The Chinese government's recent efforts to tighten supervision
of online gambling and virtual money will not have any real impact
on Tencent, according to experts, as the company's games and
revenue are unlikely to be affected by the new regulations.
"I don't think Tencent's business will be significantly affected
by the new regulations, since only a very small part of the
company's games and revenue involve online gambling," said Liu Bin,
chief analyst at consulting firm BDA China.
China's four regulators launched a three-month crackdown on
Internet gambling on February 25, aiming to make the cyber
environment cleaner and safer.
A week later, 14 Chinese regulators including the People's Bank
of China released another circular against online gambling and
exchanges of virtual money with real currencies and properties, an
unusual sign that experts said showed the Chinese government's
resolute stance on online gambling and the supervision of virtual
money.
The release of the new regulations has put China's largest
instant message service provider Tencent under the spotlight after
reports in the Chinese media that it was involved in online
gambling and its QQ coin sparked debate at the end of last
year.
The reports claimed that Tencent took a 10 percent cut of the
stakes from its users of some casual games that allowed them to bet
with game coins. And because the game coins could be bought with
Tencent's virtual money, QQ coins, using real money, Tencent was
criticized for its involvement in online gambling.
"There are professional online gamblers who play Tencent games,
but I think the percentage is very, very small," said Liu. "And the
company's revenue from online gambling was extremely limited."
Liu said online games only accounted for about 20 percent of the
company's total revenue. Of them, casual games accounted for about
70 percent. And of Tencent's revenue from casual games, about 80
percent was from sales of its virtual items, which gave users
advantages in playing the games.
Cao Junbo, a senior analyst at research house iResearch, agreed
that the impact of the new regulations was limited.
"Tencent is likely to adopt alternatives to keep its users, such
as rewarding them with virtual items other than game coins or QQ
coins," Cao said.
"And I think the company would see it as a golden opportunity to
explore new revenue sources such as online advertising in its games
business, and to get itself out of long-lasting disputes over
online gambling and virtual money."
Earlier this month, Tencent shut down its service exchanging
game coins for QQ coins, closing the door for users who had won the
coins in games to convert them into QQ coins.
Facing a dilemma
Although the Chinese government is firm on its online gambling
ban, it seems to be facing a dilemma when it comes to virtual
money, a tool that has sustained China's booming Internet
value-added service industry and, to some degree, saved thousands
of Chinese Internet companies when the bubble burst in 2000.
Tencent reported that 66.5 percent of its 737 million yuan of
revenue in the third quarter of last year came from Internet
value-added services, most of which, according to experts, were
purchased with QQ coins.
(China Daily March 22, 2007)