Last month we wrote about how Chinese lawmakers were looking to revise the Minor Protection Law to strengthen regulation around minors in online games. This week, China’s gaming regulator, the State Administration of Press and Publication, released a notice titled “Notice on preventing addiction among minors in online games”. The notice builds on top of existing gaming regulations to create a stricter environment regarding minors playing online games. These new regulations are something we have expected and written about for a while but we do not expect them to have a material impact on game publisher earnings and growth.
The notice proposes six measures:
1. Implement real name identification systems across all games
Real name registration systems were first introduced into PC games in 2007 by China’s gaming regulator at the time. Players were required to register for PC games using their ID number and if identified as a minor their account would be subject to various account level restrictions such as a limit on the amount of time they could play each day. We note that these original systems were easy to bypass with fake ID numbers and via other methods.
The new policy calls for upgraded systems to be used across both PC and mobile games, such as the real name identification system that Tencent rolled out last September. Under the new system, players register with their ID number which is then checked in real time against a national citizen database provided by the Ministry of Public Security. We note that Tencent is currently rolling out this system across all of its games to be fully compliant with these new regulations. Other game publishers are also rolling out similar systems or planning to roll out similar systems soon.
2. Limit the amount of time that minors can spend in game
As with real name registration, limits on the amount of time that minors can spend in game is not new. China’s gaming regulator originally introduced time limits for minors across PC games in 2007. If a player was identified as a minor by the real name registration system, the account holder would be restricted to three hours of gameplay per day with the game operator required to limit the user’s ability to keep playing, either by stopping play or by reducing the amount of rewards that a player could receive.
The new policy goes one step further by mandating time limits across both PC and Mobile games for minors. Once the real name identification system identifies a user a minor, the game operator must implement an anti-addiction system that will stop minors from playing after 1.5 hours of game time on weekdays and 3 hours during holidays. Minors should also be blocked from playing games between 10pm and 8am.
We note that Tencent implemented its own anti-addiction system through self-regulation in 2017 and has been extending it to all of its titles in 2019 in preparation for these upcoming regulations. Under Tencent’s system, minors under 13 are limited to 1 hour of gameplay, those between 13 and 18 are limited to 2 hours of gameplay each day. Minors were also blocked from playing games between 9pm and 8am. Tencent will need to update its system in line with the new limits outlined in this notice, which we believe will be easy enough given that Tencent developed the system well in advance of these regulations. Other publishers such as NetEase have a similar system too. Publishers that do not have a current anti-addiction system in place will need to develop one as per this notice.
3. Implement limits on the spending of minors in online games
Whilst spending limits for minors has been an option in past games via parental control apps for game publishers like Tencent and NetEase, we note that this is the first time there is an official policy on the subject. As per the notice, game publishers are required to block all payment options for players under the age of 8. For players between 8 and 16 years old, game publishers are required to implement a limit of RMB 50 on single transactions and RMB 200 each month. Players between 16 and 18 years old will have a limit of RMB 100 on single transactions and a limit of RMB 400 each month.
These limits are being implemented due to concern from parents regarding accidental spend from children in games. Stories of minors spending thousands of dollars on mobile games are common all around the world, including China. Game publishers have attempted to self-regulate in this area through parental control apps that allow parents to set spending caps. Under the new policy, game publishers will be required to implement hard caps.
4. Implement age rating systems in online games
China has never had an official age rating system before, unlike in the West where the ESRB and PEGI strictly regulate games and provide age guidance for all games. China has previously experimented with its own age rating systems, including one based on a color coding system, but these never stuck around long.
The new policy will require game publishers to adopt an age rating system to provide guidance to parents and minors about which games are suitable and unsuitable. Game publishers will still have to abide by existing game regulations that ban excessive violence, drug use gambling and pornography. In other words, whilst an 18+ game will be able to include more adult content, it must still fit within the existing regulatory framework outlined by China’s online games ethics committee.
Earlier this year, The People’s Daily worked with over 30 game companies to create a new age rating system that could be implemented for both PC and Mobile games. The proposal created four ratings categories: 6+, 12+, 16+ and 18+ with the proposal stating that players under six should not play games unaccompanied. It’s unclear if the SAPP will use this exact system, but we note that this is the most robust age rating system in China to date and more than 50 games have been rated using this system.
5. Actively work with parents, schools, minors and others to fulfill responsibility to minors
Game publishers will be required to work with parents and minors to help establish healthy game behaviours through education and tools that parents can utilize. This will consist of campaigns that teach people how to consume and play games without becoming addicted, strict implementation of the regulations outlined in this notice, customer service support for parents and minors as well as parental control applications that give parents additional oversight.
Companies such as Tencent and NetEase have launched parental control apps that allow parents/guardians to link their child’s account to the app and control the amount of time and money that they can spend in the app, as well as instantly block them from playing games at any times. These apps are designed to give parents more control and oversight.
6. The sixth measure is for game publishers to work with local regulators to implement these changes and ensure they are complying fully with regulations. Game publishers who do not comply within a certain time limit could risk having their licensed revoked.
Impacts of these changes
These changes will primarily impact the amount of time minors can spend in game, the amount of money they can spend in game and the types of games they can play.
We believe the impact from these changes will be limited for the following reasons.
1. Minors account for a low percentage of spenders
There are approximately 170 million internet users under 19 in China, accounting for approximately 20% of total internet users. We note that the number of gamers under 19 is less than 20% of total gamers, but more importantly, they account for a much lower percentage of spending overall. Media and investors often report that minors are the main consumers of videogames, but the typical cohort is adult males between the ages of 18 and 35. This cohort spends more time in games and has higher spending power. Minors have low spending power and therefore the changes regarding spending and time limits will not have a material impact on total game spending in China.
2. Self-regulation and past policies have not had an impact
As noted in the sections above, there are many new policies that are either based on old policies from the PC era or based on self-regulation activities that game publishers are currently carrying out. Real name registration systems and time limits on PC games have been active since 2007, yet the PC games industry has grown significantly in the past decade. Tencent currently includes both an anti-addiction system for minors and a digital age lock for players under age 16, in Peacekeeper Elite. Players who are 15 or younger cannot register for the game, whilst players who are between 16 and 18 can register but are subject to daily time management restrictions. It’s clear that most of the fear about impact from these new laws has already subsided.
3. Other Regulations provide more risk
Whilst we do not expect these regulations to have a material impact on total game spending in China, we note that other reforms over the past year are expected to have a notable impact. China’s gaming regulator recently introduced a cap on the number of domestic and foreign games that can be approved each month. Whilst more than 8,500 games were awarded licenses in 2017, the number of games set to receive licenses in 2019 will only be around 2,000. Whilst this encourages more high-quality games to be produced, it means that publishers may find themselves waiting months before they can start commercial operation of a game. China’s gaming regulator also set up an online game ethics committee to introduce stricter content policies for online games. Poker and Mahjong games are no longer being approved, whilst games with illicit or violent content are being forced to make changes to comply with new policies. We expect these two changes to have a larger impact than this policy on minors.
The implementation of these systems across both PC and mobile games is an inevitable development and an important step for China’s games industry, allowing for games to target different age demographics and become more diversified. Demand from gamers continues to remain strong in 2019 with key titles continuing to drive growth.