Tencent profits drop as China puts squeeze on online games

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Total revenues for the quarter rose by 30 percent year-on-year to 73.68 billion yuan ($10.65 billion) while online games revenue increased 6 percent to 25.20 billion yuan, according to a filing with the Hong Kong Stock Exchange.

"At this point in time, we don't have visibility on when exactly the official approval will start yet", said President Martin Lau on a conference call with investors.

While PUBG can be played as a free game, Tencent has yet to receive the nod to monetize it. PUBG is a popular battle game with more than 400 million players worldwide developed by Tencent's South Korean partner and investee company, Bluehole.

Industry executives have said many games in China, and not just those belonging to Tencent, have since March faced a hiatus in licence approvals after China revamped its content regulatory body and divided its powerful State Administration of Press, Publication, Radio, Film and Television earlier this year.

It's unclear if China will resume game approvals soon or if more stringent rules will appear, but the fallout highlights political pitfalls in the tightly controlled country. This news has affected the Chinese based multinational giant Tencent and even the fledgling developers.

"A lot of games have not been approved", said Lau, adding that the government was aware "the restructuring is now affecting the industry as a whole". A closely watched Communist Party newspaper publicly chastised Tencent previous year over the game, claiming it caused addiction in young people. It owns some of the biggest video game franchises in the world. That represented the slowest quarterly revenue growth since the second quarter of 2015.

This is not the first time Tencent has found itself at crossroads with China's gaming authorities.

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Now it has been a while since this the regulator took this step and by now some of the major companies in the Chinese Gaming Industry alongside global companies, have started to feel the heat.

Further reading: China freezes game approvals amid agency shakeup and Nasty earnings surprises dog China's tech darlings on Bloomberg (both with porous paywalls).

Gaming companies were often asked to alter their games before they can be released in the country.

Tencent said customers who purchased Monster Hunter: World were entitled to a full refund until August 20. Those include the desktop versions of successful mobile titles Battlegrounds and Fortnite, per Bloomberg.

Shares of chipmaker Samsung Electronics Co fell almost 2 percent, SK Hynix dropped 3.4 percent, while Japan's Capcom, which developed Tencent's blockbuster game Monster Hunter:World, fell 3 percent.

"We don't think that the regulation will impact the sector forever", he said.

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