COVID-19 infects China’s Virtual World

With 780 million people under travel restrictions in China, quotidian life is moving online. From conducting research about COVID-19, attending school and holding meetings, to playing video games, people are continuing every-day life virtually. As the Internet struggles to keep up with increased demand, not even life online has been spared the disruption of COVID-19.

During the Lunar New Year, Baidu, China’s most popular internet search engine, experienced a 20% increase in weekly time spent on the app compared to the same period last year. However, increased internet traffic failed to convert into increased total revenue for Baidu which makes three-quarters of its revenue from advertising. Sectors that generally generate the most revenue for the internet giant, such as cosmetic plastic surgery or home sales, have been slashing their marketing budgets due to a sharp fall in demand. Somehow people have lost interest in nose-jobs at this time. The problem of reduced marketing campaigns is exacerbated by the cancellation of events and concerts in the effort of containing the spread of COVID-19, with Baidu losing a substantial branch of revenue. This is illustrated by the fact that revenue guidance for the first quarter from Baidu is between 21 billion RMB to 22.9 billion RMB (3 billion USD to 3.3 billion USD), a drop of between 5% to 13% year-on-year. iQiyi, China’s answer to Netflix and the US video platform’s strongest competitor, appears to be dampening the losses of its parent company, Baidu. Last quarter, subscription to the platform rose by more than a fifth. Nonetheless, its 100 million subscribers were very surprised when iQiyi’s servers crashed.

Incapacitation of internet services appears to have become a prevalent issue due to increased traffic sparked by quarantined students, remote workers and those looking to pass the time. Users of the online education platform Xuexitong found themselves unable to attend class when 12 million students, parents and teachers in Wuhan all tried accessing the platform at the same time, overwhelming the platform’s servers. Similar issues have also been experienced by the video-conferencing applications DingTalk and WeChat Work which also collapsed due to heavy traffic. With the Internet Society, an American non-profit organisation looking to ‘promote the open development, evolution and use of the Internet’, calling the shift of quotidian life in China online as ‘the world’s biggest work-from-home experiment’, it seems that COVID-19 has exposed important gaps in both internet infrastructure and its tools.

COVID-19, however, does not only pose a significant threat to corporations offering internet services and to people looking to carry on every-day life, but to the Chinese government by challenging its control over news dissemination. Distrust in Chinese media seems to be growing as citizens are calling for increased transparency and freedom of speech after Li Wenliang exposed the rapid spread of COVID-19 that the state media had attempted to cover. Daily traffic to FreeBrowser.org, a website that allows Chinese users to circumvent China’s firewalls, has doubled in the last month as Chinese users seek to access foreign news sources, considered to a great extent more reliable. As Chinese citizens become disillusioned with state media, the Chinese government seeks to take over the COVID-19 narrative, by further restricting the use of VPNs, increasing censorship and releasing reports that meet the party’s news ideals.

Video game providers, such as Tencent and NetEase, seem to be the only winners in the COVID-19 disruption narrative. While these companies will also lose from restricted marketing budgets, advertisement only makes up one-fifth of Tencent’s revenue, with video games and social media making up half of the company’s revenue. As players have longer time to while away and spend less money outside the house, companies are hoping to see a surge in in-game purchases. Moreover, gaming companies are sure to see an increase in first-time players, which, if they are able to retain after the epidemic is over, will prove very lucrative for the industry.

COVID-19 has successfully disrupted both the real and virtual world in China. Nevertheless, the government seeks to maintain control and guide the COVID-19 narrative. Meanwhile, internet services providers are collapsing due to intense traffic, exposing gaps in cyber infrastructure. The constriction of marketing budgets coupled with a surge in internet usage provide difficult short-term prospects for search engine providers like Baidu. Nonetheless, among the COVID-19 narrative, where several players stand to lose significantly, there still appears to be a silver-lining for investors in the form of the video-game industry.

 

By Flavia Gaspar

Sector Leader: Fabian Piga

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