Bloomberg has come out with a blockbuster report about what’s happening with NetEase.
Alarm bells started ringing about the Chinese game company after fans discovered that they suddenly shut down the Seattle studio working on Marvel Rivals. NetEase belatedly confirmed the layoffs. Subsequently, speculation and analysis started spreading around that NetEase was becoming risk averse towards investments outside China. But as it turns out, that wasn’t the full picture.
As reported by Bloomberg, NetEase CEO William Ding has chosen to restructure the company’s entire business. Many projects in China are at end-of-support status or were quietly cancelled over the last year. Bloomberg also cited the resignation of Xiaojun Hui as as an example. Hui was previously in a managerial position in Netease, and he still works for the company in a smaller role.
While Bloomberg didn’t confirm any layoffs happening in NetEase’s China studios, the picture around the world is generally the same. Ding wants to focus on a smaller set of high revenue games, and so NetEase has closed or idled game studios and laid off hundreds. And the company will continue to cut their investments in games and studios in the coming months.
The reason for Ding’s move is also transparent. While he decided to start investing in the games business globally from 2018, the company has seen their growth drop in the succeeding quarters.
To give you a better picture, everyone knows NetEase had a huge hit last December with the launch of Marvel Rivals. Niko Partners analyst Zeng Xiaofeng estimates that the game made $ 200 million in revenue.
NetEase reported that December quarter’s revenue increasing by 1.5 %. However, its gross profit fell by 2.6 %. To put it quite plainly, Ding has lost interest in diversifying NetEase’s portfolio, and now wants to focus on plans to get their profitability back on track.
NetEase did reach back to Bloomberg, and mostly downplayed certain claims in the report. While Bloomberg’s sources claim Ding is now only interested in games that can generate hundreds of millions in dollars, the company claimed that they don’t set “arbitrary blanket numbers for determining the viability of a new game.”
Bloomberg’s sources do not paint a flattering picture of the CEO, who claims that he changes his mind frequently and is hence considered volatile. Although he doesn’t have time to play games, he allegedly boasts about being able to tell how well a game works by just watching it for a couple of seconds.
Subsequently, Ding’s moves are seen as very risky, the business equivalent of a government enacting austerity measures. If Ding is able to report a return to clear profitability as a result of this, he will be able to defend these decisions to shareholders. If it only ends up sinking the company further, Ding will ruin his reputation and legacy, but there’s more likely to be more immediate consequences as the man running the company.
As of right now, what we have to reckon with is that NetEase very quickly put themselves in the kind of position Western game giants like Microsoft and Embracer are in. They had the power to invest in and grow dozens of game studios. Subsequently, they have the power to now take away those games, and developer jobs. As we have now learned, NetEase is no different than Microsoft or Embracer was when it comes to this.
