(Bloomberg) -- NetEase Inc. is in final negotiations to poach Yakuza franchise creator Toshihiro Nagoshi from Sega, a sign of how Chinese games companies are expanding beyond their home turf during a government-led crackdown.
The hire from Sega Sammy Holdings Inc. would mark the biggest coup in a contest between NetEase and close rival Tencent Holdings Ltd. to scoop up video game talent and assets in Japan, made more urgent by slowing growth and regulatory pressure at home.
Nagoshi, who developed and helms one of Sega’s most successful action series, is expected to set up his own team and create new games, people familiar with the matter said. He hasn’t signed a final contract and his duties have yet to be finalized, they said, asking not to be identified discussing a private deal.
Tencent and NetEase are on a multiyear quest to fill out their content libraries with more of Japan’s highly prized animation, comics and games (ACG) titles, betting on their potential to become global blockbuster hits. In a country that’s typically taken a skeptical view to outside investment, their ventures are now finding a more receptive audience in the wake of the pandemic’s impact on funding and Sony Group Corp. cutbacks on support for small studios.
Tencent, the world’s largest games publisher, regards Japanese content as a potential anchor for its increasingly critical effort to build a Disney-style global media juggernaut that also spans video, music and books. It’s on the brink of adding another studio to its string of acquisitions in recent years, according to the people.
NetEase and Tencent representatives did not respond to requests for comment. A Sega spokesman said the company doesn’t comment on the employment status of individual employees.
Chinese companies cater to hundreds of millions of domestic gamers but have had limited success creating their own global franchises. In recent years, they’ve begun focusing on Japanese anime, which is popular both across Asia and the U.S., as a way to tap global markets. That effort accelerated this year after Beijing began to crack down on gaming addiction among minors, forcing Tencent and NetEase to curb in-game spending and playtime for kids.
“Tencent and NetEase have been speaking to just about all publicly traded studios here and are actively courting some privately held developers, too,” said Tokyo-based industry analyst Serkan Toto of Kantan Games. “They both feel pressure to make headway in Japan, especially since game regulations in their home market are becoming increasingly restrictive.”
Read more: Tencent Targets Japan Anime, Manga to Jump-Start Global Growth
This summer, Tencent launched Pokémon Unite -- a game co-created by its in-house TiMi Studio, licensing the evergreen series’ name -- and it’s on the hunt to secure early access to future hit games on par with Genshin Impact, which takes inspiration from Nintendo Co.’s The Legend of Zelda: Breath of the Wild and is produced by Chinese ACG specialist miHoYo Co. Released in September, Genshin Impact has driven up the share of ACG titles to almost a quarter of revenues for the top-grossing Chinese mobile games overseas, according to Sensor Tower. Tencent’s tie-up with Nintendo on the Switch in China is also gaining traction, executives have said.
“The fact that we are for the first time successfully penetrating the Nintendo Switch opportunity, for the first time moving into the Japanese market, gives us a degree of confidence we’re moving in the right direction for games,” Tencent strategy chief James Mitchell said during its last earnings call, speaking of the recent launch of Pokémon Unite and another ACG title.
Between them, Tencent and NetEase have struck more than 20 deals in Japan so far, zeroing in on smaller teams and individual creators rather than big names like Square Enix Holdings Co. and Sega. Several others are in active negotiation on potential tie-ups, with NetEase proposing a more hands-on and collaborative approach, the people said.
Japan isn’t their only bet on international growth. Both have opened games studios in North America, with Tencent plowing money into developers in places from South Korea to Europe. NetEase has bet on recognized brands like The Lord of the Rings and Diablo to make global mobile hits while Tencent already has success with PUBG: Battlegrounds and Call of Duty. What makes ACG an especially appealing category is its adaptability across genres beyond games, and Japan is at the heart of that creative movement.
Tencent’s strategy focuses on investment, putting down seed capital to secure priority negotiation rights to the next ACG mobile blockbuster like Capcom Co.’s Monster Hunter franchise. A top executive at a Japanese publisher approached by Tencent said the Chinese firm was offering a hands-off relationship where all intellectual property rights remained with the publisher and it would make its own strategic decisions. All Tencent sought was a focus on creating new content and to be notified first when a game showed promise for development into a mobile title with international appeal.
Publicly-announced minority acquisitions by Tencent include PlatinumGames Inc., which has developed games for Square Enix and Nintendo, and console games publisher Marvelous Inc. The Chinese company has also backed Bokeh Game Studio, a startup led by founders who’d previously created hit games for Sony. That growing track record of deals is also helping build confidence among other prospective investment targets, the people said.
NetEase wants to play a bigger role in developing the games and content it hopes will turn into international hits, while also burnishing its credentials as a global rather than purely Chinese firm, the people said. The publisher established a console game development studio in Japan last summer and hired industry veteran Tetsuya Akatsuka from Bandai Namco Holdings Inc. as its head. Nagoshi’s hiring will extend that strategy, with the Yakuza creator likely to reprise his role of running a semi-autonomous studio within a larger organization.
©2021 Bloomberg L.P.