NetEase has tripled its net income year-over-year and has sights on international expansion. Niko Partners' Daniel Ahmad says Minecraft's achievement in China is 'extremely impressive.'
China, even with its restrictive licensing policies, continues to be a huge market for the global games business, worth almost $31 billion in 2018 according to Niko Partners. Online game company NetEase is certainly one of the major contributors to the region’s growth, and the firm has just reported another very solid quarter with big gains in both revenues and net income to kick off its 2019 fiscal year.
“We are pleased to begin the year with a strong quarter. Our total net revenues grew robustly by 30% and our net income more than tripled year-over-year,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “Online game services revenues continued to grow steadily with the support of a diversified portfolio and impressive performances from all of our leading titles.”
Net revenues for the first quarter came to RMB (Chinese Yuan) 18,356.2 million ($2.7 billion) while NetEase saw its net income jump to RMB 2,382.1 million ($354.9 million). The publisher cited strong performances from titles like Night Falls: Survival, Onmyoji, and Invincible, along with steady performances from its Fantasy Westward Journey and New Westward Journey Online series, which also saw new expansion packs released.
One particularly impressive achievement during the quarter came from Minecraft, which NetEase began publishing in China in August 2017. In less than a year, the game racked up 100 million registered users in China, and as NetEase reported, that number now stands at 200 million users, not even two years since it launched. For a game that’s well over a decade old, that’s quite a feat, and it shows just how globally appealing Minecraft truly is.
“Minecraft’s 200 million registered user number is extremely impressive given the game has been on the market for less than two years. Only a handful of games have been able to reach 200 million users in such a time frame. [Tencent’s] Honor of Kings reached this milestone shortly after one year on the market. We note that the game was popular in China prior to official entry, which helped pave the way for demand that has contributed to the success of the licensed Chinese version,” Niko Partners’ Senior Analyst, Daniel Ahmad, commented to GameDaily.
Minecraft was launched in China before the country’s restrictive game policies were put in place. That doesn’t mean that the popular block-based title is immune to the nation’s censorship, however.
“The Chinese version of Minecraft is quite similar to the Western version, as the game content was benign anyway, in that it is aimed at younger players. The main changes generally involve the interface and localization for Chinese players. However, NetEase was recently fined RMB 50,000 by China’s National Office Against Pornographic and Illegal Publications after it was discovered that users were able to spread adult content in game through the rooms feature. The result was that NetEase deactivated the ability to rename rooms and implemented a stronger reporting policy to curb immoral content in the game,” Ahmad explained.
The fact that NetEase has been able to perform this well as the market continues to work through licensing pains actually makes the company’s first quarter even more impressive. Ahmad added that a number of other publishers “are still feeling the impact of the temporary game license approval freeze which ended in December 2018 [but NetEase] is diversifying its game development pipeline to create games in multiple genres and is working on global expansion through self developed titles and partnerships.”
NetEase CEO William Ding stressed that his company is making a concerted effort to expand beyond the MMORPG space and also into international markets. He specifically cited the “strong debuts’ of Night Falls: Survival and Cyber Hunter in Japan. Knives Out also has been popular in Japan, topping the iOS grossing chart in March and May, while Identity V reached Japan’s top 5 iOS grossing chart for the first time in April. Beyond that, NetEase is looking to launch Ancient Nocturne in Japan and Korea this year.
But will the Chinese giant’s ambitions lead it to take new steps in the West? The company opened a Western HQ back in 2015, but its business has been more about taking Western titles (such as those from Blizzard) and bringing them to China. That said, there’s more and more global thinking going into its product launches moving forward.
“NetEase has evolved significantly over the past couple of years and has shifted to a global game development approach for its new titles,” stressed Ahmad. “While previously focusing on developing games for China first, the company is now creating games with a global audience in mind with recent releases such as Cyber Hunter, a sci-fi Battle Royale game, showing that NetEase is able to develop and release games overseas prior to the China launch.
“We expect the company to grow its overseas revenue significantly over the next few years. In addition, as people look at Tencent and NetEase as the two gaming giants in China, NetEase has been able to stand out through its focus on high quality self-developed titles.”
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