Tencent, NetEase Shut Out Again in New Batch of Games Approved by China

Chinese regulators Tuesday issued a new list of online games approved for release, but the country’s two biggest gaming companies were once again shut out, stoking concerns of prolonged troubles for the industry’s top players.

Neither NetEase nor Tencent had products on the list of 93 new games granted licenses by the State Administration of Press, Publication, Radio Film and TV. Instead, smaller rivals got the green light. This is only the third such batch of approvals since authorities in December ended a freeze that lasted the majority of last year.

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“It’s certainly rather surprising that [Netease and Tencent] haven’t been included yet,” said Daniel Ahmad, an analyst at Niko Partners, a consulting firm focused on Asian gaming. But he added that there is “nothing at this point to suggest they are being singled out or that their games won’t ultimately be approved.”

Most likely, analysts say, approvals are being granted simply in “first come, first served” order, based on when the games were submitted.

China is the world’s largest gaming market, with 620 million gamers who last year spent some $37.9 billion on online games, according to market research company Newzoo. That didn’t stop authorities from putting the industry on ice last March amid an administrative restructuring and a push to curb violent content and gaming addiction. Early last month, the country also established an “ethics committee” to vet online gaming content.

The freeze has prevented Tencent from being able to make money off its most popular games in China, including “Fortnite” and the South Korean battle royale-type game “PlayerUnknown’s Battlegrounds.” The tech company, which produces and distributes its own games as well as those from other companies, saw its stock-market valuation tumble by billions of dollars at one point last year. On Tuesday, shares fell nearly 2%.

China has thus far approved just 257 games since December, among them 238 mobile games, 18 PC games, and one console game. The number is a drastic downturn from past years: In January 2017, it approved 716, Reuters said.

It will take regulators a long time to work through a backlog of more than 7,000 games, Newzoo financial analyst Michiel Buijsman told Variety. Authorities have confirmed that they plan to process around 3,000 games in 2019, although in years past, they were able to get through between 7,000 and 8,000, Buijsman said.

“Given the current speed of new game approval, the backlog of games waiting for licensing, and the government’s stricter control over game content, we estimate it could take two to three years before the Chinese games industry stabilizes,” Buijsman said.

Impact of the freeze on consumer spending has so far been “relatively minor,” he said, as Chinese users were able to continue playing approved games. But many gaming companies were forced to lay off employees, and smaller studios lacking the robust pipelines of their larger competitors have had to shut down entirely.

The small companies that survived were the ones able to bring their games overseas to the wider Asia market, Ahmad said. Nevertheless, “consolidation will be one of the big things of 2019.”

Though the resumption of approvals was a “huge relief” for the industry, Ahmad estimated that it would take regulators about six months to clear out the backlog from last year. He anticipates that the PC games market won’t rebound until 2020, but that mobile will begin to recover as soon as this year “just because of how much momentum there still is” in the sector.

An unnamed NetEase exec told Reuters that Tencent and NetEase would likely have to wait until after the Chinese New Year holiday that concludes Feb. 10 to see any movement on their approvals.

Neither company replied to Variety’s requests for comment.

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