Home / Gaming / China's gaming crackdown should worry the industry elsewhere – The Economist

China's gaming crackdown should worry the industry elsewhere – The Economist

MORAL PANICS over new media are old hat. The social effects of novels, films, comic books and pop music were condemned by the grumpy reactionaries of the time. In recent years video games have been a popular villain. Exasperated parents and opportunistic politicians have long fretted that they make players lazy and listless, or else unpredictable and violent. Those concerns turned out to be largely misplaced. But new worries about the addictiveness of games, and the danger that poses to children in particular, have more substance to them and are already prompting a regulatory crackdown. The industry would be wise to get ahead of the problem.

China, the world’s biggest video-game market, is leading the charge. The government clamped down on the approval of new games earlier this year, and stopped approvals altogether in October. Shares in Tencent, which built its business on video games and is one of the world’s largest internet companies, have fallen by 28% since the start of the year (see article). China is an authoritarian state prone to overreaction. But it is not the only country that is worried. Japan and South Korea, both liberal democracies, have passed laws designed to regulate a video-gaming industry whose products are increasingly seen as addictive and harmful. And as business models refined in Asia have come to the West, lawmakers in Europe and America are becoming more concerned, too.

Such concerns feel more credible than prior panics, for two reasons. The first is that much gaming now happens online, and generates reams of behavioural data. This allows publishers to monitor exactly how customers are playing games, and fine-tune them to make them as compelling as possible.

The second is the realisation that players will happily pay real money for virtual goods. These can be upgrades, costumes or weapons for their in-game characters, or (more cynically) a lottery-style “loot box” whose contents are unknown in advance, but might prove valuable enough to resell to other players. Since the marginal cost of creating virtual items is zero, they are very profitable for developers. That has given rise to a “freemium” business model, of which Tencent was a pioneer, whereby games are given away cheaply or free but players are constantly nagged to spend money on in-game items. All this has been supercharged by smartphones, which mean people can keep playing—and paying—at all hours of the day.

The result is an unhealthy loop. Firms strive to keep players hooked, because the more time they spend in a game, the more money they will spend on baubles within it. Whizzy data analytics let developers tweak their products to do just that, using psychological tricks and nudges familiar from social-networking sites and the gambling industry. All this can be extremely lucrative. Sensor Tower, an analysis firm, reckons that “Candy Crush Saga”, a popular game in the West, made $930m last year. The keenest gamers, known as “whales” (a term coined by casinos to describe high-rolling customers), can spend thousands of dollars a year.

Tencent is trying to placate the Chinese government. It is expanding its age-verification scheme and limiting screen time for children. Its counterparts in other countries should take note. This newspaper does not generally believe governments should tell adults how to spend their money. But the industry could do more to protect children and addicts from its increasingly sophisticated products.

It is in its own long-term interests to do so. Video games now rival the film industry for clout. Gaming is thought to be worth around $140bn annually worldwide, and is growing at 13% a year. But society’s attitude towards technology is hardening. In a world of fake news and hyper-targeted advertising, voters and politicians have awoken to the danger that devices and data may be manipulating people in harmful ways. A little voluntary forbearance now could save a lot of regulatory pain later.


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