NetEase has shut down at least four overseas studios in the past year and a half, replacing its ambitious global gaming aspirations with a more pragmatic approach.

In October 2025, NetEase’s Fantastic Pixel Castle studio, led by former World of Warcraft chief system designer Greg Street (鬼蟹), is facing dissolution. Established only a year and a half ago, the studio has yet to release any products.

This closure marks another high-profile studio exit for NetEase since 2024, following the dissolution of the Japanese Sakura Studio, Jar of Sparks, and T-Minus Zero Entertainment.

Star Teams Struggling with Minimal Output

Founded in November 2023, Fantastic Pixel Castle was considered a key player in NetEase's strategic entry into the global MMO market. The studio assembled a 「dream team,」 with 14 founding members, all boasting over 15 years of industry experience, and core members who had worked on top titles such as World of Warcraft and League of Legends.

However, throughout its two-year development cycle, the team failed to deliver a playable public demo. The first gameplay demonstration only occurred in August 2025, revealing significant delays in development progress.

The primary reason for terminating investment lies in the stark disparity between project advancement and expected returns. In the context of a cooling gaming industry, NetEase opted to cut losses rather than continue investing in a project with no clear timeline for returns.

Setbacks Accumulate, MMOs Facing a Genuine Chill

The closure of Fantastic Pixel Castle is not an isolated incident. Recently, NetEase has encountered substantial setbacks in the MMO sector.

In September 2025, NetEase announced the termination of the billion-yuan project 「Legend of the Condor Heroes,」 which had ambitions for a 「150-year operation.」 The game, launched only a year and a half ago, failed to revitalize its declining player base even after reworking.

Previously, Tencent's international server for 「Tasur World」 also announced shut down, while the heavily invested 「Xianjian World」 faced a similar fate. Data indicates that the domestic mobile MMO market size has fallen back to 2015 levels.

The heavy 「grinding」 and pay-to-win characteristics of traditional MMOs are increasingly at odds with current gamer preferences. In an era dominated by short videos and casual mini-games, user demands are gravitating toward lighter, more fragmented content.

Strategic Shift: From Broad-Spectrum to Focused Cultivation

NetEase's overseas strategy is undergoing a significant transition. The company is moving from global expansion to selective contraction and focus.

Since 2024, NetEase has gradually closed several overseas studios, including the Japan-based Sakura Studio, North America's Jar of Sparks, and Worlds Untold. In September 2025, T-Minus Zero Entertainment located in Austin, Texas, was also shut down.

CEO Ding Lei made it clear that resource allocation will be evaluated based on the 「future patterns, quality, and production efficiency of projects.」 Initiatives that do not align with the 「perennial high DAU product」 strategy are decisively discarded.

In contrast to this contraction, NetEase continues to invest in self-developed projects that fit its strategic focus. The project 「Yanyun Shiliusheng」 has accumulated 40 million users, leading the company to expand its project team.

Structural Dilemmas in the MMO Sector

The experience of Fantastic Pixel Castle reflects deeper structural challenges faced by the MMO genre.

Long-term retention in MMO games has always been a pain point for the industry. Even titles like 「Lost Ark,」 which once set records for online players on Steam, have seen their player base dwindle from millions to tens of thousands.

The core contradiction lies in the widening gap between new and returning players as versions update. New players encounter the game’s lower-level areas as 「ghost servers,」 while returning players struggle to integrate into the current game environment.

To address this challenge, the industry has experimented with seasonal systems, but results have been limited. The diverse user demands coupled with complex gameplay systems pose a dilemma for any ambitious reforms.

NetEase's New Strategic Direction

In response to market changes, NetEase is adjusting its product strategy. The company is leaning more towards PC and cross-platform products, as seen with 「Seven Days World」 and 「Yanyun Shiliusheng,」 which follow a strategy of verifying the market through PC launch before considering mobile platforms.

NetEase is also increasing its investment in competitive genres. Self-developed shooting games like 「Marvel’s Showdown」 and 「Outsider Frenzy」 are being distributed globally via Steam, avoiding direct competition with Tencent and implementing a 「wide detour」 strategy.

NetEase's strategy is switching from 「broad-spectrum」 to 「focused cultivation.」 The company seeks more certainty, concentrating resources on projects with a higher probability of success while decisively eliminating those with uncertain commercial prospects.

The capital markets are also reevaluating the investment value of MMO projects. Two years ago, the combination of 「Blizzard veterans leading+NetEase investment+next-generation MMO」 was eye-catching; now it has become a signal that investors wish to avoid.

Recent revealing of new high-profile titles like 「Infinite」 and 「Sea of Forgetting」 by NetEase indicates a shift away from traditional MMOs, possibly signaling the company’s future development direction.