Published: Fri, August 17, 2018
Tech | By Tabitha Holland

Tencent profits drop as China puts squeeze on online games

Tencent profits drop as China puts squeeze on online games

Tencent tumbled on Thursday after reporting its first profit drop in a decade as Chinese authorities froze approval of digital games the company needs to make money.

Meanwhile, the freeze has sent shockwaves throughout the industry, as Tencent distribute games in China for some of the world's biggest publishers, including Activision Blizzard and EA. The iShares China Large-Cap ETF shed 3.8% to a 13-month low, as 49 of the 50 components lost ground.

Tencent's Hong Kong-listed shares closed down 3.6 percent to HK$336 ahead of the release of its quarterly results on August 15.

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Revenue in the three months ended June 30 rose 30 percent to 73.7 billion yuan (US$10.6 billion), but missed a 77.3 billion yuan expectations by analysts. The Shenzhen-based company relies on new content to draw and keep users on WeChat, via which it sells in-game items and advertising to a billion-plus users. "We do believe it's not a matter of whether these games will be approved for monetization, but a matter of when", Lau added. Of that, the revenue from PC games was CNY31.5 billion, a first-time decline, while mobile game income rose 13 percent from a year earlier, but this was a big drop from last year's increase of almost 50 percent. In addition to the delay in new approvals, this week Tencent was ordered by the government to pull Monster Hunter: World just days after its debut, which the company said was a one-time issue.

Bloomberg reports that sources close to the regulatory company are sure that a restructure of personnel has resulted in a clampdown, with bureaucrats "reluctant to take risks or initiative new steps that could become controversial".

Not only did China clamp down on popular title Monster Hunt, but Tencent still doesn't have the approval to bring PUBG or Fortnite to PC in China, and its financial results show some slowing.

Looking ahead, the company intends to look for other ways to monetize mobile titles and publish a wider array of games in categories with a higher average revenue per user.

Bureaucratic reshuffling at the top levels of China's government made it hard for the company to get the licensing required to make money on new games, Tencent's president, Martin Lau, explained on an earnings call.

The pace of the company's investment is also slowing.

While PUBG can be played as a free game, Tencent has yet to receive the nod to monetise it. PUBG is a popular battle game with more than 400 million players worldwide developed by Tencent's South Korean partner and investee company, Bluehole.

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