End of an Era: NetEase and Tencent Retreat From Overseas Game Studio Expansion
NetEase is scaling back funding for a high-profile overseas game studio, the latest sign that China’s two largest game publishers are retreating from an ambitious push to build AAA titles abroad.
Bloomberg reported on March 7 that NetEase will stop providing financial support from May to the studio led by Toshihiro Nagoshi, the producer behind Sega’s Yakuza series, while allowing the team to continue operating independently. The studio is seeking new backers to complete its in-development project, Dragon Gang.
The report said NetEase assessed that finishing the game would require at least an additional 7 billion yen, equivalent to about RMB 300 million (US$42 million), a figure the company found difficult to justify. The funding decision has raised fresh questions over the commercial viability of the overseas-studio strategy that NetEase and Tencent pursued earlier in the decade.
Tencent has made a similar turn. It closed TiMi Montreal at the end of 2025 after more than five years of operations without shipping a product, underscoring a broader pivot toward tighter cost control and a renewed focus on where returns are more predictable.
NetEase’s Nagoshi Decision Highlights Budget Discipline
NetEase’s move regarding Nagoshi’s studio is not an isolated cost-cutting measure but part of a broader contraction in its overseas development footprint. The company has already shut nine overseas first-party studios, while three others have either become independent or ended cooperation.
If Nagoshi’s team ultimately separates, NetEase’s games unit would be left with four overseas studios, according to the material. Even those remaining operations face uncertainty: only one overseas studio associated with Ryutaro Ichimura has released a product publicly to date.
The underlying tension is time and capital. The Nagoshi studio was established in January 2022 and only showcased a Dragon Gang demo at the end of 2025, according to the material—yet it still required a substantial budget increase to reach completion.
Tencent Mirrors the Pullback After TiMi Montreal Closure
Tencent Holdings has also narrowed its overseas development ambitions. TiMi Montreal’s closure at the end of 2025, after more than five years without delivering a title, has become the clearest marker of the shift.
Tencent’s remaining overseas internal studios are now described as limited in number and largely under its Lightspeed umbrella, while TiMi appears to have stepped back from overseas R&D. Compared with NetEase, Tencent built fewer overseas studios in the 2020-2023 period—about five to six versus NetEase’s at least 13—and moved earlier, mainly during 2020-2021.
The result is a convergence in posture: both publishers are increasingly aligned around shrinking development risk, controlling project scope and prioritizing efficiency over expansion.
The 2020-2023 Playbook: Star Producers, Overseas Autonomy, AAA Ambitions
NetEase’s overseas strategy during its expansion phase followed a clear template, according to the material: recruit well-known producers in Europe, the US and Japan; build studios physically based overseas with limited ties to China-based teams; and aim first at console and PC markets with AAA—or at least distinctive “AA”—single-player titles, granting creators substantial autonomy.
Tencent’s approach overlapped but was more restrained, particularly in recruiting celebrity producers and building fully independent overseas units. Still, both companies shared a period of “strategic alignment” around pursuing large-scale projects targeting overseas single-player markets.
This model reflected the industry mood at the time: a belief that mobile games were becoming bigger, more expensive and closer to AAA production standards, especially as multi-platform ambitions spread across the sector.
Why the Strategy Reversed: Slow Output, Shifting Market Signals, Lower Appetite for Risk
By 2024, both companies began reassessing. A core problem was execution speed: many overseas studios spent two to five years from formation to closure or independence without releasing a product—or even presenting a credible demo—while continuing to consume capital.
At the same time, the “mobile AAA” wave described in the material began to fade. Cost control replaced expansion as a guiding principle—“saving a dollar is earning a dollar,” as the material puts it. For NetEase, Eggy Party became a prominent internal reference point: developed with spending of just over RMB 100 million (about US$14 million), it ran counter to the AAA-cost trajectory yet emerged as NetEase’s most profitable game in recent years, according to the material.
The material also argues that China’s domestic operating environment has become more predictable since 2023, with a looser public discourse around games and a steadier supply of approvals. Even with weaker new-title momentum in 2025, the overall market still achieved about 8% revenue growth, according to the material—reducing the incentive to place large, long-dated bets on overseas projects built primarily for foreign audiences.
A New Benchmark: Smaller Budgets, Higher Efficiency, Domestic Focus
The emerging reference point is value-for-money development rather than “piling on content.” The material cites Expedition 33 as a recent example of a cost-efficient approach, saying the game was built for RMB 50 million (about US$7 million) by leaning on extensive outsourcing and the Unreal Engine 5 toolset.
For investors and industry workers, the shift marks the end of a distinct cycle: from 2020 to 2023, the priority was raising production standards and expanding overseas, often with high budgets and long timelines. In 2026, the stated direction has swung back toward disciplined spending, tighter project economics and a more domestically anchored growth thesis—leaving the overseas studio model, once seen as a strategic gateway to global AAA IP, increasingly difficult to defend.