Sina (NASDAQ:SINA), which runs the popular Twitter-like Weibo.com, has publicly admitted that it has not fully implemented the government-mandated ‘real name’ registration for such microblog services. The admission is made to investors in a new 20-F filing at the US SEC. It points out:
We are required to, but have not, verified the identities of all of our users who post on Weibo, and our noncompliance exposes us to potentially severe punishment by the Chinese government.
Spotted by Digicha, this confession highlights what an extraordinarily difficult situation Sina was put in by the real ID policy. We’ve been following this predicament closely, and so we’ve seen at first hand how Sina has been fudging this implementation so as to make life easier for itself and its 250 million registered users. One of the main ways was by asking users to verify their ID only with a phone number – since new SIMs can only be bought in China by showing your ID, Sina was passing the buck back to the authorities. And there have been some other obvious workarounds for users to take as well. All in all, Sina seemed to be behaving like a kid who’d been ordered to tidy his room, and was doing a deliberately bad job of it.
But there have already been consequences. The real name policy was put in place – in large part – to quash rumors circulating on Weibo. But when both Sina and rival Tencent (HKG:0700) failed to delete and control the false coup rumors earlier this year, both companies had their comments disabled by authorities for several days while they tidied up.
Looking back at Sina’s filing, it makes the excuse:
Although we have made significant efforts to comply with the verification requirements, for reasons including existing user behavior, the nature of the microblogging product and the lack of clarity on specific implementation procedures, we have not been able to verify the identifies of all of the users who post content publicly on Weibo.
Indeed, when we analyzed the popularity of trends on Weibo.com over the past two months, we found no significant drop-off in user tweeting and activity after the real ID deadline in mid-March. Sina admits that implementation “needs to be done over a long period” so as to make it seamless for users. That is to say, so as not to scare off users.
Investors in Sina should not underestimate the severity of possible actions that could be taken against the microblog service. The filing even mentions “termination of Weibo operations” (see the quote below) as one possible punishment by authorities. In China’s micro-censored media landscape, that is indeed not inconceivable.
Here’s the most relevant paragraph from Sina’s admission in full:
On December 16, 2011, the Beijing Municipal Government issued the Microblog Rules. Among other things, the Microblog Rules require users who post publicly on microblogs to submit their real identities to the microblogging service provider, which is required to verify the identities of its users. Under the Microblog Rules, users are required to disclose their real identity information only to the microblogging service provider and may still use a pen name to reflect their account name on the front end. In addition, microblogging service providers based in Beijing are required to verify the identities of all of their users, including existing users who post publicly on their websites by March 16, 2012. Although we have made significant efforts to comply with the verification requirements, for reasons including existing user behavior, the nature of the microblogging product and the lack of clarity on specific implementation procedures, we have not been able to verify the identifies of all of the users who post content publicly on Weibo. We believe successful implementation of user identity verification needs to be done over a long period of time to ensure a positive user experience. However, we may not be able to control the timing of such action, and, if the Chinese government enforces compliance in the near term, such action may severely reduce Weibo user traffic. The implementation of user identity verification has deterred new users from completing their registration on Weibo and a significant portion of those who have provided identity information to us was rejected by the Chinese government database, which means that these users will have limited posting ability in the future and may cause the level of activity of Weibo users to decrease over time. Furthermore, while the Microblog Rules are not clear regarding the type and extent of punishment that will be imposed on non-compliant microblogging service providers, we are potentially liable for noncompliance of the Microblog Rules or related government requirements, which may result in future punishment, including the deactivation of certain features on Weibo, termination of Weibo operations or other punishments determined by the Chinese government. Any of the above actions may have a material and adverse impact on our share price.
[Sources: Sina’s Form 20-F, via Digicha]