China’s new limit on gaming time for minors: Assessing the impact
China's National Press and Publication Administration (NPPA) has introduced a new rule for gamers under 18, which cuts allowed gaming time in online games from 10.5 hours per week (1.5 hours per day) to 3 hours per week (one hour per day on Fridays, Saturdays and Sundays between 8pm and 9pm), increasing the control over children’s use of games to an unprecedented level.
Framed as a policy to protect children
NPPA claims that the notice is to protect minors' physical and mental health, preventing the problem of excessive use or even addiction to online games, cases of which have provoked a growing negative response from the public. The new rule becomes the latest example of China's crackdown on Internet and gaming companies.
Harm to minors has been the main public-facing argument for controlling gaming in China, and it has been intensified after a harshly-worded article in state-run media in early August describing games as "spiritual opium". Games companies are aware of the delicate political environment they operate within and are looking to head off more draconian measures as the market scales substantially. Before the rules were announced, companies such as Tencent had already launched mobile games with content suitable for children but that don't allow registering and playing for under-18s.
While these restrictions are framed in the context of child health, a clampdown has other adjacent factors which may be under consideration. These include helping parents to get children to focus more time on studies in what is a hyper-competitive educational environment. As such, these restrictions will likely be well received by a substantial chunk of the population. This new rule suggests that the public perception of gaming is still relatively poor in China and that historical bans on games consoles and the strict game licensing rules have probably contributed to that poor perception.
Other political factors under consideration could include reducing exposure at an impressionable age to online games that are increasingly acting as social platforms where political dissent can permeate unseen from non-players.
Gamers will still be able to get around this new rule
It should be noted that the new rule is not currently legally enforced and has no mandatory effect. Additionally, there will be difficulties in enforcing this rule even with enhanced efforts to verify the ID of players of online games.
ID verification has been implemented across the biggest games for many years but it does not prevent minors from registering with another person's identity or using another person's account. Facial recognition can ensure that games verify the identity of players more accurately, but only the largest developers have implemented facial recognition systems, considering the cost and technical hurdles.
Therefore, the current system still has some loopholes, such as playing offline games, using foreign services (the likes of Valve's Steam or the Epic Store) or using VPN to access foreign online games, even if rules have become much stricter than in previous years. If there is further requirement to implement technology solutions for checking ID, this clearly puts the largest companies at an advantage, further squeezing mid-tier and smaller games companies.
The impact on games and other online entertainment industries
Some of the biggest games companies have started to publish shares of revenue from younger gamers. In Q2 2021, only 2.6% of Tencent's games revenues were from players under 16; NetEase's games revenue from under-18s was around 1%, and the share for other game companies were around or below 1%. Even so, in view of the government's crackdown on Internet companies, Tencent, Netease and 37 Interactive Entertainment were the first to make announcements in response to the government's call, vowing to take more measures to prevent gaming addiction in children.
The short-term financial impact of this rule on the larger companies is therefore limited. However, the impact on active users may be greater than the actual revenue impact, which in turn may cause the overall gaming population to shrink and to undermine the network impact a large audience has on monetisation of older players. According to Ampere's Q2 2021 consumer research, the average time spent gaming among Chinese gamers aged 13-15 was 10.06 hours, which was essentially similar to the previous limit. However, the consumer behaviour of only about 15% of them will conform to the new limit. Those games designed specifically for children such as Minecraft, Roblox, and Mimi World by Chinese developer Miniwan will be impacted far more greatly as they are not privileged under this new rule, although they are often marketed as educational platforms.
The clampdown on official game time will also prompt children to find other ways to play games. We expect usage of VPNs, playing of foreign games and usage of international storefronts to increase as a result.
While there have already been restrictions on gaming time for children, these new stricter game time rules will inevitably have some long-term impact on the potential of the games market in mainland China. If children shift away from gaming as a result, the normal flow of new gamers entering the market will be interrupted. A more slowly renewing audience has long-term commercial implications and will impact marketing, content and, potentially, the overall age of the gaming audience in China.
The esports industry could be significantly disrupted
The esports industry will also be negatively impacted unless some exceptions to the rule are applied to allow longer hours for under-18s' training. Some esports teams have already removed players under 18, such as TJ Sports which is backed by Tencent and Riot Games. Tencent's Honor of Kings tournament, King Pro League (KPL), has also made it clear that players must be at least 18 years old to join the events. Professional esports players often start training at a very young age and this new rule will impact that and the ability to participate in official events before they turn 18. This rule is also at odds with the previous push for esports by some local governments in China.
The short-video and live-streaming sectors will benefit in the short term. These platforms are less restricted, so under-18s wishing to stay engaged with gaming will likely spend more time using these platforms as a result. In the long run, regulations may be extended to the live-streaming market; Ampere is aware of public discussion becoming more heated around children excessively tipping streamers, for example, the purchases of expensive virtual gifts.
Less opaque rules but a more difficult market to operate within
The implementation of new rules for game companies has clearly defined the boundaries of the measures to “protect the minors”, and in fact gives clearer guidance to game companies, rather than the previous environment where companies weren't quite sure what was crossing the line and what wasn't. The short-term impact of the new rule on China's gaming industry is quite limited, but the long-term implications could be more far-reaching although that depends on the level of government's subsequential supervision. Official console games, online PC games and mobile app stores will be the most affected services and platforms as their operating entities need to communicate closely with the government. Offline games, overseas services, and third-party mobile app stores, especially casual games that are monetised only by in-app advertising, will gain in the short term, but it cannot be ruled out that the policy will be extended to these areas in the future.
Large local gaming companies already have similar systems in place and may be better able to adapt to the new rules. Indie studios or smaller publishers in China will face more challenges because of the increased compliance costs. As a result, they may choose to be more focused on the overseas markets, especially those who target the younger generation. Foreign companies will spend more money and effort to bring their games into compliance or seek more collaboration with local partners.
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