The NetEase Games booth at the China Joy conference in Shanghai on July 30th, 2021.
Arjun Kharpal | CNBC
GUANGZHOU / HANGZHOU, China – NetEase prepares to release a major game it hopes will fuel its international expansion efforts as competition intensifies with incumbent Tencent and newcomer ByteDance.
In a rare interview with international media, Hu Zhipeng, vice president at NetEase and one of the top executives of the tech giant’s video game business, explained the company’s plans to grow overseas sales. He also talked about NetEase dipping its toes into new areas like console and cloud gaming.
The overseas push comes at a time when Chinese regulators are scrutinizing the country’s tech giants and concerns about how to crack down on the gambling sector are mounting.
On Thursday, NetEase will release Naraka: Bladepoint worldwide, a 60-player action battle royale game in which players battle to be the last player alive. Other popular games in the genre are, for example, “Fortnite”.
NetEase strategy
“Naraka: Bladepoint” is aimed at international players. NetEase hopes that 50% of its gaming revenue will come from overseas in the future, up from around 10% now, Hu said.
To do this, NetEase is considering using well-known trademarks or intellectual property (IP) to target overseas players. The Hangzhou-based company develops games based on JRR Tolkien’s epic “The Lord of the Rings” and JK Rowling’s “Harry Potter” series.
We are looking for foreign partners in terms of games R&D and publishing (games) through direct investment or cooperation.
Hu Zhipeng
Vice President, NetEase
The second part of the strategy involves releasing games from genres that are popular outside of China. This is where Naraka: Bladepoint comes in.
According to Hu, it combines Chinese culture with the battle royale gameplay known to gamers worldwide.
“We’re also trying to combine traditional Chinese culture with game genres that Western gamers are familiar with to create novel games,” Hu told CNBC, according to a translation of his Mandarin comments.
He said Western players “won’t find it difficult to play the game while being interested in Eastern cultures. This can create a brand new experience for Western players.”
A screenshot of NetEase’s battle royale game Naraka: Bladepoint, which will be released worldwide on August 12th. “Naraka: Bladepoint” is part of the international expansion of NetEase.
NetEase games
NetEase has not been as aggressive as Tencent in its international expansion. The latter focused on a strategy to take over large game companies like the “League of Legends” manufacturer Riot Games and to acquire stakes in many other studios.
NetEase, meanwhile, has focused on minority stakes in companies around the world like Niantic, which is what Pokemon Go is all about.
Hu said the company continues to seek investment and partnerships internationally.
“We are looking for overseas partners in games R&D (research and development) and publication (games) through direct investment or cooperation,” Hu said.
Push for console and cloud gaming
Chinese game developers like NetEase and Tencent have typically been strong at PC and mobile gaming. That’s because video game consoles like Sony’s PlayStation or Microsoft’s Xbox were banned in China for 14 years until 2014. As a result, Chinese developers focused on other market segments.
That is starting to change.
NetEase has confirmed that it is working on a console version of Naraka: Bladepoint but has not provided a release schedule.
The appeal is clear. According to market research firm Niko Partners, consoles, including hardware and software, accounted for just over 4% of the total Chinese games market in 2020. However, according to Newzoo, another gaming research firm, consoles are expected to account for 28% of the global gaming market in 2021, valued at $ 175.8 billion.
Because of this, making console games for Chinese developers is a way to appeal to international gamers.
In 2019, NetEase opened a gaming studio in Montreal, Canada to help with international expansion. Last year the company opened another studio in Japan dedicated to the production of console games.
“Our Sakura studio in Japan and (the studio) in Montreal are dedicated to console game development, as console games account for a third of the overseas market share,” Hu said, adding that the market is “pretty attractive.”
NetEase also has an eye on cloud gaming, which allows gamers to play titles without the need for dedicated hardware like a console. Gamers can effectively stream games to a device just like a movie on Netflix.
(Regulation) is an issue that we all have to deal with, but I’m not worried that it will actually affect us. Instead, it drives us to create better products.
Hu Zhipeng
vSure ice president, NetEase
US tech giants Google, Facebook, Amazon, and Microsoft have all rolled out cloud gaming services.
NetEase began testing its own cloud gaming services in 2019, and Naraka: Bladepoint is on the service. However, Hu also said that the company is open to cooperation with other cloud gaming platforms in China and is bringing the game to international platforms of other companies.
“Naraka Bladepoint is actually an opportunity for other cloud gaming platforms… There are many features of cloud gaming that fit into this game. I welcome cloud gaming platforms to work with us, ”said Hu.
Increasing competition and regulatory challenges
China’s gambling industry has developed rapidly in recent years with a changing regulatory landscape and emerging competition.
Tencent and NetEase dominate the industry, but more recently TikTok owner ByteDance has hit the road too.
“We are confident that we are adequately prepared for challenges due to our development capacities,” said Hu when asked about increasing competition.
Meanwhile, gambling companies continue to struggle with a difficult regulatory environment.
In 2018, Chinese regulators froze approvals for new versions of video games due to concerns about eye problems in children. Regulators are also still concerned about video game addiction among children under the age of 18.
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Last week, a partner publication of the official Chinese newspaper Xinhua published an article branding gaming as “opium”. The article called for further restrictions on the game industry to prevent addiction and other negative effects on children.
But the article was later removed and republished with a new headline and references to “opium” removed, suggesting that it may not reflect the official Beijing view.
CNBC’s interview with NetEase’s Hu took place before the article about criticism of games came out. When asked about regulation, however, Hu replied that such rules were “necessary” for the gaming industry.
“Big companies like Netease and Tencent actually welcome such regulatory measures. Regulation, in turn, pushes us to promote our product quality, ”said Hu.
“(Regulation) is an issue that we all have to deal with, but I’m not worried that it will actually affect us. Instead, it pushes us to develop better products. “
– Additional coverage from CNBC’s Iris Wang.
