Chinese gaming giant NetEase pushes for major overseas growth with new battle royale title

GUANGZHOU/HANGZHOU, China — NetEase is gearing up to release a major game it hopes will boost 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 bosses of the technology giant’s video games business, laid out the company’s plans for growing revenue overseas. He also talked about NetEase dipping its toes into new areas including console and cloud gaming.

The push overseas comes at a time when Chinese regulators are scrutinizing the country’s technology giants and as concerns over a further crackdown on the gaming sector rise.

On Thursday, NetEase will release “Naraka: Bladepoint” globally, a 60-player action battle royale style game in which gamers compete to be the last player standing. Other popular games in the genre include “Fortnite,” for example.

“Naraka: Bladepoint” is targeting international gamers. NetEase hopes that 50% of its gaming revenue will come from overseas in the future, up from around 10% now, Hu said.

To achieve that, NetEase is looking at using famous brands or intellectual property (IP) to tap overseas players. The Hangzhou-headquartered company is developing games based on J.R.R. Tolkien’s epic ”The Lord of the Rings” as well as J.K. Rowling’s “Harry Potter” series.

The second part of the strategy involves releasing games of genres popular outside of China. That’s where “Naraka: Bladepoint” comes in.

It combines Chinese culture with the battle royale gameplay known by players globally, according to Hu.

“We also try to combine Chinese traditional culture with game genres that more western gamers are familiar with, to create novel games,” Hu told CNBC, according to a translation of his Mandarin comments.

He said western gamers “won’t find it hard to play the game, while they can be interested in eastern cultures. This can create brand-new experience for western gamers.”

NetEase has not been as aggressive so far on its international expansion like Tencent has. The latter has focused on a strategy of acquiring major gaming companies like “League of Legends” maker Riot Games, as well as taking stakes in many other studios.

NetEase, meanwhile, has focused on minority stakes in companies around the world such as Niantic, which makes “Pokemon Go.”

Hu said the company is continuing to look for investments and partnerships internationally.

“We are looking for overseas partners in terms of game R&D (research and development) and releasing (games) through direct investment or cooperation,” Hu said.

Chinese game developers like NetEase and Tencent have typically been strong in 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 up until 2014. As a result, Chinese developers poured their efforts into other segments of the market.

That’s beginning to change.

NetEase confirmed it is working on a console version of “Naraka: Bladepoint” but did not give a timeline for its release.

The appeal is clear. Consoles, including hardware and software, accounted for just over 4% of China’s total games market in 2020, according to market intelligence firm Niko Partners. But in 2021, consoles are expected to account for 28% of the $175.8 billion global games market, according to Newzoo, another gaming research company.

That’s why making console games are a way for Chinese developers to appeal to international players.

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 console game production.

“Our Sakura Studio in Japan and (the studio) in Montreal are dedicated to developing games on consoles, as one third of overseas market share is taken by console games,” Hu said, adding 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. Players can effectively stream games to a device just like they would a movie on Netflix.

U.S. technology giants Google, Facebook, Amazon and Microsoft have all launched cloud-gaming services.

NetEase began testing its own cloud-gaming services in 2019 and “Naraka: Bladepoint” is on the service. But Hu also said that the company is open to working with other cloud gaming platforms in China as well as bringing the game to platforms internationally run by other companies.

“Naraka Bladepoint is actually an opportunity for other cloud gaming platforms … There’re many features of cloud gaming fitting in this game. I welcome cloud gaming platforms to work with us,” Hu said.

China’s gaming industry has developed rapidly in the past few years with a shifting regulatory landscape and emerging competition.

Tencent and NetEase dominate the industry, but more recently, TikTok owner ByteDance has also entered the foray.

“We are confident that we are sufficiently prepared for challenges based on our development capabilities,” Hu said in response to a question about rising competition.

Meanwhile, gaming companies continue to contend with a tough regulatory landscape.

In 2018, Chinese regulators froze the approval of new video game releases over concerns about eye problems among children. Regulators are also still concerned about video game addiction among kids under the age of 18.

Last week, an affiliate publication of China’s official Xinhua newspaper, posted an article that branded gaming as “opium.” The article called on further restrictions for the gaming industry to prevent addiction and other negative effects on children.

But the article was later taken down and republished with a new headline and references to “opium” were removed, hinting that it may have not reflected the official view from Beijing.

CNBC’s interview with NetEase’s Hu took place before the article criticizing gaming came out. But in response to a question about regulation, Hu said such rules on the gaming industry are “necessary.”

“Big companies such as Netease and Tencent actually welcome such regulatory operations. Regulation in turn pushes us to promote our product quality,” Hu said.

“(Regulation) is an issue we all need to face, but I’m not worried that it will cause actual influence on us. It instead pushes us to create better products.”

— Additional reporting by CNBC’s Iris Wang.