China crackdown exposes Tencent's gaming addiction

Andrew Cummings
August 16, 2018

Chinese technology giant Tencent Holdings Ltd has "no clarity" on when it may get approval to start charging for its most popular game, it said on Wednesday, after reporting its first quarterly profit fall in almost 13 years on weak gaming revenue.

The Chinese tech conglomerate said that its net income for the three months that ended in June was 17.9 billion yuan ($2.6 billion), a decline of 2% compared to the same period a year ago. The interesting parts of it are the details about Riot's declining playerbase and Tencent's own pursuit of mobile gaming, which have supposedly caused both companies to butt heads a few times in the past.

Logo of Tencent is displayed at a news conference in Hong Kong, China March 22, 2017. Tencent also does not have permission to monetize the mobile version of "PUBG", for which it has 170 million installations. "This is something which is a little bit out of (our) control". WeGame said in a statement that regulators had received a large number of complaints about the game, which has sold over eight million copies worldwide.

Trading in its shares has been volatile this year.

Anonymous sources supposedly familiar with the matter told Bloomberg that a shake-up within the Chinese government has caused a lack of clear leadership in the National Television and Radio Administration and the ministry of Culture and Tourism.

Lau said Monster Hunter was blocked because its content "was not exactly compliant", adding Tencent was working with the developer to adjust the content for future approval.

Shares of Asian video game companies such as Tencent Holdings 0700.HK , Nexon 3659.T and Nintendo 7974.T tumbled on Wednesday due to concerns over delays in new games releases in China, as Beijing halted approvals for game licenses.

Mobile gaming revenue rose 19% year-on-year in the quarter to 17.6 billion yuan, representing a 19% sequential decline. Revenue increased to 73.7 billion yuan ($10.7 billion).

Morton said he remained bullish on Tencent shares and that regulatory risk in China versus the rest of the global gaming market has always been there.

Lau said Tencent would mitigate the impact by measures including scaling back on marketing expenses of its payment services. Tencent is also ploughing cash to outside bets: the value of new investments hit 32 billion yuan in the six months to June. Monthly active users climbed nearly 10 per cent to 1.06 billion in the June quarter - a massive population of consumers not just for games and ads but also fledgling services from video to financial services.

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