NetEase Has It Wrong On E-Sports Despite Success In Mobile Gaming

(Chinese Version)

According to NetEase’s Q1 Earnings, the company’s revenue has grown by 72.3% year-on-year to ￥13.641 billion. Its net profit has jumped by 62.6% year-on-year to ￥4.336 billion. Among all businesses, the gaming business has generated a revenue of￥10.735 billion, a year-on-year growth of 78.5%, maintaining a fast growth.

NetEase states in the report that driven by self-developed mobile gaming business, the company has achieved a great performance in Q1. “We will continue to innovate on the content and acquire more users,” NetEase said.

From the past PC client gaming era to today’s mobile gaming era, NetEase has transformed into the only matching force in the Chinese gaming sector that can compete directly with Tencent. This is also reflected by the two companies’ performance on the App Store, as the pair nearly conquers the Top 10 Chart.

However, it’s evident that the Chinese gaming industry is quickly entering the e-sports era, where PC and mobile games would gradually enter the e-sports realm. As the second largest gaming company in China, however, NetEase is quite lost in this new trend in the industry.

In the mobile gaming sector, though started late, NetEase was still able to keep up the pace by rolling out quality games, eventually possessing the power to compete with Tencent. But can NetEase achieve similar success in e-sports?

In our previous perception, e-sports was created to serve the games themselves. That said, e-sports is expected to promote the gaming products, maintain game popularity, and help out the marketing campaigns etc.

In the early phase of the e-sports industry, both Valve and Blizzard Entertainment both shared the similar thought on e-sports. When the industry was dominated by Blizzard Entertainment’s StarCraft and Warcraft, a great number of third-party e-sports events emerged. However, Blizzard Entertainment itself had never held any official e-sports events. It’s only carnival event is more of an invitational tournament for fans to watch.

Image Credit: tpreview

Third-party competitions’ goal at the core is not profit. For instance, WCG, the Olympics in the e-sports field, has been losing money for years. It’s directed by Samsung’s display department and later supported by Samsung’s smartphone department. Its main goal is to promote Samsung’s products. At nature, it’s no different from advertisements on TV or outdoors advertisements.

Blizzard believes that e-sports competitions are money burners. Currently, there are a great number of third-party e-sports events that can promote and serve the games, and therefore there is no need to establish e-sports operation.

However, Blizzard is, in fact, making e-sports operation and has established an e-sports department. The gaming company has also acquired MLG. Most significantly, Blizzard has stated in the user terms that any e-sports event involving Blizzard’s games should be authorized by Blizzard.

Whether it’s Blizzard or other gaming companies, many of them have shown major interest in e-sports, recognizing its great commercial potential in this era.

There are numerous data reports that can confirm the commercial benefits of the e-sports industry.

For instance, China’s gaming industry cashed in ￥165.57 billion in 2016 with a gamer base of 566 million. The income showed a 17.7% surge while the gamer base showed a 5.9% growth.

It’s apparent that whether it’s looking from the market scale, or user base, the Chinese gaming market is in fact saturating. The explosion in mobile gaming contributed by the demographic dividend is fading and is coming to an end.

That said, the Chinese gaming industry is not going to have much shift in the near future. The rapid rise of the VR gaming industry has already helped the Chinese gaming industry reach the ceiling of the gaming market.

After reaching the ceiling, once a gaming company’s performance grows by 1%, that would mean it has taken that 1% performance from other companies. The competition will only get fiercer.

In this case, gaming companies are eyeing other directions for growth. The greater entertainment market is one of the directions, while e-sports has the potential to be a growth driver.

As the second largest gaming company in China, NetEase would definitely notice the trend. To keep up with the trend, NetEase has initiated its greater entertainment business, already having success in the online fiction, animation, and music sector. However, NetEase hasn’t been able to gain momentum in the e-sports sector. So far NetEase has been more of an observer.

In fact, NetEase does have a few moves going on in the e-sports sector. On April 2nd, 2013, NetEase held an e-sports strategic press conference at the National Stadium in Beijing, where Ding Lei announced NetEase’s e-sports strategy.

At that time, NetEase announced that it would team up with Blizzard Entertainment on War3 and DOTA, while launching self-developed strategy games, with an emphasis on the MOBA game Heroes of Kingdoms.
The e-sports platform dj.163.com from NetEase that later came online was powered by a ￥30 million fund.

Ding Lei promised continuous funding to support the e-sports development and announced to launch the global e-sports event NET in late 2017. The event has regular programs like Heroes of Kingdoms, StarCraft 2, WarCraft 3 and DOTA.

Image Credit: Gamecrate

However, NetEase’s e-sports strategy lacks diversity and it’s destined to fail. Heroes of Kingdoms couldn’t achieve an outstanding performance in the market under sieged by DOTA2 and League of Legends. Heroes of Kingdoms doesn’t have many livestream shows on NetEase’s livestreaming platform NetEase CC.

Blizzard, a gaming giant with tremendous gaming resources, doesn’t help out NetEase either under these circumstances. For instance, dj.163.com, which NetEase has been putting a lot of hopes on, has changed to dz.163.com. Blizzard hasn’t authorized NetEase any of its game’s e-sports right either.

That being said, even though NetEase is the operator of almost every Blizzard game in China, the Chinese company’s role remains as a game operator. NetEase can not decide to include Blizzard’s games in e-sports events.

As a matter of fact, any company that wants to hold e-sports events involving Blizzard’s games, has to contact Blizzard’s HQ instead of Blizzard’s partner in China, NetEase.

In March this year, Overwatch’s professional league OWPS was held. It’s another e-sports event cooperation with Shanghai Project Banana after the APAC.

NetEase wasn’t involved in the two e-sports events as Shanghai Project Banana directly worked with Blizzard’s HQ in the U.S.

Blizzard’s action was not surprising. On one hand, e-sports events are at core different from games.

According to China’s policies, overseas games have to have a Chinese partner to operate in the country. But there isn’t such restriction for e-sports events.

On the other hand, holding onto e-sports rights is beneficial for quality control. It prevents the chaotic situation where the developer, the operating agent and the e-sports event organizer to fight over disagreements.

NetEase, therefore, lost the only advantage it had. It has no control over all those popular games when it comes to e-sports. And NetEase’s original plan was tap into this realm through Blizzard’s products.

NetEase is a replaceable role in terms of e-sports like Project Banana and NeoTV. There is no incentive for Blizzard to stick to NetEase.

It’s probable that professional e-sports organizers like Project Banana are better options than NetEase since it has little experience in the field.

It’s fair to say that Heroes of Kingdoms had a disastrous performance. In addition, Blizzard’s attitude towards e-sports also made NetEase an observer in the e-sports era.

However, there is no denying that NetEase itself is to blame partially for the failure. The result was not mainly contributed by Heroes of Kingdoms, but more of NetEase’s own strategies.

For a long time, NetEase has been focusing on steady growth and money making businesses. That’s how NetEase climbed to today’s position and also how it missed many opportunities.

Under such strategies, it’s natural for NetEase to neglect the e-sports business. On one hand, e-sports will cost money burn in the early phase. On the other, NetEase is still considering the risks presented by the uncertainties of China’s policies on e-sports.

In earlier years, NetEase’s move had been conservative but we couldn’t really say it had taken a bad move. However, looking from today’s perspective, NetEase had it wrong.

The recent success of Tencent’s Glory of the Champions (王者荣耀) has been a big hit in NetEase’s face. It breaks the NetEase’s dominance in the sector created by Fantasy Westward Journey (梦幻西游). Although NetEase’s Onmyoji (阴阳师) had made huge success last year, Glory of the Champions is still the leading product in the market.

Users and the industry trend have shifted from Onmyoji to Glory of the Champions, forcing Ding Lei to reiterate the appeal of Onmyoji on users during the Q1 Earnings phone meeting.

For NetEase, it can still win over the market with quality games, but it appears to have fewer advantages in the e-sports sector.

E-sports and the gaming sector are very different from each other at core. NetEase can apply its past experience in exploring the mobile gaming sector. But when it comes to e-sports, it’s unlikely to succeed fast since it takes time to nurture e-sports organizations. Even Tencent had to endure years of criticisms to achieve today’s success.

Perhaps NetEase’s experience will no longer work in the e-sports field even if the company had rolled out relevant successful products. It would take years for NetEase to learn about operating e-sports events. But NetEast got little time to do that.

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The article is published with authorization from the author @Ding Peng GameWower, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.

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