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Media & Entertainment

Tencent awaits more regulation from Beijing as gaming revenue slips

Group president calls China's constraints on internet 'loose'

Quarterly revenues from WeChat Pay and other financial technology and business services jumped 40% from a year before.    © Reuters

HONG KONG -- The Chinese tech group Tencent Holdings has told investors to expect more regulation of the internet in the near future, as Beijing increases pressure on issues ranging from data privacy to protection of minors.

The prediction came as the company reported a better-than-expected quarterly profit thanks to its thriving advertising and services businesses. But China's crackdown in other areas, including gaming, has knocked about 40% from its market value since January.

"Regulation has been actually quite loose over an industry like the internet, considering its size and the importance," Tencent President Martin Lau said in a conference call with analysts Wednesday.

While there is a global trend to regulate big tech companies, Lau said, China is "a bit ahead in terms of the execution of a more structural regulation framework." Future regulations will likely come from "all different regulatory entities" and cover "different segments" of the industry, he predicted.

Beijing's sterner stance has been affecting all corners of Tencent's sprawling business. Earlier this month, Chinese state-owned media branded gaming -- its biggest revenue source -- as "spiritual opium." Tencent has tightened playing time and spending limits for Chinese minors and will also ban in-game spending by players under 12 years of age.

Tencent is also a target of Beijing's anti-monopoly clampdown, having had merger-and-acquisition plans for its gaming business blocked and exclusive licensing deals for its music streaming service overturned by regulators.

And just on Wednesday, China's Ministry of Industry and Information Technology said it found 43 apps including Tencent's WeChat to have breached rules governing user data. Tencent earlier had to suspend new user registration of WeChat for several weeks to conduct a "security upgrade."

"In terms of regulations, I would say there will definitely be short-term adjustments that are needed for the different businesses," Lau said. But he added the company's long-term strategy remains intact.

Total revenues for the Shenzhen-based company rose 20% in the April-June quarter from a year ago, to 138.3 billion yuan ($21.33 billion). That was largely in line with the average estimate of 15 analysts surveyed by Refinitiv. Net income climbed 29% year on year, to 42.6 billion yuan.

The company said high demand from other internet service companies and consumer industries helped drive a 23% gain in online ad revenues, which reached 22.8 billion yuan.

Revenues from its financial technology and business services division, which includes WeChat Pay, jumped 40% in the quarter from a year ago to 41.9 billion yuan, driven by increased online payment transactions and growing digitalization of public services and traditional industries.

However, Tencent's gaming business showed signs of weakness after last year's lockdown boom. Games revenue grew 12% to 43 billion yuan, a slight decline from the first quarter and a much slower pace of growth than last year's 36% annual gain.

"We have sought to pioneer a healthy game-playing environment in the game industry," the company said, adding the restrictions it imposed on minors would not greatly affect its revenue. Players under 16 years old accounted for 2.6% of its total spending in the second quarter, while those under 12 contributed 0.3%, it revealed.

Lau called for regulators to put a limit on the total amount of time and money minors can spend across all games in a single day, instead of restricting individual games. "If that can be achieved, then I think most of the criticism of the gaming industry will be resolved," he said.

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