China online platforms scrap lucky draw features amid gambling crackdown

HUYA

25/08/2023 09:08

By Josh Ye
       HONG KONG, Aug 25 (Reuters) - Chinese online content
platforms including Tencent Music  1698.HK  and NetEase's Cloud
Music  9899.HK  have removed live streaming features that
analysts say could be used for illegal gambling, at a hefty cost
to their quarterly revenues.
    Analysts say online content platforms pulled the plug on
features such as virtual lucky draws after the government in
June started cracking down on live streaming, as part of a wider
clampdown on online gambling.
    While the platforms say they ban gambling, analysts say the
extremely popular lucky draws are often manipulated by live
streamers colluding with viewers to share the prize.
    These features have increased the popularity of live
streaming, a market which was worth around 152 billion yuan ($21
billion) in 2022, research firm Analysys said.
     The crackdown spurred Tencent Music and Huya  HUYA.N  to
"pre-emptively disable live streaming features that contain
games of chance", said Ivan Su, an analyst at Morningstar,
cutting off a lucractive source of revenue.
    In their second-quarter earnings posted last week, 
Tencent's online music arm Tencent Music and its Twitch-like
game broadcasting platform Huya said their social entertainment
revenues, which include live streaming, declined by 24% and 16%
compared to the same year-ago period.
    On Thursday, Cloud Music, a music streaming service majority
owned by NetEase, reported social entertainment revenue, which
accounts for about half of total revenue, also fell 24% in the
second quarter year-on-year.
    None of these companies mentioned the gambling crackdown
when they reported their earnings, and they did not respond to
request for further comment.
    However, the co-founder of a popular live streaming platform
in Guangzhou, who declined to be named citing the sensitivity of
the topic, told Reuters that several popular live streaming and
live chat apps had to suspend services after police probes.
    Local media has also reported that between May and July,
about 40 live chat apps were shut down for "business
adjustment". 
    "We expect the anti-gambling crackdown... to eliminate 20%
to 70% of live streaming revenue, depending on each platform's
exposure," Charlie Chai, an analyst at 86Research, said.
    "It should take two quarters for the impact to be fully
absorbed a third in Q2, and the remaining two-thirds in Q3."
    In their earnings report, Tencent said it was adjusting its
live streaming business to become more "music-centric" while
Huya said it was working to make the platform atmosphere
"healthier". Cloud Music said it was reinforcing its "internal
controls mechanism... and adopting stricter monitoring over
irregular user activities".
    While Chinese authorities say they have ended a years-long,
wide-ranging regulatory crackdown on its technology sector,
scrutiny has continued as Beijing looks to rectify social and
business activities in line with socialist norms.
    Online gambling remains a concern, with the authorities
saying in 2020 that the cross-border flow of funds for gambling
posed a national security risk.
    Analyst Chai said several platforms took down lottery-like
features in 2020 in response to regulatory pressure but
introduced new ones later with minor modifications. 
    ($1 = 7.2872 Chinese yuan renminbi)

 (Reporting by Josh Ye and Farah Master; Editing by Brenda Goh
and Miral Fahmy)
 ((Josh.Ye@thomsonreuters.com;))