Sina Weibo Braced For Tighter Regulation–Financial Times

• Posted by bbishop
• on September 18th, 2011

Kathrin Hille of the FT reports that China’s microblogs are braced for tighter regulation:

China’s leading microblog is developing systems to simplify the control of content and make the wildly popular social media tool less of a risk to social stability, its chief executive has said.

“Over the past two to three months, we have been looking into how to establish a trust system,” said Charles Chao, chief executive of Sina Corp which runs Sina ($SINA) Weibo, the country’s most active microblog. He cited the way vendors on e-commerce websites get rated by their customers as a potential model…

Mr Chao said the microblogs posed a “very serious challenge” for the government’s efforts to filter information and control society, and that many rumours spread through the services created “huge damage” to individuals and to the government.

“We will hand out different degrees of punishment to those who spread malicious rumours,” Mr Chao said, adding that the more prominent and widely respected microbloggers could act as a moderating force within the blogosphere, if complemented by a more reliable regulatory regime.

This news should be no surprise to readers of Digicha, nor should investors overreact. As I wrote last week in How Will China Tame Microblogs Like Sina Weibo? Regulations and Licenses:

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.

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