Tencent Holdings Ltd (0700)

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Generally the more online the game (like need constant connection, or keep adding more content via updates), the harder to pirate. Example: genshin impact

There are plenty of games that are more old fashion that are fully contained. In those case no need to update as long as the version you are using has no game breaking bugs. Example: zelda botw

The question is what percentage of the kids in China prefer old fashioned self contained games vs the new "always online" type.
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(31-08-2021, 09:26 PM)gzbkel Wrote: ..
The question is what percentage of the kids in China prefer old fashioned self contained games vs the new "always online" type.

Actually, IMO the question is not what kids in China prefer now, but what they'd prefer after the new restrictions.
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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(31-08-2021, 01:09 PM)karlmarx Wrote: While revenues from the under-18s are small, the implications are big because they make up a large part of future paying customers.

With restrictions on only 3 hours of gaming per week, this effectively kills most of the gaming market for under-18s (1 hour of gaming per day for 3 days is intolerable for gamers). And if you have fewer young people exposed to the pleasures of games, you are very likely to also have fewer adult (and paying) gamers in the future. They would have moved on to other activities to engage themselves. So the Chinese gaming market has taken a significant blow. And without the large customer/audience base of under-18s, related industries such as e-sports in China will also be badly hit.

There will no doubt be some tech savvy kids who will know how to bypass those restrictions. But if the problem of youth gaming continues to be serious (restrictions can be easily bypassed, and most kids are still gaming long hours), the government need only go after developers like Tencent. So I believe Tencent will be very motivated to ensure that they meet CPC's goals.

Soon, Chinese kids are going to have a lot of free time with no more tuition and almost no more gaming. Parents are going to have a hard time to fill this vacuum and engage their kids. There's probably a market opportunity here.

Its an interesting thought. Perhaps can sell educational software with game elements that support CCP narrative. Say, a war game about Sino Japan war, with tactical gameplay interspersed with historical commentary.
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https://www.aljazeera.com/economy/2021/8...ting-rules
Quote:Young Chinese gamers lash out at new, limiting rules
..

The hit to gaming stocks was relatively measured with analysts saying children, in general, did not provide much revenue for gaming companies, although they noted that the implications for the long-term growth of the industry were much more severe.

“The root of the problem here is not the immediate revenue impact,” said Mio Kato, an analyst who publishes on SmartKarma. “The problem is that this move destroys the entire habit-forming nature of playing games at an early age.”

..


My personal hope is that the manipulative/exploitative/cash-grabbing tactics of Mobile game developers will be recognize after this episode (as kids pivot to offline, single player, AAA games on PC/Consoles etc.); and there will be renewed emphasis on quality and entertainment value in gaming content.

But most likely, most Chinese kids will just fill their time void with other digital content, that is not yet banned. Perhaps some tailwinds for BiliBili and similar platforms.
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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China Tells Gaming Firms to End ‘Solitary’ Focus on Profit
https://www.bloomberg.com/news/articles/...-oversight
Quote:The agencies told the companies they must enforce the new regulations and break from “the solitary focus of pursuing profit” to prevent minors from becoming addicted to games. They should also remove “obscene and violent content” and avoid “unhealthy tendencies, such as money-worship and effeminacy.”

“The authorities ordered the enterprises and platforms to tighten examination of the contents of their games,” Xinhua said. “The platforms must also resist unfair competition to prevent excessive market concentration or even monopolies in the industry.”
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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China said to suspend approval for new online games, heating up Beijing’s campaign against gaming addiction
https://www.scmp.com/tech/big-tech/artic...g-beijings

Quote:Chinese regulators have temporarily suspended approval for all new online games in the country, dealing a fresh blow to the video gaming businesses of industry giants Tencent Holdings and NetEase, as Beijing steps up measures to tackle gaming addiction among young people, according to people with knowledge of the matter.

..

Mio Kato, founder of Asia-focused LightStream Research, said he was “surprised by how strongly they are targeting the addictiveness [of video games] and monetisation [by gaming companies]”.

Will they completely stop companies trying to generate addiction, in which case freemium could be dead?” Kato said. Freemium refers to a video gaming business model in which games are offered free to play, but loaded with in-game purchases.

“Or are they just trying to get [video gaming companies] to tone it back? In that case, it will probably still be significant, but not necessarily devastating,” he said.



Targeting the "freemium" model directly, is an actual solution addressing the root of the problem. But I doubt the Chinese government understands the problem to such degree.

Even if a game is not "pay-to-win" (which completely ruin the gaming experience); if it is freemium, it also means that developers may be incentivized to keep gamers on the platform as long as possible (ie. more addictive) to view more ads or to buy more "stuff" (microtransactions, cosmetic or otherwise).
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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I think in the china regulations, enticing people to buy stuff is also not allowed. The safest bet to navigate is reversion to the old system where players pay a one time upfront fee for the games in China. With all these measures, I don't think tencent will be worth a lot. It has to pivot to markets outside of China to fight (such as SEA or India where Sea Group is strong).

However fighting the incumbent (Sea Group) is going to be difficult who has popular game titles in the freemium segment. If tencent is unable to pivot out of China, EPS is going to stagnate. The same too goes to its affiliates such as Huya and Tencent Music- they cannot just stay in China because EPS will not grow. Either the entire tencent empire dominates Asia, otherwise, I dont think its companies are worth 40+ P/E anymore. My valuation is that if tencent stays in China it will be worth a 30 P/E valuation, which is -30% from today.

It is fortunate Mr Pony had been wise enough not to follow Jack Ma's footsteps to antagonize CCP; otherwise Tencent would have been decimated.
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I tend to gravitate towards what Jason Zweig has proposed, since I can understand that clearly from a behavioral standpoint.

On a local context, for young kids, I suspect parents need the games, more than the games need the kids on aggregate. Gaming is a cheap and convenient way for parents to distract their kids, so that the former can have their own time. And for those of us whom are parents, having your own time is priceless.

‘Mortal Kombat’ Can Teach China a Thing or Two About Videogames

From ‘penny dreadfuls’ to comic books to music, often the best way to make a business boom has been to try limiting it

https://www.wsj.com/articles/can-china-r...1631286006
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Distracting kids with games too frequently, probably isn't the best parenting strategy. Shy
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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