Tencent posts a surprise profit drop as regulators hobble games

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According to "people familiar with the matter" (all sources declined to be named) the freeze has occurred due to an ongoing restructuring of departments within the Chinese Government, including the National Television and Radio Administration, which is responsible for granting licenses, and the ministry of Culture and Tourism, which has become increasingly stringent about game regulation in the last couple of years.

Tencent, one of the biggest game developers in China, has reportedly lost more than $160 billion in market value since January, and smaller companies are struggling to survive.

China has frozen all approvals of game licences amid a government shakeup. Mobile gaming revenue dropped 19 per cent from the first quarter.

"For new game approvals, there will continue to be a drag", Alicia Yap, a Citigroup internet research analyst told Bloomberg.

They could choose to continue playing but there would be no guarantee the service would continue, it said. It seems unlikely this situation will change any time soon as those in leadership positions are very reluctant to show any initiative and take what they see as unnecessary risks sorting out the problem and implementing new policies.

Tencent's weaker-than-expected results came a day after investors wiped around $15 billion off its market value on news that Chinese regulators had blocked it from charging for of one of its blockbuster titles, "Monster Hunter: World".

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Japanese game makers fell sharply after Bloomberg reported the freeze. The stock has slid more than 17 per cent this year, while New York-listed rival Alibaba Group Holding remained mostly unchanged.

Some media reports say the bottleneck means that digital giant Tencent does not yet have permission for desktop versions of "PlayerUnknown's Battlegrounds" and "Fortnite", two of the world's hottest games at the moment.

Chinese publisher Tencent has already noted a $150 billion loss following its forced removal of Monster Hunter: World from sale amidst licensing issues.

It also does not have the green light to make money from the mobile version of PUBG, despite garnering a combined 169.7 million-plus installations as of August, according to data compiled by Aurora Mobile. Shares dropped another 3.6% in Hong Kong on Wednesday before the earnings were released. A closely watched Communist Party newspaper publicly chastised Tencent previous year over the game, claiming it caused addiction in young people.

Revenue rose 30 per cent to 73.7 billion yuan, compared with analyst estimates for 77.7 billion yuan.

"So we are half-way through in losing that interest income", said chief strategy officer James Mitchell, stressing it was a "finite, one-time process". "We think that Tencent is still able to break this siege and continue to publish new and popular games".

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