The Implications of China’s Licensing Freeze on Foreign Investors

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With a record of 583 million active gamers, China is undoubtedly one of the largest gaming markets on the globe. Gamers here have the liberty to engage in their favourite past time in different gambling platforms including online casinos like Sloty. March 2018, however, brought forth the introduction of new gaming regulations, bringing loads of changes to the gaming industry operations.

What happened was that the Central Propaganda Department took over the responsibility of licensing games from the Ministry of Culture and SARFT (State Administration of Radio, Film, and Television). The shift came with a couple of insinuations that affected the industry adversely. For starters, there was a suspension of new games licensing, an order that came from the government. It has a number of insinuations, especially to the foreign investors. These are discussed below.

It may Not Be as Easy to Enter the Markets

One thing for sure is that foreign investors will face more difficulties getting their gaming products to clients in the country. Before a game is announced in China, it first needs to get a license. With the license freeze, it has almost become impossible for gaming developers to push their products in the Chinese markets.

Things will get worse for developers who focus on certain niches when manufacturing games. China has implemented stricter regulations for games that it considers to feature “inappropriate content”. For instance, “Monster Hunter: Word” sales were banned because of violence. China also tends to think that myopia among children in the country comes from playing the video games. This move definitely results in huge losses for some investors.

Smaller Developers and Publishers Will Record Losses

Another group of people who will most likely feel the impact of the authorisation freeze are the smaller publishers who are developers. This particularly gets them, if they usually focus on quick releases and short development cycles. As the freeze can go on for months, it means that businesses will be affected in a huge way because they will not be able to sell their gaming products and move on to the next batch. Smaller companies may even be forced to go out of business even though it is on a temporary basis until they can figure out the way forward.

New Business Opportunities

It is not all gloom and doom with the licensing freeze. It can actually bring about new business opportunities for gaming experts to explore. Some firms can come together to form new business mergers. This may happen between small and big companies so that the latter do not find themselves out of business. This way, they both can work on nurturing titles that are already active.

Additionally, companies that usually deal with longer development cycles can use the new developments to their advantage where they can begin the approval processes as early as possible. NetEase and Tencent got approvals of a majority of games they launched in the first half of 2018 in 2017.

IP Protection

At the onset of the freeze, foreign gaming firms should seriously tackle the issue of IP protection. It is especially important in regards to game cloning and piracy, that happens in the country which can end up in huge financial losses.

China for the longest time has had poor IP protections from the regulators, which means that piracy is quite widespread in the region. Mostly, it happens with single-player games that do not demand online accounts.

Game cloning is also rampant in the country. This is where individuals or groups create copycat games with little to no changes. A majority of the cloned games are typically products from foreign businesses. Some are even produced on a different platform which includes the transfer of a PC or mobile game. The cloned games are usually released before the authentic versions, which also leads to massive losses to the original creators.

Local Companies Still Dominate the Market

With the complication of licencing procedures for foreign developers, there will be no change to the fact that local developers get the lion share of the gaming industry in China. In 2017, governing bodies approved 9,800 new titles where 9,310 came from domestic companies.

Tencent which is one of the biggest companies in China enjoys at least half of the market share. When you compare this to the size of the market that foreigners get, you will notice that they play a very minor role in the industry. Statistics indicate that they only account for about 20% of the revenues from the China gaming market.

The Positive Side

Even though things have slowed down because of the approval freeze, both foreign and local investors will be happy to note that the demand from gamers is still high. It means that they just have to wait and see the regulations that will be put in place. This will help industry players to re-strategise on how to get the best out of the China gaming market in the coming years.