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China online platforms scrap lucky draw features amid gambling crackdown

China online platforms scrap lucky draw features amid gambling crackdown

In a recent development, various prominent Chinese online content platforms, including Tencent Music and NetEase’s Cloud Music, have taken the decisive step of removing live streaming features that were suspected to be susceptible to facilitating illegal gambling activities. This move is anticipated to have significant financial implications, impacting their quarterly revenues.

Industry analysts attribute this decision to the Chinese government’s proactive crackdown on live streaming and its association with online gambling. This regulatory move is part of a broader initiative to curtail the prevalence of online gambling in the country. While these platforms claim to prohibit gambling-related activities, experts contend that the immensely popular virtual lucky draws often become avenues for manipulation, as live streamers collaborate with viewers to unfairly share the winnings.

These specific features have notably contributed to the surge in the popularity of live streaming, which has evolved into a formidable market valued at approximately 152 billion yuan ($21 billion) in 2022, as reported by the research firm Analysys.

The stringent regulatory environment prompted industry players like Tencent Music and Huya to proactively disable live-streaming features that involved elements of chance. This decision was driven by the need to protect their revenues. In their respective second-quarter earnings reports released last week, Tencent Music and Huya disclosed a decline of 24% and 16% in their social entertainment revenues, which encompass live streaming, in comparison to the corresponding period the previous year.

In a similar vein, Cloud Music, a prominent music streaming service primarily owned by NetEase, noted a 24% year-on-year drop in social entertainment revenue, constituting approximately half of its total revenue for the second quarter.

Interestingly, none of these companies explicitly attributed the decline in revenue to the government’s gambling crackdown in their earnings reports. Furthermore, they have refrained from elaborating on this matter in response to queries.

An insider, the co-founder of a well-known live-streaming platform based in Guangzhou, revealed on condition of anonymity that several widely-used live-streaming and live chat applications had been compelled to suspend their services following police investigations. Local media sources also highlight that around 40 live chat apps underwent closure for “business adjustment” between May and July.

According to Charlie Chai, an analyst at 86Research, the sweeping anti-gambling measures are poised to impact live streaming revenue across platforms by an estimated 20% to 70%, contingent on the individual platform’s exposure to this issue. Chai further predicts that the financial effects of these measures will become fully apparent over two quarters: one-third in Q2, and the remaining two-thirds in Q3.

In response to this evolving landscape, the affected companies are taking measures to adapt. Tencent announced intentions to reorient its live-streaming business to have a stronger focus on music content. Huya, on the other hand, has expressed a commitment to fostering a more wholesome platform atmosphere. Cloud Music is reinforcing its internal control mechanisms and implementing stricter monitoring protocols to curtail irregular user activities.

Even as Chinese authorities declared an end to a protracted regulatory crackdown on the technology sector, ongoing scrutiny continues to align social and business activities with socialist norms. The persisting concern over online gambling is motivated by the authorities’ stance that cross-border financial flows related to gambling pose a significant national security risk. Analysts also point out that some platforms removed lottery-like features in response to regulatory pressure in 2020 but later introduced modified versions of these features.

the recent developments in the Chinese online content platform industry reflect a dynamic interplay between regulatory actions, business decisions, and financial outcomes. The removal of live-streaming features suspected of promoting illegal gambling showcases the industry’s response to governmental directives, leading to shifts in revenue patterns and strategies.


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