Chinese Online Platforms Remove Lucky Draw Features Amidst Crackdown on Illegal Gambling

Chinese Online Platforms Remove Lucky Draw Features Amidst Crackdown on Illegal GamblingChinese online content platforms, such as Tencent Music and NetEase’s Cloud Music, have removed live-streaming features, believed to be used for illegal gambling. The removal of the said features, however, has already affected the platforms’ quarterly revenues. Industry experts claim that online content platforms removed features such as virtual lucky draws after the government launched a massive crackdown on live streaming this June. This crackdown is part of a broader effort to clamp down on online gambling activities.

Although these platforms claim to prohibit gambling, analysts believe that lucky draws are often manipulated by live streamers who join viewers and share the prize. According to research firm Analysis, the popularity of live-streaming has increased thanks to these features. Figures show that the market was worth around CHY152 billion ($21 billion) in 2022. Ivan Su, an analyst at Morningstar, explained that the government’s crackdown prompted Tencent Music and Huya to remove live streaming features that include games of chance. He elaborated that the removal of the features will significantly hit the platforms’ profits.

Last week, the two platforms published their second-quarter earnings, revealing that Tencent Music’s revenues declined by 24%, while the Twitch-like game broadcasting platform Huya experienced a revenue drop of 16%, compared to the same period the previous year.

This Thursday, Cloud Music, a music streaming platform majority owned by NetEase, reported that its social entertainment revenue, which accounts for nearly half of the platform’s revenue, declined by 24% during the second quarter of the year compared to the same period last year. However, the companies did not mention anything about the gambling crackdown when reporting their profits and declined to comment on their performance, too.

The Government’s Clampdown Leads to Shutdown of Many Live-Streaming Services and Chat Apps

The co-founder of a popular live-streaming platform in Guangzhou, who preferred to remain anonymous due to the topic’s sensitivity, told journalists from Reuters that several well-known live-streaming and live chat apps were forced to cease operations following police investigations. Local media also revealed that about 40 live chat apps had to suspend services due to “business adjustment” between May and July this year.

Charlie Chai, an analyst at 86Research, said that the anti-gambling crackdown is expected to wipe away 20% to 70% of live-streaming revenue, depending on each platform’s level of exposure. Chai suggests that the full impact of these changes might be absorbed over two quarters, with a third of the impact in Q2 and the remaining two-thirds in Q3.

Tencent revealed that it was reforming its live-streaming business with the idea of making it more “music-centric”. Huya, on the other hand, said that it will direct its efforts toward making the platform atmosphere “healthier”. Cloud Music announced it was strengthening its internal control mechanisms and implementing stricter monitoring of irregular user activities.

Although the Chinese government has announced the conclusion of its comprehensive regulatory crackdown on the technology sector, continued scrutiny reflects Beijing’s efforts to align social and business activities with socialist norms. The authorities remain particularly careful when it comes to online gambling, mentioning that cross-border funds flow for gambling could threaten national security. Analyst Charlie Chai highlighted that some platforms already removed lottery-like features in 2020 due to regulatory pressures. However, many later reintroduced similar features with minor changes.