Image source: @VisualChina
Text | Deep burning, author | Li Qiuhan, ed Wei Jia
On May 25, NetEase released its financial report for the first quarter of 2023.
The data is doing well. According to the financial report, NetEase's net income was 25 billion yuan, an increase of 6.3% year-on-year, and the adjusted net profit attributable to the parent was 7.56 billion yuan, a year-on-year increase of 47.8%, achieving the largest increase in a year.
Look closely, growth is mainly based on games. NetEase Cloud Music's social entertainment business is also unreliable, not continuing the previous substantial growth momentum, Q1 net income of 2 billion yuan, down 5.2% year-on-year. NetEase Youdao has also been "in dire straits" recently, with news of personnel optimization in the hardware department, and Q1 net income was 1.2 billion yuan, a year-on-year decrease of 3.1%. Only NetEase games and related value-added services increased its net revenue by 7.6% year-on-year to 20.1 billion yuan, accounting for 80% of NetEase's total revenue.
Games are the hope of the "whole village", and with the release of the version number, NetEase Games has also ushered in the dawn. But in fact, it has also had a lot of troubles this year.
On January 24, the cooperation between NetEase and Blizzard officially expired, and the war of words between the two has not completely stopped. The outside world is most concerned about how much money NetEase will lose after losing Blizzard. From the current financial data, the impact is not large, because Q1 has the blockbuster game "Egg Party", and the data is good.
But as a casual game, it's hard to say how long Egg Party will be popular. According to Qimai data, since April, its ranking, download estimate, and revenue estimate have all shown a downward trend.
At the same time, where is NetEase's next blockbuster game, there are also question marks. At the NetEase Game 520 conference just past, NetEase announced 11 new games. More than one NetEase game employee mentioned to Shen Ran that the new game at this conference was actually lackluster.
From the perspective of the external environment, the position of the second oldest in the industry has been shaken.
Among the world's top 20 highest-grossing games announced by App magic in April, there are Tencent's "Honor of Kings", Mihayou's "Genshin", and its new game "Honkai: Star Dome Railway", as well as the games of Lingxi Interactive Entertainment and Sanqi Interactive Entertainment, but there is no NetEase's games.
In the April 2023 revenue ranking of Chinese mobile game publishers released by Sensor Tower, NetEase was still surpassed by Mihayou and ranked third.
More than one NetEase game employee mentioned that as the CEO of NetEase, Ding Lei is personally eyeing the game business this year. A NetEase game middle layer told Shen Ran, "NetEase needs the next explosive product, so the internal pressure is relatively large", he has a feeling, "the company is changing".
Existing games, what is the ability to attract money?
According to the financial report, in Q1 2023, 92.7% of the 20.1 billion yuan net income of NetEase games and related value-added services came from online games, of which 72.3% came from mobile games.
In other words, NetEase's net revenue from online games was 18.6 billion yuan, and the net revenue from mobile games was 13.45 billion yuan, a year-on-year increase of 16.3%, which may mainly come from the contribution of "Egg Party". Before its appearance, NetEase mobile game revenue growth showed a downward trend.
The net income of end-travel was 5.15 billion yuan, 560 million less than the same period last year, down nearly 10% year-on-year, the first decline in nearly a year. The reason behind it should be related to Blizzard's breakup, and the games involved such as "World of Warcraft" and "Hearthstone" are mainly end games.
NetEase Mobile Game and End Game Revenue Change Source / Deep Burn Mapping
In the financial report, the repeatedly mentioned "Egg Boy Party" is the biggest contributor.
This is a Party Game (party game), players can challenge various levels with friends, or go to the "Egg Workshop" to design a map for other players to play, the game gathers a lot of female players, as well as post-00s and even post-10s young players. This game is personally watched by Ding Lei, and it has received great support and great returns.
However, how long it can last is a question mark.
According to Seven Mai data, "Egg Party" basically topped the list of free games from December 1, 2022, until early April, which is a rare achievement for a casual game. But from April, the downward trend began. On May 18, it was ranked 9th on the free-to-play list.
On the iPhone device side, the estimated number of downloads was 3.46 million in March and 2.76 million in April, down 20%; Revenue estimates were $23.45 million from March 1 to 24, $20.29 million from April 1 to 24, and $11.67 million from May 1 to 24, continuing to decline. On May 18, single-day revenue fell to $240,000, the lowest point this year. On the Android side, there is no publicly available data.
Estimated revenue trend of "Egg Party" in the past three months Source / Seven Mai data
"The momentum of "Egg Party" is already relatively weak," a former NetEase game employee told Shen Ran.
Previously, Shen Ran mentioned in the report that this kind of casual game needs the support of large DAU and faces the problem of fast content consumption. Ding Lei said to do it as a ten-year game, and more than one industry insider said that there are not many such precedents for casual games, and it is very difficult to achieve.
Let's take a look at other games. According to records on Sensor Tower, NetEase has more than 100 games, with a large number and a thick foundation. The top 10 games in April are "Egg Party", "Fantasy Westward Journey", "Land's Coast", "Westward Journey", "Onmyoji", "Pro Evolution Soccer", "Qiannu Ghost", "Diablo: Immortal", "Westward Journey: Return", and "Endless Lagrange". Among them, "Fantasy Westward Journey", which was launched in 2003, still contributes to high flow.
According to Qimai data, on the iPhone side, as of May 25, 8 games except "Westward Journey" and "Onmyoji" have different degrees of decline in revenue estimates.
Recent revenue estimates of some NetEase games Source / Qimai Data (Note: The third picture is the data of "Westward Journey: Return")
Among them, "Fantasy Westward Journey", which has always been strong, has been significantly lower than in 2022 since the first half of 2023. The new game "Westward Journey: Homecoming", which has just been launched this year, has seen a sharp decline in downloads and turnover.
Of course, these are all compared with the past NetEase, after all, any of these games are enough for some small and medium-sized companies to "eat" for a long time.
New games, can you play more?
There are many games that will be launched soon, and NetEase has quite a few.
According to deep-burn statistics, as of May this year, NetEase has obtained 4 games with version numbers, namely "Extraordinary Vanguard", "Fantasy Westward Journey: Time and Space", "Mission Zero" and "Seven Days World". There are 3 imported games, namely "Fantasy Life", "Raid: Shadow Legend" and "Power Dance Company: National Party".
At the 520 conference, NetEase Games released 11 new games. However, more than one NetEase game employee lamented that there was something lackluster.
This conference, the most concerned is "Against the Water and Cold" that will be launched on June 30, which is a mobile game transformed from an ancient martial arts endgame, this front-end game has already had a good response, for mobile games, NetEase has invested more, has publicly stated that the team has more than 400 people, and has consumed more than 700 million budgets before it is officially launched.
"This is a popular scheduled project, depending on what level of explosive it becomes", Lu Han, who is close to NetEase Games, said, but he also mentioned that this kind of traditional martial arts theme is already a category with limited imagination space, "the audience is locked in the post-80s, post-90s, have feelings for martial arts, post-95s, post-00s may not be much interested, and it is unlikely to expand the circle outside the traditional end tour."
Other than that, there weren't actually many eye-catching games at the launch.
Some games are a bit "old".
Lu Han introduced that "Three Kingdoms Record" is an old game for some years, "was developed by a Korean company around 2016 and 2017", for various reasons, the game has been refrigerated, and later obtained a version number, "There is a feeling that it has to go on, in fact, it is no longer suitable for the current market, at that time, the game on the mobile phone was relatively simple, and the experience brought to players was simple."
Some games look mediocre.
Zhang Liang, an employee of NetEase Games, said that "Codename 56" is advertised as a project made by hundreds of millions, "said to be a 'wasteland' style, but it is made of an MMO (massively multiplayer online game) set." A former NetEase game employee also said that the positioning of the "apocalyptic wasteland" theme is good, "but the actual screen and gameplay released are not very good."
Some games have been launched overseas, and there is not much room for imagination in China.
The survival shooter mobile game "Extraordinary Vanguard" has been launched overseas, and the results were not eye-catching before. The imported game "Raid: Shadow Legend" is a card game that attracts good gold overseas, but "'Western magic skin' has not been popular in China," Lu Han said.
They regret that some projects that looked like potential were cut in the context of last year's uncertain version situation and the company's cost reduction and efficiency increase. For example, "Codename: World", which is derived from Onmyoji IP, "was considered to be a 3A work that benchmarked against "Genshin" at the time, but it was later removed", Lu Han said.
At this conference, the biggest action is to implement the UGC model adopted by "Egg Party" into a number of its game products, but this also looks like an attempt to find inspiration and obtain content among players.
In addition, going overseas has always been regarded as an incremental source of NetEase games.
"At the level of self-research and development, the growth is not as expected", before employees introduced Shen Ran, NetEase Games went overseas, and the project was a little green. Previously hot head products, such as "Wilderness Action", "The Fifth Personality" and "After Tomorrow", have declined to varying degrees.
The route of relying on IP to leverage the global market has also encountered difficulties. "Internal hesitation has begun", a person familiar with the matter said, NetEase found that under this model, the development cost is higher, the research and development cycle is larger, and the IP share with the copyright owner is also shared, even if the project is successfully released, it will not make much money, "NetEase cut some mobile games last year."
For going overseas, NetEase Games is both important and cautious.
In the Q1 earnings report, NetEase mentioned that "Egg Boy Party" will go to sea, which means that it will be head-to-head with the same type of "Jelly Guys".
The international version of "Harry Potter: Magical Awakening", postponed from last year's Q3, is finally scheduled to be launched this summer, the game has a turnover of more than 1 billion yuan in the first month, but it didn't take long for the popularity of word of mouth to collapse, and now ranks 197th on the seven-microphone data best-selling list. A person familiar with the matter said that the reason why it has not been sent overseas is because it is worried about repeating the mistakes of the rapid decline in the domestic market, so there is a long and repeated adjustment period.
"Harry Potter: Magical Awakening" domestic iPhone revenue estimate trend Source / Seven Mai data
At present, the overseas market remains to be seen.
NetEase Games, a little anxious?
NetEase Games, there have been some changes this year.
The biggest change is that NetEase CEO Ding Lei personally went down to focus on the business. An employee introduced that NetEase Games is divided into NetEase Interactive Entertainment, NetEase Thunder Fire two systems, of which NetEase Interactive Entertainment is the main source of profit for NetEase Mobile Games, and this year there was once news of the departure of two helmsmen Ding Ding (referring to Ding Yingfeng) and Tianyou (referring to Hui Xiaojun), the former is responsible for the Guangzhou area, the latter is responsible for Hangzhou and Shanghai. However, a person familiar with the matter denied this statement to Shen Ran, saying that neither of them left the company, but there were some changes, and "God You is no longer in charge of domestic business."
Not only that, more than one NetEase game employee mentioned that there have been more reports this year.
Some employees said that since mid-to-late December last year, the middle and senior management have increased their efforts to report upward, and some departments rarely reported business to Ding Lei, but they also clearly added weekly and monthly reports. Zhang Liang's ridicule of Shen Ran has now become a "daily newspaper".
A NetEase game employee based in Guangzhou mentioned that "in the past, there was usually only quarterly and annual reporting to the boss (Ding Lei)", but this year, Ding Lei has come to Guangzhou more often.
The reason why there are more reports, he explained, the boss personally came to the game to understand the progress of each product more accurately, "the process of communicating the progress becomes a more formal report."
Hands-on intentions are good, but some employees also feel pressured because of it.
Some employees said, "Some reports are out of touch with specific businesses, and some are not good to quantify all the time" and "In order to satisfy the leadership of leaders and leaders, it is necessary to create some content when reporting." On workplace social media, many people also complained about this, and some employees mentioned that they had to deal with various reports at the top and manage business production at the bottom, which was very stressful.
Lu Han explained that this is Ding Lei's hope that the game can be more innovative, "He wants to change the business thinking and business form, and tap the value of users to a greater extent." ”
Many respondents were concerned about the lack of innovation in NetEase Games. Zhang Liang said that many products are MMOs and SLGs (strategy games), which are very homogeneous. After watching the 520 press conference, he even felt that "the products that NetEase is engaged in now are a little out of touch with the tastes of players."
A former NetEase game employee introduced to Shen Ran that NetEase Games' self-research is based on studios, and the development direction is divided into two categories, one is with the accumulation of studios, and the other is market-oriented, "which cannot be completely summarized as disconnected from the taste of players".
He mentioned a model dilemma, many popular games are self-driven by the team, first want to make what to do, and then consider making a revenue system. However, under the pressure of revenue and KPIs, many games are not self-driven, but first consider commercialization, so that the gameplay is subject to payment, "because there have been successful cases, which lead everyone to believe in this method." But in terms of the game ecological cycle and the value generated, it is lower than the former."
In his opinion, NetEase is approaching the latter, and "After Tomorrow" is an example, "This is a gradual process." As a result, "mobile games are too patterned, lack of breakthroughs, although they are also trying, the current effect is not very good", he said, the current NetEase games still have a lot of products to support, not to talk about anxiety, but in the long run, it will be anxious.
"I hope that more fresh blood will join and make the next generation of products," a NetEase game executive lamented.
*At the request of interviewees, Luhan and Zhang Liang are pseudonyms in the text.