Protocol | China

Is China’s new limit on video games a big deal for its gaming sector?

Not really.

A group of young people in masks playing video games.

In-game spending from Chinese gamers under 18 only captures a fraction of gaming companies' revenue.

Photo: Bertha Wang/AFP via Getty Images

Seemingly every piece of internet regulation the Chinese government has come out with in recent months has become an international headliner. Beijing's recent move to dramatically cut down the amount of time for children to play online games has done the same, and even inspired American parents to institute stricter screen-time control at home. But analysts say the immediate impact is minimal.

On the last day of summer break in China, the country's National Press and Publication Administration declared that those under 18 will only be allowed to play games up to three hours a week — specifically, between 8 p.m. and 9 p.m. on Friday, Saturday and Sunday. China's ultra-strict limits on video games came after the recent revisions to the Minors Protection Law went into effect in June, and they synchronize with other rules aimed at preventing Chinese youth internet addiction.

It's all bad news for kids, at least in their eyes. But Chinese gaming powerhouses probably won't miss their underage players a great deal. The new limits aim primarily at free-to-play mobile games whose monetization strategies are based mostly on in-game microtransactions. But in-game spending by players under 18 only comprises a tiny fraction of gaming company revenue in China.

Tencent, the world's largest gaming company by revenue, has revealed in its earnings reports that during the second quarter of 2021, gamers under age 16 contributed just 2.6% to Tencent's in-game revenue (down from 3.2% in Q4 2020), and players under 12 accounted for just 0.3%. NetEase, China's second-largest gaming company, sees less than 1% of its revenue from gamers under 18, CEO and founder William Ding revealed in the company's quarterly earnings call on Tuesday. Across the market, spending by underage gamers only makes up between 1% and 5% of Chinese gaming companies' in-game purchases, according to Daniel Ahmad, senior analyst at Niko Partners, a gaming consultancy focused on Asia.

"They will not have much impact to these companies' ongoing strategy and goals," Daniel Camilo, formerly a business developer for Shenzhen-based game publisher APPTUTTi, told Protocol.

Investors have shrugged off the potential impact of Beijing's new restrictions, evident in the quick rebound of share prices of Tencent and NetEase following the announcement of the new policy. If anything, a rigid rule like this — specifying the exact time slots allowed for minors to play games — precludes gaming companies from going to the trouble of self-regulation based on political speculation, something big tech companies often have to do these days. "Gaming companies now have a clear idea about how to comply going forward," Chundi Zhang, gaming analyst at the London-based research firm Ampere Analysis, told Protocol.

The reason why the share of spending from minors is so small is that China's gaming regulators have been trying since as early as 2005 to get rid of what they believe is the scourge of gaming addiction among minors. In 2019, China's National Press and Publication Administration introduced regulations that already significantly limited the amount of time that gamers under 18 could engage with games.

Though the financial impact from the 2021 time limits on video games is soft, they will likely further diminish the in-game spending from underage players — and gaming companies will likely see engagement numbers dip. China is home to the world's largest gamer population. Official government data shows that 62.5% of minors who have access to the internet, or about 114 million young gamers, often play online. "Even if a game only profits through advertising, the new rule will still affect them," Zhang said. "So the drop of daily or monthly active users will have a direct impact on their advertising revenue."

In the long term, the new time limits for young gamers could affect the future growth of China's gaming industry. When the now-affected young gamers turn 18, their earlier lack of engagement could affect whether they see gaming as a hobby to engage with, and whether they will be able to play complex games that are popular among gamers by then.

But kids being kids, they will ultimately find loopholes to bypass the rules, analysts say. For example, younger parents, who themselves have been gaming for the past 20 years, may let children use their parents' accounts to play games. After all, gaming's not just for kids; China has a $43 billion video games market. It's home to 720 million gamers, almost half its total population. Nine in 10 people ages 25 to 35 play video games in China.

"We're not too concerned about gaming being shut off or just being inaccessible to people once they turn 18 or not being something that they want to engage with," Ahmad said. "The overall trend of China being the largest games market is not really changing."

More uncertain at this point is China's future esports landscape. The new time limit for underage gamers directly undermines the country's stated long-term goal of becoming an esports powerhouse. Many professional esports players and those in the pipeline are under 18. Three hours per week for training would be far from sufficient to prepare for international competitions. Chinese news media reported that esports clubs have been hit hard by Beijing's new rule, and have already stopped underage players from entering professional competitions.

China is the world's largest esports market, registering $15.5 billion in sales in 2020. At the same time that Beijing is trying to eradicate gaming addiction by regulating the content and monetization of video games, national and local governments are also putting forward policies to expand the esports market. Shanghai, for example, is supporting the construction of a $898 million esports arena. And Beijing's municipal government is doling out millions of dollars' worth of subsidies to esports tournaments and teams.

It's unclear now whether future rules will carve out additional time for young esports players to train. But the current state will present a challenge for esports organizations trying to develop talent, and it will be difficult for them to attract players in the future. "Ultimately, the pool will still be very large, so they'll still be able to find players that they can bring on," Ahmad said. "It will just be a smaller pool than before."

Correction, Sept. 3, 2021: In-game spending comprises a tiny fraction of revenue among players under 18 years old.

Power

How the creators of Spligate built gaming’s newest unicorn

1047 Games is now valued at $1.5 billion after three rounds of funding since May.

1047 Games' Splitgate amassed 13 million downloads when its beta launched in July.

Image: 1047 Games

The creators of Splitgate had a problem. Their new free-to-play video game, a take on the legendary arena shooter Halo with a teleportation twist borrowed from Valve's Portal, was gaining steam during its open beta period in July. But it was happening too quickly.

Splitgate was growing so fast and unexpectedly that the entire game was starting to break, as the servers supporting the game began to, figuratively speaking, melt down. The game went from fewer than 1,000 people playing it at any given moment in time to suddenly having tens of thousands of concurrent players. Then it grew to hundreds of thousands of players, all trying to log in and play at once across PlayStation, Xbox and PC.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

While it's easy to get lost in the operational and technical side of a transaction, it's important to remember the third component of a payment. That is, the human behind the screen.

Over the last two years, many retailers have seen the benefit of investing in new, flexible payments. Ones that reflect the changing lifestyles of younger spenders, who are increasingly holding onto their cash — despite reports to the contrary. This means it's more important than ever for merchants to take note of the latest payment innovations so they can tap into the savings of the COVID-19 generation.

Keep Reading Show less
Antoine Nougue,Checkout.com

Antoine Nougue is Head of Europe at Checkout.com. He works with ambitious enterprise businesses to help them scale and grow their operations through payment processing services. He is responsible for leading the European sales, customer success, engineering & implementation teams and is based out of London, U.K.

Protocol | Policy

Why Twitch’s 'hate raid' lawsuit isn’t just about Twitch

When is it OK for tech companies to unmask their anonymous users? And when should a violation of terms of service get someone sued?

The case Twitch is bringing against two hate raiders is hardly black and white.

Photo: Caspar Camille Rubin/Unsplash

It isn't hard to figure out who the bad guys are in Twitch's latest lawsuit against two of its users. On one side are two anonymous "hate raiders" who have been allegedly bombarding the gaming platform with abhorrent attacks on Black and LGBTQ+ users, using armies of bots to do it. On the other side is Twitch, a company that, for all the lumps it's taken for ignoring harassment on its platform, is finally standing up to protect its users against persistent violators whom it's been unable to stop any other way.

But the case Twitch is bringing against these hate raiders is hardly black and white. For starters, the plaintiff here isn't an aggrieved user suing another user for defamation on the platform. The plaintiff is the platform itself. Complicating matters more is the fact that, according to a spokesperson, at least part of Twitch's goal in the case is to "shed light on the identity of the individuals behind these attacks," raising complicated questions about when tech companies should be able to use the courts to unmask their own anonymous users and, just as critically, when they should be able to actually sue them for violating their speech policies.

Keep Reading Show less
Issie Lapowsky

Issie Lapowsky ( @issielapowsky) is Protocol's chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol's fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University's Center for Publishing on how tech giants have affected publishing.

Protocol | Workplace

Remote work is here to stay. Here are the cybersecurity risks.

Phishing and ransomware are on the rise. Is your remote workforce prepared?

Before your company institutes work-from-home-forever plans, you need to ensure that your workforce is prepared to face the cybersecurity implications of long-term remote work.

Photo: Stefan Wermuth/Bloomberg via Getty Images

The delta variant continues to dash or delay return-to-work plans, but before your company institutes work-from-home-forever plans, you need to ensure that your workforce is prepared to face the cybersecurity implications of long-term remote work.

So far in 2021, CrowdStrike has already observed over 1,400 "big game hunting" ransomware incidents and $180 million in ransom demands averaging over $5 million each. That's due in part to the "expanded attack surface that work-from-home creates," according to CTO Michael Sentonas.

Keep Reading Show less
Michelle Ma
Michelle Ma (@himichellema) is a reporter at Protocol, where she writes about management, leadership and workplace issues in tech. Previously, she was a news editor of live journalism and special coverage for The Wall Street Journal. Prior to that, she worked as a staff writer at Wirecutter. She can be reached at mma@protocol.com.
Protocol | Fintech

When COVID rocked the insurance market, this startup saw opportunity

Ethos has outraised and outmarketed the competition in selling life insurance directly online — but there's still an $887 billion industry to transform.

Life insurance has been slow to change.

Image: courtneyk/Getty Images

Peter Colis cited a striking statistic that he said led him to launch a life insurance startup: One in twenty children will lose a parent before they turn 15.

"No one ever thinks that will happen to them, but that's the statistics," the co-CEO and co-founder of Ethos told Protocol. "If it's a breadwinning parent, the majority of those families will go bankrupt immediately, within three months. Life insurance elegantly solves this problem."

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

Latest Stories