China online platforms scrap lucky draw features amid gambling crackdown

FILE PHOTO: FILE PIX: Illustration picture of China's Tencent Music Entertainment Group

By Josh Ye

HONG KONG (Reuters) - Chinese online content platforms including Tencent Music and NetEase's Cloud Music 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 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)