure compliance

On Feb. 23, Citi released a study saying China could resume the game approval process in March, but the progress will depend on whether more regulations have yet to be finalized.

On the 23rd, some game companies in Hong Kong stocks and A-shares also stopped the decline, with the heartbeat companies rebounding by 6.95%, and the A-share online game index rose slightly by 1.07%.

It seems that the storm caused by this week's "regulatory guidance" and "version number suspension" seems to have passed. However, a number of people in the game industry said in an interview with reporters that game companies may still need to face "version number" anxiety and policy uncertainty in the future.

"The censorship of games is inevitable, and game companies should first ensure the compliance of game content and gameplay, and secondly, they need to focus on creating one or two games with stable audiences and long-term operating income as the basis for the company's operation to resist the uncertain version number approval mechanism, otherwise the company's development will be in the haze of version number restrictions for a long time." Zhu Junchao said.

Many game companies have increased their emphasis on overseas business. A senior game practitioner told reporters that he has felt obvious business pressure this year. As a company's market business person, he is currently saddled with a relatively heavy task of overseas market development.

In this regard, Zhu Junchao believes that if the game company has successfully applied for a version number before, it should focus on optimizing the content and gameplay of the existing version of the game, and further explore new profit channels; if the company does not yet have a game product to obtain a version number, it should pay attention to the compliance settings of the game product under development, adjust the business strategy in a timely manner, and actively promote the game overseas business.

In the past two years, many Chinese game companies have made great gains in going to sea. For example, 37 Interactive Entertainment had a number of games that sold well overseas last year. From October to December 2021, his production of "Puzzles & Survival") ranked 30/33/34 on the IOS bestseller list in the United States and 16/16/14 in the Japanese iOS bestseller list.

The reporter combed the research report and found that the industry has almost formed a consensus on domestic games going to sea. Institutions generally believe that going to sea is the next important business layout direction and performance growth point of Chinese game companies. In addition to the impact of policy uncertainties such as the suspension of domestic game versions, there are other driving factors behind the active going overseas of Chinese game companies.

"First, Chinese mobile game manufacturers have global competitive strength, and their global product strength/brand power shaping provides competitive barriers for going overseas. Second, overseas markets can explore a wide range of space, and can sustainably tap the demographic dividend of emerging regions and the increase in game mobility in mature markets. Third, the policy encourages high-quality games to go to sea and provide support for the dissemination of high-quality culture. CICC said.

From the data point of view, from 2016 to 2021, the average annual growth rate of overseas revenue of China's self-developed games was 20%, which was 3.3% higher than the compound growth rate of domestic revenue of self-developed games. At present, the market share of Chinese games in Southeast Asia is 50%, but it does not exceed 30% in the US/Japan/South Korea market, and there is still a lot of growth.

According to CITIC Securities Wang Guanran, China's mobile game overseas revenue will reach 32.898 billion US dollars in 2025, with an annual compound growth rate of more than 20% in the next four years, corresponding to a doubling of space in 2021 (104%).

Zhang Yi, CEO of Ai Media Consulting, pointed out to the 21st Century Business Herald reporter that in the current uncertain industry environment, the best thing for game companies is to seek the transformation of their own business structure, in addition to the games that are currently being advocated, the existing business will turn to the emerging consumer field, and it is also worth trying at this stage.

"The road to the quality of the game has different thinking space for different products. However, whether it is content production or marketing promotion, it is necessary to strictly comply with the requirements of the relevant national regulatory departments. He further emphasized.

In addition, Zhang Yi said that the regulatory trend of relevant departments for game content is undoubtedly becoming stricter. In the current context, game products must also be in line with regulators in terms of culture and values. For game products that are operating in China, how to ensure compliance and deepen the combination with relevant laws and regulations require game companies to upgrade and improve their stocks.

Editor of this issue Wang Tingting Intern Lin Xiying