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Take-Two Stock Tumbles, Leading Video Game Companies Lower, on China Crackdown

China's state-backed Economic Information Daily newspaper describes online gaming as 'spiritual opium,' and calls for stricter curbs on the $55 billion sector.

Take-Two Interactive  (TTWO) - Get Take-Two Interactive Software, Inc. Report shares lead U.S. video game companies lower Tuesday after reports suggested a potential crackdown on online gaming in China. 

The state-backed Economic Information Daily newspaper Tuesday described online gaming as "spiritual opium", and called for stricter curbs on the sector, arguing that "no industry, no sport, can be allowed to develop in a way that will destroy a generation."

The editorial sparked concerns over another crackdown from regulators in Beijing, following moves to limit profits in the education, property and tech sectors over the past few months.

China's online gaming industry is expected to generate $55 billion in revenues this year, IBIS World estimates, with Statista suggesting around 532 million of the country's internet users had engaged in the sector.

China has long expressed concern over the rise in video game play among the nation's youth, with the Education Ministry limiting "the use of electronic products for non-learning purposes" to one hour a day in 2019. Authorities also suspended the approval of new video game releases for more than nine months. 

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Take-Two, which posted stronger-than-expected second quarter earnings of 90 cents per share last night, on revenues orf $813 million, produces NBA 2K online, the number 1 online PC sports game in China, with 54 million registered users.

"It's a great market for us," said CEO Strauss Zelnick. "NBA 2K Online continues to grow in China. We also have console titles for China, and we have titles that are being approved."

"We have great relationships in China with Tencent and others. And so we think there's plenty of upside going forward," he told investors on a conference call late Monday.

Take-Two shares were marked 8.3% lower in early trading Tuesday to change hands at $158.98 each. Activision Blizzard  (ATVI) - Get Activision Blizzard, Inc. Report, which reports June quarter earnings after the closing bell, were marked 2.7% lower at $80.52 each while Electronic Arts  (EA) - Get Electronic Arts Inc. Report shares fell 1.7% to $141.63 each. 

Tencent Holdings  (TECHY) , China's biggest online gaming group, fell 6.11% but pledged to curb game-playing time for younger users following the Economic Information Daily editorial.