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NetEase investment is bringing indies East

Simon Zhu offers insight into the company's recent investment strategy, including smaller studios like Second Dinner and thatgamecompany

In the late '90s and early 2000, when a number of Chinese companies made the decision to get into the games business, most of them picked publishing as an entrance point.

But not NetEase.

"From the very beginning, NetEase has had a very different path from all other Chinese game-related companies," says Simon Zhu, NetEase's general manager of strategic investment and partnership. "We were in the very few who started with in-house development, and we focused on one genre: MMORPGs. So as a developer, we have a lot of compassion for developers who share the same values, same visions as us."

Though there are numerous publishers in China now, NetEase is one of a handful of giants that has been making a number of overtures to bring foreign games to the Chinese market through investment and publishing deals. Zhu says that the main way NetEase stands out from these competitors is through that experience in development, along with an extremely critical eye as to what games it picks up.

"We don't have a budget to be deployed," he continues. "We don't want to stay competitive on this and that; we have no such agenda. It's more of an individual by individual approach. Last year, we invested in a few studios. They were very consistent, very production-driven or innovation-driven. We want to help the most innovative, high-quality developers unleash their potential."

So what studios fit the bill? One recent investment is in Second Dinner, an independent studio headed up by Hearthstone leads Hamilton Chu and Ben Brode. NetEase's long-standing Blizzard partnership was a major reason for Zhu's interest in the company, having already worked with them for over a decade to publish local versions of most of the company's major titles, including Hearthstone.

"Even between two individuals, 11 years is not a short period of time," notes Zhu. "Blizzard shares the same values as NetEase - we are all developers. We are all good at MMO. We all believe in shooting for something evergreen, everlasting. So we have a true admiration for Blizzard. And the partnership with them has helped us build a good brand in their community as well."

"We don't have a budget to be deployed. We don't want to stay competitive on this and that; we have no such agenda"

Simon Zhu

Zhu says that Hearthstone in particular had been an important title to him, and led directly to him reaching out to Chu and Brode when they announced Second Dinner last year.

"I travel a lot. Whenever I'm in a taxi, or waiting for an airplane, or during the time before sleep, I always play Hearthstone. I did the math - ever year I spend 700 to 1000 hours on Hearthstone. So when they announced they were leaving, of course, we understood everyone was talking to them. But I wanted our channel to talk to them. They had a lot of choice, but I think our long-term trust and passion and our deep understanding of the game they created that helped them make the decision to work with us."

Another of NetEase's recent investments has been in Journey studio thatgamecompany, which is currently working on a new title, Sky. NetEase will bring Sky to China, with a release focused first on mobile. Both the market and the platform are relatively new frontiers for studio founder Jenova Chen.

"Part of the reason I moved away from consoles is that I grew up in China," Chen says. "It's my home country, but no one in China could play the games I created for the first six years of thatgamecompany. There are smuggled consoles in the country, but the majority of people never had access to what I would consider to be the frontier of gaming.

Sky is thatgamecompany's first title that is mobile first, though Chen says it is being built as a multi-platform game

Sky is thatgamecompany's first title that is mobile first, though Chen says it is being built as a multi-platform game

"So when I finished our contract with Sony I thought, 'Who should I make games for? Who is the audience?' We want to make games for all human beings, not just hardcore players. Our games have always been more about art rather than the action and competition. So we felt it was very important to bring our game to a platform that all human beings have access to, which in this case was a mobile platform. And China is the number one market for mobile, so I had to think about who would represent thatgamecompany and our game to the Chinese players."

Chen sees publishing Sky in China not just as an opportunity to reach the audience of his home country, but also as a good way to take the temperature of the industry for games like his.

"Asia's usually about two to three years ahead of the rest of the world in terms of what business models for games are popular," he says. "Anything that happens in the Western market, you can find similar things that already existed in Asia. I'll give you an example: In the Western market, we are still worrying about the initial download size of a package. On the App Store, they would limit your app to be less than 150 MB or else you can't download it without WiFi. Everyone in the Western market is talking about it, saying, 'You have to keep your package small so you can be downloaded by more people and be successful, then you can stream the rest later.'

"But in Asia, because people are so used to playing games on mobile and WiFi now and the internet is so fast, if you look at the Top 50 games in the Asian market, most of them are bigger than 800MB. Some of them are even in GB. But it still does not limit them from being top-grossing and successful. They found the impact of the package size has basically no influence in terms of whether the game is successful or not, and in fact some of the games that made their initial package download small and then gradually streamed the content irritated players, who thought they were losing data. They'd rather download the whole thing up front."

"Asia's usually about two to three years ahead of the rest of the world in terms of what business models for games are popular"

Jenova Chen

Though Chen says some elements of publishing in China will be easier with the assistance of NetEase, others are a bit more troublesome, especially for a game like Sky.

"Most Chinese gamers have never seen console games or played games that are considered more artistic," he says. "So how will they react to a game that is not what they're used to seeing? When we launched Flower in 2009, a lot of the media was saying, 'This is not even a game. This is just an interactive screensaver.' But then a couple of years later, Flower was ported to PlayStation 4. Exactly the same game, no changes. Then they reviewed PS4 Flower, and the Metacritic score was much higher. Suddenly after four or five years, people are caught up with games being art.

"So for games like ours to show up in China, there are a lot of challenges in terms of how we market them to a gamer who hasn't seen this coming. It requires a lot of understanding about the local market, and for that I have to trust the publishers in China to figure out the messaging."

Other factors aside, Chen's trust is placed in someone who is a staunch advocate for the style of game he makes despite its relative novelty in the Chinese market. Zhu believes that a rising younger generation of players - those born between roughly 1990 to 2000 - are shaping a new taste in games in the country that it didn't have previously. While he says older generations were generally happy to accept most styles of games regardless of genre or even whether or not the game was pirated, younger players have more discerning tastes.

"If you look at [the younger generation of players], they see playing a good game as equally important to reading a book, watching a movie, or watching a TV series. They know what they want - they care about story, mechanics, and if the developer takes the game seriously or not. If the game has a bug, is it fixed? Or if there's a cheater, is the cheater being punished? That's a major trend I see."

"If you look at [the younger generation of players], they see playing a good game as equally important to reading a book, watching a movie, or watching a TV series"

Simon Zhu

It's a trend Zhu believes Sky will fit right into.

"Jenova basically created a genre," he says. "He brought that emotional experience which people believe only a great movie can bring to interactive entertainment. The games he created previously - like Flower, Flow, Journey - touched people's hearts. Many years ago, when Jenova shared with me his vision that he wanted to bring that emotional experience to 100 million people, at the time I was not responsible for investment at NetEase. But I felt a compelling obligation to help him out.

"The games he has already shipped, and the game Sky he has been working on for so long -- seven years -- you can see there's a lot of original innovation. A lot of fundamental thinking, and staying true to his own expression. We appreciate that. We buy that he's doing something beautiful and great for the world - it's meaningful entertainment."

Though one of Zhu's main focuses as a director of investment involves bringing games to NetEase's home market, he also has a global view for the company's future. He hopes that by forming connections both with AAA companies like Blizzard and independent developers like Second Dinner and thatgamecompany, that NetEase can eventually take that knowledge back to its roots and become known not just as a Chinese publisher, but as a global developer.

"We want to create content based on universal values and mainstream culture," he says. "But of course today, we are very local and there are a lot of things we don't know. Through investor partnerships, we learn from these great developer-creators. We gain a more open mindset. For example, many years ago, we didn't know much about storytelling. Today, we know very little still, but it's much better than three years ago. Through partnerships, we know more, and we hope one day we can create games that people outside China will love."

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