NetEase is facing a tumultuous autumn

Author | Huang Yu

Editor | Liu Baodan

NetEase has been facing some turbulence recently.

Following the investigation of two corruption cases in its gaming business earlier this month, on November 25th, NetEase Games and another flagship business—NetEase Cloud Music—found themselves in trouble again.

On that day, NetEase Cloud Music, acting as the "plaintiff," published a long image on its official Weibo accusing QQ Music of plagiarism, claiming that QQ Music copied its music player "DIY feature" and has been continuously plagiarizing NetEase Cloud Music for years. They demanded that QQ Music immediately stop its long-standing plagiaristic "innovation," imitative "creativity," and follow-up "updates."

Although QQ Music did not directly respond, KuGou Music, which is also part of Tencent Music Entertainment Group, replied on Weibo, stating, "Isn't the DIY feature for customizing player backgrounds something I did first? I also held a DIY player competition, so what kind of innovation is this?" KuGou Music also attached a video released in October 2023 introducing the custom player.

The public sentiment did not turn in favor of NetEase Cloud Music; as the "plaintiff," it was pointed out by many users for its issues like "lack of copyright."

Ultimately, this farce ended with NetEase Cloud Music reflecting on the situation. In response to user dissatisfaction regarding copyright experience and other issues, NetEase Cloud Music replied in the comments section on Xiaohongshu, stating that they are increasing efforts to continuously expand their copyright library and acknowledged, "We understand that good changes take time."

Just as one wave subsided, another arose. On the afternoon of November 25th, news broke that several employees from NetEase Games' Leihuo Business Group had been dealt with.

The reason behind this was that recently, a player reported receiving a promotional text message from NetEase Games for "Nishuihan," stating, "All the company leaders are gone, and I'm giving out benefits with no one in charge."

NetEase Leihuo reported that it had penalized the involved employees by deducting their pay and issuing warnings, stating, "Upon investigation, the sending of this message was caused by a series of derelictions of duty by some employees and management personnel in the marketing department of NetEase Leihuo Games. This action severely violated NetEase's business philosophy, triggered negative social feedback, and caused significant damage to the company's image."

These series of events reflect a common issue: NetEase is facing pressure for performance growth.

Last year, NetEase's revenue surpassed the 100 billion yuan mark for the first time, increasing by 7.2% year-on-year to 103.468 billion yuan; the net profit attributable to NetEase shareholders was 29.417 billion yuan, a year-on-year increase of 44.6%.

At the same time, thanks to the impressive performance of "Egg Party" and "Nishuihan" mobile games, NetEase's stock price rose against the trend last year, quietly surpassing Meituan at the end of the year to become the fourth largest internet company by market value in China. NetEase founder and CEO Ding Lei also saw a significant increase in his wealth.

"Making a fortune quietly." This was the most notable label given to Ding Lei by the outside world last year.

However, the glory of NetEase and Ding Lei did not continue into 2024. This year, NetEase has entered a period of sluggish performance growth. In the third quarter, NetEase achieved net revenue of 26.2 billion yuan, a year-on-year decrease of 3.9%; the net profit attributable to shareholders was 6.5 billion yuan, a year-on-year decrease of 16.67% Games are the pillar business of NetEase. In the third quarter, NetEase's net income from games and related value-added services was 20.9 billion yuan, a year-on-year decrease of 4%. Among them, due to the decline in revenue from "Egg Party" and "Nirvana in Fire," NetEase's mobile game revenue fell by 10% year-on-year in the third quarter.

Ding Lei stated at the earnings conference, "Currently, 'Egg Party' is still one of NetEase's products with the highest DAU (Daily Active Users). Although we are facing some challenges in commercialization, this is a process of accumulating experience that we will encounter during operational development. This type of game is unique in the market, and we believe that with the launch of long-term content, this product will still achieve long-term development and realize its commercial value."

As for NetEase Cloud Music, it achieved a net income of 2 billion yuan in the third quarter, remaining flat compared to the previous quarter and the same period last year, but its profitability continued to improve, with gross profit increasing by 22.12% year-on-year to 655 million yuan, mainly due to increased membership subscription revenue and improved cost control.

NetEase Cloud Music, which is focused on cost reduction and efficiency improvement, has also encountered some troubles. On August 19, "NetEase Cloud Music crashed" trended on social media, as many users found that logging into NetEase Cloud was abnormal, displaying "Failed to retrieve data."

In fact, NetEase Cloud Music has always faced "profitability pressure." After years of continuous losses, last year, NetEase Cloud Music further strengthened membership commercialization, achieving revenue of 7.9 billion yuan and turning a profit for the first time in its annual history. This is also related to cost reduction and efficiency improvement.

How to maintain a balance between profitability pressure and expanding the copyright library remains the biggest challenge facing NetEase Cloud Music.

Whether in games or music, NetEase faces fierce market competition. To avoid becoming a "poor performer," it must take more strong measures