NetEase plans to seek further partnerships with Microsoft and Activision Blizzard as it eyes overseas expansion, the company’s CEO Ding Lei said on a Thursday earnings call. 

Why it matters: NetEase is looking to expand its gaming business overseas as its domestic business faces regulatory uncertainty. As China’s second-largest gaming company, NetEase’s move is indicative of an industry trend.  

  • NetEase develops and operates many popular games in China, such as Minecraft, Onmyoji, and the phenomenally popular game Harry Potter: Magic Awakened. The company has a 17.5% share of the Chinese gaming market, while market leader Tencent has 51.5%, according to a 2019 Q1 dataset from iResearch, a Chinese consultancy firm.

Details: NetEase said it plans to expand its games outside of China. The company is also seeking to diversify its gaming offering, promising to build new games in the metaverse and for established consoles.

  • NetEase, a long-time partner of Microsoft and Activision Blizzard, said it hopes to further build on these relationships this year. NetEase has operated Minecraft, a sandbox game owned by Microsoft, in China since 2017. The company also plans to release Diablo Immortal, the world-famous game developed by Blizzard, in China this year. 
  • The company has focused more attention on foreign markets in recent months, cooperating with foreign game studios and hiring international talent. It also plans to release an international version of Harry Potter: Magic Awakened targeting foreign players this year. 
  • The company has also spoken of plans to develop games for consoles, a format less popular in China where most users play on mobile devices and PCs.
  • NetEase also plant to build metaverse features, hoping to harness its experience in building multiplayer online role-playing games to create immersive, 3D games for the much-buzzed online ecosystem.

Context: NetEase’s online game services reported RMB 17.4 billion in net revenue for 2021, a 29.8% yearly increase, making it the company’s fastest-growing unit, according to its Q4 earnings released on Thursday. The Q4 growth rate is almost double the gaming unit’s annual growth rate of 15%. 

  • Online game business accounts for 86.7% of NetEase’s profits, while Youdao, a translation service, accounted for 6%. 
  • China’s gaming industry is downsizing as regulators have frozen new game licenses. NetEase cut projects and laid off staff last year.
  • Microsoft announced mid-January that it will acquire Activision Blizzard in a $68.7 billion deal, the biggest merger in gaming history.

Ward Zhou is a tech reporter based in Shanghai. He covers stories about industry of digital content, hardware, and anything geek. Reach him via ward.zhou[a] or Twitter @zhounanyu.