China Gaming Businesses Toe the Line, Clearing the Door to Lift Licensing Freeze

While the timing of the easing was unexpected, sources and experts noted that businesses had gone over themselves in response to harsh criticism from authorities for noncompliance.

"This time around, regulations are unquestionably the tightest they've ever been," said Chenyu Cui, senior analyst at research firm Omdia. "Every organization is terrified of falling out of compliance."

According to a source at a gaming studio in which Tencent Holdings (OTC:TCEHY) is a significant stakeholder, the company was asked by Tencent to remove English phrases from the game, avoid the color red, and eliminate terms like "headshots" or "death" in order to comply.

Additionally, the studio delayed the title's worldwide release out of concern that it would be seen as a violation of Chinese regulations, the person said, refusing to be identified because he is not authorized to talk to the media.

During a similar license block in 2018, several projects – notably Tencent's Bladed Fury and Iris – chose to release their games.

Autumn - elsewhere, while the home crisis is handled.

Tencent did not respond to a request for comment.

China's officials have also been diligent in enforcing compliance in an industry previously dubbed "spiritual opium" by state media.

According to two individuals, firms were still able to submit games for approval throughout the ban and got frequent feedback on necessary improvements to their content or monetisation features.

According to a document reviewed by Reuters, a state-backed gaming group held a developer training session in September during which it emphasized that games must promote "a right set of values" and cannot feature violent or religious aspects.

According to Daniel Ahmad, senior analyst at Niko Partners, over 5,000 gaming businesses have now been linked to the country's anti-addiction system, several firms have altered in-game material, and non-compliant firms have been investigated and penalised by the appropriate agencies.

"Concerns have been handled satisfactorily," he said.

Tencent, NetEase (NASDAQ:NTES), and over 200 other companies promised to self-regulate in September to tackle gaming addiction.

HIT ON THE ECONOMIC SIDE

While businesses were reorganizing, Beijing could no longer ignore the deteriorating economic consequences of the gambling crackdown.

According to business registration company Tianyancha, some 14,000 video gaming-related businesses — including those engaged in retailing, advertising, and publishing – closed during the licensing freeze.

Some highly anticipated projects, such as Lilith Games' Eden Apocalypse, have also been delayed. A spokesman said that this was due to a shift in the direction of the firm.

According to three gaming industry insiders, numerous projects have been put on hold due to pressure to reduce their size and budget.

Tencent, a large employer of recent grads, said during its earnings call that it will decrease its recruiting pace, and Reuters reported that it and its peers intend to slash employment.

"They're doing this to safeguard employment," one industry executive told Reuters, refusing to be identified because he was not authorized to talk to the media.

National Press and Public Administration, the gaming industry's regulator, did not reply to a request for comment.

OUTSIDE VIEWS

On Tuesday, Chinese gaming stocks jumped on the regulatory relief, with some analysts claiming it demonstrated the government's commitment to the industry.

However, several expressed caution, noting that just 45 games were permitted this time, compared to the 80 to 90 that are typically approved once a month prior to the freeze.

And the situation has shifted dramatically, pushing some to diversify or perhaps abandon the Chinese market entirely.

Small gaming companies in China are exploring a transition to blockchain gaming in the West, even if it means quitting the Chinese industry, according to Greg Pilarowski, head of legal firm Pillar Legal.

"The present climate in China is really difficult for gaming firms," Pilarowski said. "As a result, many people are curious about how they might become involved in blockchain gaming... because cryptocurrency and blockchain have been very successful for a large number of individuals in the United States."