Tencent, NetEase rethink Japan investments after yielding few blockbuster video games

Chinese gaming giants are reconsidering their spending in Japanese studios amid a revival in the Chinese market, led by Black Myth: Wukong

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An advertisement for the Chinese-made video game Black Myth: Wukong in a Sony store in Shanghai. Photo: EPA-EFE

Published: 11:00am, 30 Aug 2024

Tencent Holdings and NetEase are reconsidering or scaling back many of their investments in Japanese studios, after years of spending yielded few hit games and the Chinese market staged a comeback.

NetEase has cut all but a handful of jobs at its Ouka studio in Tokyo, according to people familiar with the matter. It intends to shut the Shibuya outfit, which had opened with much fanfare in 2020 and gone on to hire veterans from big names such as Capcom and Bandai Namco Holdings. The few that remain will oversee the roll-out of its final games, before the studio winds down.

NetEase’s far larger rival, Tencent, is also reconsidering the pace and scale of investments in the country, the people said, asking not to be named as the details are not public. It has already backed off from at least several funding commitments for new games, the people said.

The previously unreported moves to cut back staff and spending in Japan follow years of investment in the world’s No 3 gaming market, with not much to show for it. China’s two dominant game publishers sought to escape a stagnating home market by making a series of bets in Japan since 2020, looking to incubate the next great entertainment hits to bring back home.

In one of the more prominent deals, Tencent in 2023 secured the rights to develop and publish the mobile edition of Bandai’s Blue Protocol, which it hoped to build into a franchise. But this week, its Japanese partner said it will end support for the game in 2025.

Shenzhen-based Tencent, the world’s biggest games distributor, has been frustrated by its interactions with Japanese developers, in part because of a mismatch in ambition between the Chinese firm and local partners, the people said. Local creators are adept at smaller-scale, lower-risk projects, whereas Tencent went to Japan in search of tentpole franchises to take global, one of the people said. Since late last year, Tencent has been setting higher goals and expectations when offering money to studios, according to the people.