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Game Over! China Suspends New Licenses For Video Games

By Gary Symons

TLL Editor in Chief

China has upped the ante in its onslaught against video gaming, reportedly suspending the licensing of new video games.

The move follows other recent policy changes in China, as the government has drastically limited the amount of time children can spend gaming, and app stores in the country have begun to deplatform unauthorized titles.

The Chinese government’s antipathy for video gaming is creating a potentially disastrous situation for the industry, and particularly for video game developers based in China. As one stark example, Epic Games recently shut down the Chinese version of its global hit game Fortnite. A post on Fortnite’s website said the “test” of the Chinese version “has come to an end.”

After the announcement in early November, new players could neither sign up for or download Fortnite in China, and as of Nov. 15 the game’s servers were shut down permanently.

New restrictions in China seem to be taking the country off the video gaming map.

Epic Games is partially owned by the Chinese tech company Tencent.

While Epic has not explained why it shut down the game in China, analysts throughout the industry said it is believed to be due to the restrictions on gaming for children.

As of August this year, children under the age of 18 can only play video games three hours per week. As well, the government has been highly critical of gaming in general, with state-backed media saying it is undermining the moral underpinnings of the country, and describing online gaming as “spiritual opium.”

Alicia Rosa, a trends researcher with Brand Central, said the impact on gaming would be immense, and particularly for anyone involved in esports.

“You can’t do anything in gaming in three hours a week,” said Rosa. “This is very close to banning gaming altogether. If a government tried something like this in North America or Europe, there’d be riots in the streets!”

But even the draconian limits on gaming pale in comparison to the impact of suspending video game licenses in what is still the largest video game market in the world.

In the normal course of business, the Chinese government issues licenses for new games on a monthly basis, but this year the country has not issued a single license since July. The government has not said anything about the suspension of new licensing. However, the phenomenon occurs at the same time that China has cracked down on both the use of the internet, social media, and the playing of video games.

In August the government cracked down on sites that urge fans to join celebrity crowdfunding campaigns, and then in September unveiled its restrictions on the amount of time children can play video games.

However, most major games generate the vast majority of their revenue from adult players, so a suspension of licensing over the long term would have a far greater effect.

The move may be part of the reason that Chinese game developers are working hard to diversify into foreign markets. For example, Tencent Holdings, the world’s leading game developer, is busy developing markets overseas away from China’s regulatory reach. TiMi Studio Group, the subsidiary that produced the domestic hit Honor of Kings, announced last month that it launched independent game studios in Seattle and Los Angeles. Those locations are the first for the company in the U.S., which is the second-largest gaming market after China.

Ironically, the Chinese government is encouraging its domestic industry to expand in foreign markets, at the same time it appears to be limiting video gaming at home. The reason for that is obvious; China earns significant revenues from the industry. This year alone, games developed in China generated almost $5 billion in Q3, according to the China Game Industry Research Institute.

However, for developers in China and abroad, the restrictions are potentially devastating. In August, Tencent advised investors its gaming revenue was already declining, and that it expected to see even more regulation in coming months. That has obviously turned out to be accurate.

But the restrictions are even more damaging for foreign developers who are not accustomed to dealing with China’s increasingly restrictive view of what is acceptable content.

For the Chinese version of Fortnite, for example, many elements of the game had to be changed to make it acceptable, such as removing all images of skulls in the game.

What’s at stake is a sizeable chunk of the global video gaming industry. In 2021, according to data researcher Katharina Buchholz from Statista, China generated $49.3 billion in gaming revenues in 2021 out of a global total of $154.6 billion in expected revenue.

As well, China was forecast to increase gaming revenue to $71.2 billion by 2025, far ahead of second place the United States, which is expected to ring in $42.5 billion by that year.

Now, with restrictions on licensing, content, and even how much people can play, those figures are very much in doubt. Statista’s forecasts were created in June, 2021, shortly before the first serious crackdowns on video games began.

 

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