Since June, major platforms in China such as Tencent Music and NetEase's Cloud Music have removed livestreaming features that could be used for illegal gambling, causing a significant negative impact on their quarterly revenue.

Analysts say the popular online lucky draw feature is often manipulated by livestreamers who can collude with viewers to split the prizes.

According to research firm Analysys, the live streaming market in 2022 is estimated to reach 152 billion yuan ($21 billion), and "lucky" features like the above make live streaming even more popular.

The crackdown by authorities prompted Tencent Music and Huya to "disable live streaming features that contain games of chance," said Ivan Su, an analyst at Morningstar.

Last week, the second quarter 2023 earnings reports of online music platform Tencent Music and game live streaming platform Huya (similar to Twitch) showed that social media entertainment revenue, including live streaming, decreased by 24% and 16% respectively compared to the same period.

Cloud Music, a music streaming service majority-owned by NetEase, reported that social entertainment revenue, which accounts for about half of total revenue, also fell 24% in the second quarter from a year earlier.

While none of the companies cited the drop in revenue as a result of the crackdown on online gambling, a Reuters source, who is now the co-founder of a popular livestreaming platform in Guangzhou, said several live chat and live streaming apps had suspended services due to police investigations.

Local media also reported that between May and July, about 40 live chat apps were shut down to “adjust business operations.”

“The government’s crackdown on online gambling could cut livestream revenue by 20% to 70%, depending on the exposure of each platform,” said Charlie Chai, an analyst at 86Research, adding that the impact will be felt mainly in the third quarter.

In its earnings report, Tencent said it was adjusting its livestreaming business to be “music-centric,” while Huya said it would make the platform environment “healthier.” Cloud Music said it was strengthening its internal processes and implementing “stricter monitoring of abnormal user activity.”

(According to Reuters)