Who governs the internet? Authorities in China can’t decide. The Ministry of Culture, a relatively unknown agency, staked a claim by clamping down on online games on Dec. 13. China’s leaders say they want to foster an innovative economy, but the tussle between the young internet sector and an outdated bureaucracy raises questions about whether they really mean it.
The Ministry of Culture has taken issue with illegal cultural activities by gaming companies. That includes anything that promotes gambling or lotteries, or lacks proper licences. It’s not the first time this anachronistic-sounding body has flexed its moral muscles. The extent of interference has ranged from bizarre – banning songs from Lady Gaga and Backstreet Boys – to high-handed – shutting down thousands of internet cafes for promoting juvenile online gaming addiction.
As odd as such cultural dictates seem, the stakes are high for companies on the receiving end. According to a report from CGIA/IDC, China’s gaming market took in 33.9 billion yuan ($5.1 billion) in revenue in just the first half of 2013, a 36 percent year-on-year increase. For a gaming and media giant such as Tencent, which made 54 percent of its third quarter revenue in 2013 from online games, curbs on games for content reasons are a potential threat to profits.
Regulation of China’s internet has traditionally been messy – NetEase, a US-listed group, listed over 10 agencies that it reports to in its latest annual filing. Yet that has suited web groups just fine. They have flourished because regulatory uncertainty encourages them to experiment, particularly in legally untested areas such as virtual currencies or financial services. The pattern for regulators has been to watch first, and opine later.
That could be changing. China’s cabinet has already pledged to strip powers away from bloated government ministries. That seems to be kicking off regulatory turf wars in other areas, judging by recent assaults on companies for suspected antitrust violations, from telecoms operators to milk producers and drug-makers. The internet looks vulnerable to a similar fracas. Online entrepreneurs should prepare to spend less time designing war games, and more time being caught up in them.