A government shake-up in China's top bureaucratic positions is creating a massive ripple-effect across the video game industry after it came to light that Chinese regulators have put a freeze on the approval of video game licenses. Effectively putting to a halt one of the world's largest video game markets.
In a report by Bloomberg, sources close to various top departments in the Chinese government with regulatory powers over video games said that new games haven't been given license approvals in China for at least the last four months. The news has wiped $150 billion from Tencent, the Chinese media giant.
What is happening is that Tencent and Netease are two of the largest video game companies in China and the two license video games from developers like Activision Blizzard, EA, Capcom, and Nexon to market in the Chinese market. Without these licenses, video game companies lose access to the Chinese market while Tencent and Netease lose products to release.
For example, according to the report, Tencent has not yet received approval to release desktop versions of both PlayerUnknown's Battlegrounds and Fortnite, nor is Tencent approved to monetize the mobile version of PUBG. Tencent is effectively missing out on about 170 million users because of these blockades. Monster Hunter: World was also pulled from PC distribution because of complaints which led to license disputes.
Bloomberg reports that the market has already reacted strongly to revelations of the freeze. Nexon, which earns 45 percent of its revenue from Tencent, fell by 11 percent, Capcom dipped 6.7 percent, Nintendo fell 3 percent, and Square Enix dropped 6 percent.
The licensing freeze is potentially a result of a government restructuring. The National Radio and Television Administration in charge of granting licenses has not done so in four months, while the Ministry of Culture and Tourism has made the process of registering a video game stricter. Both ministries were affected by restructuring, personnel changes, and consolidations.
Video games are also a hot button issue in China with cases of video game addiction, violence, and possible corruption of socialist values often under scrutiny. With so much happening within the government reshuffling sources say that officials are trying to avoid any controversy via the video game industry.
Tencent and Netease are such a big part of the video game industry that hits to either of those companies affect video game studios abroad. Tencent has investments in Activision Blizzard, Epic Games, and many more. Netease is in a licensee agreement with Blizzard Entertainment and recently became partners with Bungie.
It's not clear what the effects of the freeze will be other than cutting into the margins of video game companies. Bloomberg tech reporter Yuji Nakamura suggests the freeze is temporary but also says that regulators are growing upset with loot boxes. This could force the industry to change how loot boxes operate if it wants to gain access to the lucrative Chinese market. Though, as we learned earlier from conversations with legal experts there is always Battle Passes which could hold strong against such regulations.