A pair of major American video game makers took major stock hits Wednesday as Chinese regulators put the brakes on new game approvals.
Shares of Electronic Arts Inc. (EA) - Get Report and Take-Two Interactive Software Inc. (TTWO) - Get Report both plunged on news that China's top regulator of content won't approve any new video games while it works on clearing a backlog of applications.
Redwood City, Calif.-based Electronic Arts has been in talks with Chinese video game giant Tencent Holdings to bring its newest big hit, "Apex Legends," to China's large and growing video game market.
Maker of such hits as "Grand Theft Auto" and "Red Dead Redemption 2," the New York-based Take-Two has also set its sights on the Chinese market, with CEO Strauss Zelnick recently calling China a "great opportunity" for the company.
Take-Two's stock price was down nearly 5% just before 2 p.m., having dropped to $88.66, while Electronic Arts was not far behind with a 4.73% decline to $98.09.
It's not the first time Chinese authorities have put the approval process for new video games on hold, with a nine-month freezer last year.
GAPP, or General Administration of Press and Publications, gave the green light to 1,982 new online games, both foreign and homegrown, last year, with potentially 2,000 to 3,000 expected to win approval this year, Reuters reported, citing an industry analyst.
That's down dramatically from 2017, when the Chinese regulator gave the thumbs up to 9,651 games.
Still, Take-Two's Zelnick, in his comments made on a Feb. 6 conference call with analysts, also acknowledged the challenges the company faces as well in China.
"Absolutely if regulations soften, there'd be an even greater opportunity," Zelnick said. "But we understand we have to work within the environment that we find ourselves in there."