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

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’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.

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.

“We may be approaching a point where Tencent and NetEase begin to scrutinise their returns more closely,” Bernstein analyst Robin Zhu said. “Globally, the video gaming industry has retrenched post-Covid, and many large publishers have reduced headcount or scaled back investments. Anecdotally, the Japanese developers’ desire to tightly control what can be done with their IP