An announcement triggered Tencent NetEase to evaporate nearly 500 billion Hong Kong dollars, and the game winter was colder than cold|Focus analysis

Text: Wang Yuchan

Edited by Qiao Qian

On December 22, an announcement caused shocks in the gaming circle and the stock market.

At noon on the 22nd, the National Press and Publication Administration issued a notice to solicit opinions on the "Measures for the Administration of Online Games (Draft for Solicitation of Comments)" (hereinafter referred to as the "Draft for Solicitation of Comments"). The draft includes regulations such as "the version number is valid for one year, and the version number cannot be registered", "inducing rewards such as daily login, first recharge, and continuous recharge shall not be set", "mandatory battles shall not be set", "excessive use of games and high consumption shall be restricted", and so on.

As soon as the draft came out, the stock prices of many listed game companies plummeted.

As of the close of trading at 4 p.m. on the same day, NetEase reported HK$122 per share, down 24.60%, with a maximum decline of 27.94%, and its market value evaporated by more than HK$128.3 billion, almost returning to the level at the beginning of the year, and it fell in one day to complete a year's gains; Tencent reported HK$274 per share, down 12.35%, with a maximum decline of 15.67%, and a market value of more than HK$367.8 billion. The market value of these two companies alone has evaporated by nearly HK$500 billion.

In addition to the two giant companies, other game stocks are also not immune to the fall. Companies including Sanqi Mutual Entertainment, Electric Soul Network, Gigabit, Youzu Network, Perfect World, Giant Network, Century Huatong, etc., have all triggered the fall limit mechanism.

Although it is still in the consultation stage, there is no doubt that the draft will deal a blow to the confidence of game practitioners. Some game practitioners expressed their stance on 36Kr, they originally thought that after the implementation of the juvenile protection measures, the negative signals at the regulatory level have been basically released, but now it seems that it is likely that there is no such thing, and the regulatory targets are still expanding from underage players to adult players.

What does the draft say?

The "Draft for Comments" has a total of 23,000 words, and if the market value of 500 billion yuan lost by Tencent and NetEase is divided by the total number of words, then each word is "worth" more than 20 million yuan, and is evaluated by netizens on social platforms as "a thousand words".

In addition to the "regular operation" of restricting minors from playing, the provisions in the draft that really cause concern to industry insiders involve various aspects such as version number, recharge, gameplay settings, lottery settings, publicity specifications, etc.

Article 12: [Online Game Approval System]After online game publishing and operation units obtain online game approval documents, they shall follow the requirements of the approval documents to organize game publishing and operations within one year of the date of issuance of the approval documents, and where they cannot publish and operate within the time limit, they shall promptly explain the reasons in writing to the local provincial-level department in charge of publication.

Since 2018, the practice of the General Administration of Information of the People's Republic of China (OFS) issuing game version numbers every month has been broken twice for a long time, plunging the entire industry into a waiting crisis without warning. In 2023, although the distribution of edition numbers will return to normal again, the number is still much lower than in 2017.

The new regulations obviously add another layer of restrictions on edition numbers, requiring game companies to launch games within one year after obtaining them, eliminating the possibility of hoarding edition numbers. If the regulation is passed, the already scarce edition number will be even more critical because it cannot be hoarded for a long time, and it will become a "stuck" resource.

Article 18: [Restrictions on Excessive Use of Games and High-Value Consumption] Online games must not set inducing rewards such as daily logins, first top-ups, and continuous top-ups.

Online game publishing business units must not provide or condone high-priced transactions of virtual props through methods such as speculation or auctions.

All online games must set user recharge limits and publicize them in their service rules, and pop-up warnings should be given to users' irrational consumption behaviors.

Setting a daily login bonus is already a regular operation of the game product and is a means to ensure user retention. If the new regulations are implemented, the DAU data of game products will undoubtedly be hit. The first recharge reward is a means to cultivate users' consumption Xi, and the continuous recharge reward is a hook to induce users to continue to consume. Without these tools, the game's ability to attract money would have taken a big hit.

In addition, the new regulations propose to "set a user deposit limit", proving that in addition to eliminating the consumption of minors, adult consumption in the game will also be regulated. The draft does not specify where the red line should be drawn, by whom, or whether there can be different limits for people of different income levels.

Article 21: [Technical Testing Specifications]Before obtaining approval from the competent state departments for publication, online game operations units conducting technical testing of online games shall ensure that the content of the online game meets the relevant requirements of these Measures, and the number of test users must not exceed 20,000, and the test user data is to be deleted. Before the start of each test, online game operations units should report the name, scope, testing period, and user scale of the test game to the local provincial-level competent department for publication, and provide a letter of commitment to the legality of the technical test content, account, and content.

This clause means that the opening to start operating the game in advance on the grounds of open beta and closed beta has been blocked, not only limiting the number of people, but also forcibly requiring the deletion of files, and the revenue of the game company's public beta products will be much lower than in the past, while the declaration cost has increased significantly.

Article 27: [Random Selection]When providing random selection services, online game publishing operations units shall make reasonable settings for the number and probability of drawing, and must not induce online game users to spend excessively. At the same time, users should be provided with other ways to obtain virtual props and value-added services with the same performance, such as exchanging virtual props and purchasing online game currency directly.

Lottery is one of the key ways to drive the flow of the game, and game companies usually set "medium value" items as direct purchases, and "high value" items as lottery to attract users to spend more actual cost to buy high-end items. If users are provided with a way to use online game currency to directly purchase lottery items, then the meaning of setting up the lottery itself will no longer exist, and the revenue of the game company will also be hit.

In addition to the above clauses, the clauses that caused the controversy also include: the game currency must be traded in digital yuan, and the live broadcast of online games must not have high rewards, etc. The draft does not give an accurate answer to the question of where the red line is and how high it is, but the proposal is enough to cause the industry to tremble.

Some are at the bottom of the pit, some have fled

After the draft was released, many voices on public opinion social platforms lamented that ByteDance was once again ahead of the times - at the beginning of this month, Byte directly cut the entire game business line, getting rid of the risk of being dragged down.

But even if byte-stripping games is just a "historical coincidence", the contraction of the game industry has long been foreshadowed. Not only bytes, but also gaming giants like Tencent are becoming conservative.

After the release of the financial report for the third quarter of this year, Tencent said on a conference call that "slow scale-up" of new games will become the norm. James Michelle, Tencent's chief strategy officer, said: "Even if we don't have any major game launches in three months, we can maintain a relatively healthy growth rate. ”

The situation faced by Station B is similar. On December 13th, station B reported the news of the abolition of all game development business. While the company has denied this claim, it admits that it has indeed axed some projects that are in development. CEO Chen Rui bluntly said that it is now the end of the year, and the performance of most new games this year is less than expected. The company's Q3 gaming revenue fell 33%.

After the draft was released, Tencent was the only company to officially issue an external response.

Zhang Wei, vice president of Tencent Games, said to 36Kr:

Since the release of the new regulations in 2021, Tencent has been strictly implementing the management requirements, and the game time and consumption data of minors are currently at the lowest level in history. The draft of the new management measures does not fundamentally change the key elements such as the reasonable business model and operation rhythm of games. The new version of the management measures released by the regulatory authorities this time clarifies the support attitude for the industry, especially in the encouragement of high-quality original games. Tencent Games will continue to adhere to the high-quality strategy of technological innovation and culture, and with the support of the competent authorities, it will practice the high-quality development of China's game industry.

In addition to this blunt official statement, 36Kr noticed that a reply from Tencent IR (Investor Relations) to professional investors was circulating on the Internet, which reads as follows:

1. This is a consultation document, not a final document.

2. All measures are more likely to affect games with high ARPU, our big games are all low ARPU. Mature games don't rely on those daily sign-ups, nor do they rely on incentives for first-time spending.

3. The rules mentioned are minor changes and do not affect developers and operators who are already very compliant.

4. It may have some impact on new games on the edge, especially unpopular old games.

5. The government's support for the healthy development of the gaming industry has not changed. We don't think it's a new round of crackdowns, just fine-tuning the rules in an increasingly healthy gaming market.

36Kr verified Tencent for this content. The other party responded that it was inconvenient to verify the authenticity of the content, and hoped that Zhang Wei's official response would prevail.

After the stock crashed, Tencent bought back a large number of shares to prove the company's confidence in the future. According to the announcement of the Hong Kong Stock Exchange, on December 22, Tencent Holdings repurchased 3.59 million shares at a price of HK$263.8-317 per share, costing about HK$1 billion.