Chinese online streaming platforms, including Cloud Music and Tencent Music, have taken proactive measures to discontinue specific live streaming features, primarily the “lucky draw” format. These actions come in response to concerns that streamers and viewers were collaborating to manipulate prize pools, potentially facilitating illegal gambling activities. China’s stringent crackdown on illegal gambling has prompted these platforms, operated by NetEase and Tencent, to act preemptively, even though the “lucky draw” features were a lucrative segment of their business.
Root of the Issue:
The decision to shutter these features was driven by the Chinese government’s intensified efforts to combat illegal gambling activities. Prior to the ban, the estimated market value of “lucky draw” features in China stood at a substantial $21 billion, based on 2022 data and consumer participation.
Impact on Revenues:
Although these live streaming services were profitable for NetEase and Tencent, the potential association with illegal gambling prompted both companies to take decisive action. Both companies have reported a decline in their social entertainment revenues, a direct result of their decision to gradually restrict and eventually ban “lucky draw” streams.
Revenue Projections:
Analysts anticipate a significant impact on live streaming revenues due to the crackdown on gambling-related activities. Charlie Rai, an analyst at 8Research cited by Reuters, estimates that the decline could range from 20% to 70% of companies’ live streaming revenue.
Strategic Shift:
In response to these developments, Tencent and NetEase have articulated their plans to shift their business focus in this segment towards a more “music-centric” approach. This strategic shift aims to distance themselves from offering consumers the opportunity to engage in potentially illicit gambling operations under the guise of legitimate services.
Regulatory Responsibility:
In China, authorities in Beijing typically hold companies responsible for “facilitating” transactions related to illegal gambling. As a result, companies are taking proactive measures to ensure compliance and avoid legal repercussions.
National Efforts to Curb Gambling:
China’s efforts to restrict the outflow of national capital to gambling have extended to in-person cross-border gambling activities. Chinese customs officers have been instructed to discourage citizens from engaging in trips abroad for the purpose of gambling. Additionally, China has collaborated with governments in Southeast Asia to discourage the promotion of gambling to Chinese nationals.
Macau’s Transformation:
Macau, China’s largest gambling hub, has recently undergone regulatory changes, urging local concessionaires to shift their focus away from gambling and prioritize attracting overseas tourists over Chinese nationals for all types of gambling products.
The decision by Chinese online streaming platforms to cease “lucky draw” features reflects their commitment to complying with China’s strict stance on illegal gambling. While these actions may impact their revenue streams, companies like Tencent and NetEase are proactively adapting their business strategies to align with regulatory guidelines and ensure long-term sustainability in the evolving landscape of China’s entertainment industry.