Nintendo’s Chinese rival rethinks games for West

Bloomberg

Chances are few outside of China have heard of NetEase Inc., though it makes more money from games than Nintendo Co. Now it wants recognition, but first it’ll have to learn what makes Western gamers tick. The company is on a global hiring campaign and exploring acquisitions or investments in foreign studios, so it can earn 30 percent of revenue from overseas by 2020, said Ethan Wang, vice president of NetEase Games. The goal is to sustain the outsized growth that swelled its market value eight-fold since 2012 to about $40 billion, while creating an outlet from a saturated home market fought over with Tencent Holdings Ltd.
That would mark a shift for the internet conglomerate founded by billionaire William Ding that — till now — has mostly shunned deals. Yet the more immediate challenge may be figuring out the alien rhythms of non-Chinese players. Despite being among the first wave of mainland internet companies to debut in the US — at the height of the dotcom bubble — NetEase is still very much confined to home.
“Whenever we demonstrate our titles worldwide, people can see our self-made titles have very high production values,” Wang said in an interview. “But the problem is that while we may make very good games, we are not familiar with the rhythm of overseas users, their ways of playing games.”
Investors are projecting 46 percent revenue growth when the company reports earnings. That’s half the pace from a year earlier but still indicative of the effectiveness with which it’s employed a mix of lifestyle, entertainment and news to create China’s second-largest online portal. It logged more than 8.3 billion page views in June, lagging only Tencent’s QQ in China. The Hangzhou-based company remains best-known for bringing titles like Overwatch and Starcraft to local players. And with the stock on pace for its fifth straight annual gain, its market value has overtaken stalwarts such as Electronic Arts Inc.
While it still plays second-fiddle to Tencent in gaming, self-developed hits such as Westward Journey have helped it outpace its larger rival’s market gains over the past half-decade.
One way to galvanize growth is to seek out foreign markets. Just as American giants from Google to Uber have failed in the world’s most populous country, Chinese companies have so far struggled to make their mark abroad. Yet NetEase is bent on making it in the US, while Tencent itself prepares to quicken its overseas operations by bringing its biggest hit, Honour of Kings, to Americans.
Win or lose, their ambitions could have implications for a games industry NewZoo estimates will be worth $109 billion this year — bigger than Hollywood. Tencent’s already spent billions acquiring Supercell Oy and Riot Games Inc., picking up super-franchises Clash of Clans and League of Legends. NetEase is now looking over its own potential targets, Wang said.
“The Chinese market represents slightly over a quarter of the world’s $108.9 billion in gaming revenues,” said Jelle Kooistra, NewZoo’s head of product development in mobile. “Although that is very significant, it still leaves an even greater opportunity overseas.”