How Will China Tame Microblogs Like Sina Weibo? Regulations and Licenses

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  • on September 15th, 2011

Reuters has a good story about the government’s challenges in managing microblogs like Sina ($SINA) Weibo-Analysis: China seeks to tether the microblog tiger.

More regulation is coming, as Chris Buckley reports:

Mao Zedong famously said a single spark could start a revolutionary prairie fire. That fear is now driving his Communist Party successors to grapple with how to tame China’s expanding legions of microbloggers.

A stream of warnings in state media has exposed how nervous Beijing is about the booming microblogs and their potential to tear at the seams of party censorship and controls.

“The government feels it’s on the back foot about this,” said Li Yonggang, a professor at Nanjing University who studies Internet policy, adding researchers and think-tanks had been mobilized to study how to strengthen microblog management.

“There’s a feeling that additional regulation, formal or informal, is on the way.”

 I spoke with the reporter at length and he included a few quotes from me:

Despite the jitters, Beijing is extremely unlikely to close microblogs, a step that experts said could unleash its own prairie fire of public anger and distrust that would give even China’s thick-skinned leaders pause.

“There’s this Chinese proverb, ‘qi hu, nan xia’ (once riding a tiger, it’s hard to dismount), and that’s the problem the government has — that it got onto this thing, allowed it to start, and now to shut it down, that would be a nuclear option,” said Bill Bishop, a Beijing-based investor and adviser on China’s Internet sector who runs the DigiCha.com blog.

“It would be surprising if they kill it or completely neuter it, but I think a likely outcome is a set of incremental tweaks and controls,” Bishop said of Beijing’s approach.

“You’ve got to remember that this is basically a real-time stream of what Chinese people are thinking, and that’s not just incredibly valuable to people who care about public opinion, but also for those monitoring security problems,” he said.

It is likely the government will soon require a new license to operate a microblog. Historically, regulations and licenses have always lagged new products on the Chinese Internet. There were no specific licenses for online gaming, news, or video until usage of those products became large enough for the government to decide it needed to establish new rules.

A licensing requirement for microblogs would follow in that tradition, and in fact would be good news for the leading providers like Sina and Tencent, as that license would both provide a legal framework for microblog operations and create a significant barrier to entry for smaller sites. My guess is that a microblog license would be issued by the State Council and be even harder to obtain than an Internet news license, which is granted to state media and only the largest and most trusted Internet portals.

A microblog license requirement could be bad news for all the Tumblr clones, as most may be too small and too new to be trusted.

While there may be headline risk for Sina around new microblog regulations, I still think it is unlikely that the government will damage Weibo’s vitality and popularity to such an extent that the service is effectively neutered. The main risk to investors would come from a requirement that only firms with no foreign ownership can obtain a microblog license, as Jack Ma has claimed is the case for online payment licenses. I think such a requirement is unlikely, but nothing is impossible in China.

That said, expect Sina’s content management (aka censorship) costs to continue to rise rapidly. Sina may have the Twitter/Facebook of China, but it may not enjoy the Twitter/Facebook cost structure.

For more background see the previous post Could Regulatory Winter Be Coming For China Internet Investors?

You can follow me @Niubi on Twitter and @Billbishop on Sina Weibo.

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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