Potential new gaming rules in China will impact smaller developers more

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“Big Game Developers or Big DAU [daily active user] “Social games should fare better: This is because they have other ways to boost player engagement, reach users, and have stronger R&D capabilities to attract and retain players,” Kenneth Fung, head of China internet research at UBS, said in a note.

“As online gaming revenue declines, the advertising industry will also be affected,” he said. UBS estimates that online gaming represents about 20% of online advertising industry revenue.

Games account for the majority of NetEase's revenue, and about a fifth or less at Tencent and Bilibili, third-quarter releases show.

Several other companies develop and publish games in China, although Beijing has made clear in recent years that it wants to restrict gaming, especially among minors.

UBS's Fung said it was “very common” for online games to encourage daily logins and offer rewards for the initial in-app purchase. He noted that incentivizing users to log in every day boosts engagement and allows user statistics to be collected, which can help developers fine-tune games in real time.

However, Fong said it is difficult to determine the financial impact of the proposed regulation because it is unclear whether it would apply only to new games or existing games as well.

The National Administration of Press and Publication, which controls the publication of new games, said on Monday that it had approved more than 100 new local games, after saying on Friday that it had approved 40 imported games.

In general, Fong expects new games to be affected more than older games. “Since online gaming is a very creative industry, we believe game developers are more likely to design other ways to attract and retain users,” he said.