January 12, 2010 / 1:18 PM / 8 years ago

Q+A: What's driving China's latest Web crackdown

SHANGHAI (Reuters) - China's recent moves to tighten control of its online and mobile content industries have brought some uncertainty into the market but may not have a major immediate impact on the sector's biggest players.

Analysts say the crackdown, which appears to be aimed at pornography and other controversial content, could however stunt the sector's prospects in the long-term.

By 2012, China's online game sector is estimated to have 230 million gamers compared with about 69 million currently, and rake in revenues of 73.1 billion yuan ($10.7 billion), Beijing-based research firm Analysys International said in December. The industry's revenue was estimated at 26 billion yuan last year.

Below are some questions and answers about the possible impact of the latest crackdown.

WHAT ARE THE NEW RULES?

China slapped on the rules in November and December, requiring online game operators to promote socialist values in their titles and delete violent or obscene content. The Ministry of Culture also requested game operators hire staff to actively screen content in online games.

China's video broadcasting watchdog, the State Administration of Radio, Film and Television, closed several video sharing and music sharing websites in early December as they did not have licenses, according to the official Xinhua news agency.

On the mobile side, Beijing regulators closed more than 2,300 mobile websites due to "obscene content."

The crackdown comes months after another controversial campaign tried to force PC makers to install Web-filtering software on all PCs sold in the country. That campaign was ultimately shelved due to international protest.

WHAT DOES THIS MEAN FOR INTERNET AND MOBILE FIRMS?

Based on previous crackdowns, China's Internet and mobile content providers will have to tread carefully for the duration of the campaign.

When China launched a similar anti-pornography crackdown in 2000, Internet portals NetEase.com and Sina shares took a beating.

This time, analysts expect the impact to be more limited for these firms, as all have diversified their business to avoid too much exposure in any one area.

But less diversified players such as mobile Internet firm KongZhong Corp could be more at risk. KongZhong shares fell 8 percent when news of the crackdown hit investor sentiment on Nov 30.

Mobile content providers that work through China Mobile, the country's dominant mobile carrier, must also tread carefully after the company said in December it will halt all payment of wireless application protocol (WAP) fees to content providers.

WHAT ELSE IS IN THE WORKS?

The crackdown is expected to last until the end of the first quarter at least, and official media have quoted China's culture minister as saying more rules were in the works for online games. Those could impact operators such as Shanda Games, NetEase and Changyou.

Last week, domestic media and analyst reports said two government ministries were also planning new regulation of China's social networking sites. With Facebook and Twitter banned in China, many of the sites such as Kaixin001 and Tencent Holdings QQ Zone have seen business boom.

The new regulations, which could call for licensing and minimum capital requirements for firms, could benefit larger, more cash-rich companies such as Tencent as smaller players get squeezed out.

IS THE RECENT CASE INVOLVING NETEASE PART OF THE CRACKDOWN?

Yes and no. When NetEase applied for the license to operate Activision Blizzard's popular World of Warcraft in China, it ran into problems as Chinese authorities were hesitant about the game's depiction of death and violence.

Since then, Beijing regulators have made clear their intention to keep China's virtual world clean, which could impact big name developers such as Electronic Arts, and Activision Blizzard seeking to gain a stronger foothold in China.

However, most observers agree the controversy surrounding NetEase and World of Warcraft was caused by infighting between two government agencies, and was unrelated to the actual game.

Editing by Doug Young and Anshuman Daga

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