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Author | Huang Yu
The battle between TENCENT and CLOUD MUSIC in the party game is in full swing. A &#34;new gaming policy&#34; that came out of nowhere caused both gaming giants to experience a significant drop in stock prices.
As of the close on December 22nd, TENCENT's stock price plummeted by 12.35%, with a market value evaporating by approximately HKD 360 billion; CLOUD MUSIC fell even more by 24.6%, with a market value evaporating by approximately HKD 128.36 billion. This is a rare major drop for TENCENT this year and has caused CLOUD MUSIC to fall from its position as the fourth largest internet company in China by market value.
On the news front, on December 22nd, the National Press and Publication Administration released the latest draft of the &#34;Regulations on the Management of Online Games&#34; (hereinafter referred to as the &#34;draft&#34;). Although some believe that this policy is &#34;unexpected but reasonable,&#34; this draft, with a total of 11,259 words, has led to a collective decline in gaming stocks, including TENCENT and CLOUD MUSIC.
Among them, the draft restricts excessive use and high consumption in games. It proposes that online games should not set inducement rewards such as daily login rewards, first-time recharge rewards, and consecutive recharge rewards. All online games must set user recharge limits and publicly disclose them in their service rules. For users' irrational consumption behavior, popup warnings should be provided.
The restrictions on recharging are believed to have the greatest impact on game developers.
In addition, the draft clearly stipulates that game publishing and operating units must go online within one year of obtaining the game license. This means that game developers will no longer be able to hoard licenses, and the scheduling space for new game releases may be even smaller.
In addition to the above two aspects, the draft also imposes stricter restrictions on other areas.
The National Press and Publication Administration stated that in order to strengthen the management of online games, regulate the order of the online gaming industry, protect the legitimate rights and interests of users, and ensure the physical and mental health of minors, this regulation was formulated.
Some internet professionals believe that the release of this draft means that since 2018, the regulatory authorities' approach to the gaming industry has not fundamentally changed. This breaks the illusion in the market that the &#34;strong regulatory cycle&#34; for online games has ended, and game companies and professionals should take this seriously.
TENCENT and CLOUD MUSIC are the first to be affected.
Regarding the impact of this draft on the company, Zhang Wei, Vice President of TENCENT Games, responded that since the release of the new regulations in 2021, TENCENT has strictly implemented the management requirements, and the game time and consumption data of minors are currently at their lowest levels in history. The new draft of the management measures does not fundamentally change the business model and operational rhythm of the game.
Tencent's investor relations personnel believe that this is a draft for soliciting opinions and not the final document. &#34;Any measures may have an impact on high ARPU (average revenue per user) games, but our large games have low ARPU. Established games do not rely on daily registrations and first-time consumption incentives.&#34;
In their view, the rules mentioned in the draft are just minor changes that will not affect developers and operators who are already highly compliant, especially those popular games. It may have some impact on emerging new games.
Furthermore, the above-mentioned individuals believe that the government's support for the healthy growth of the gaming industry has not changed. We believe that this is not a new round of suppression, but rather a fine-tuning of rules in an increasingly healthy gaming market.
As the world's largest gaming company, Tencent, although sitting firmly on the throne of China's highest market value internet company, has seen its market value shrink significantly in recent years due to gaming industry regulations and a slowdown in performance compared to its peak.
According to Wall Street News, Tencent's highest stock price reached HKD 704.6 per share in February 2021, but over the past year, it has experienced a significant decline, falling below HKD 200 per share at one point. However, in the past year, with the weakening of various negative factors, Tencent's stock price has rebounded and returned to a level above HKD 300 per share.
Recently, Tencent Games planned to make a comeback with the party game &#34;Dream Star&#34;, but unexpectedly, the new regulations were introduced at this time.
As for Cloud Music, thanks to the outstanding performance of its own gaming business, it is one of the most impressive Chinese concept stocks that rebounded this year. Its stock price has risen by nearly 50% this year, surpassing Meituan to become the fourth largest internet company in China by market value, second only to Tencent, Pinduoduo, and Alibaba.
Now, under the influence of the &#34;black swan&#34; of the gaming industry draft, Tencent's stock price has fallen to HKD 274 per share, and its market value has shrunk to HKD 2.61 trillion; Cloud Music has fallen to HKD 122 per share, and its market value has shrunk to HKD 393.28 billion, falling behind Meituan again.
As one of the giants of Chinese internet companies, Tencent has long held the top position in terms of market value, far ahead of other companies. However, this year, Tencent's revenue has been surpassed by ByteDance. With the most profitable gaming business being restricted, slow progress in the transformation to B business, and limited commercialization of Video Accounts, Tencent's future has become an increasingly urgent question.
To continue to maintain its position as the number one Chinese internet and technology company and achieve stable market value growth, Tencent needs to make some thorough changes. In November, Tencent celebrated its 25th anniversary and Ma Huateng issued an internal letter, calling for the best people to take the stage. Tencent also needs to rediscover its best self.

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A "New Gaming Policy" that came out of nowhere.

On a single day, Tencent's market value plummeted by 360 billion.