China's NetEase plans to divest the majority of its overseas game studios and could close more than a dozen Western and Japanese teams if those operations cannot secure new funding after NetEase withdraws, two people familiar with the company's strategy told Game File's Stephen Totilo.

The pivot marks a rapid reversal for the Chinese publisher, which over the last three years unveiled or acquired nearly 20 studios across North America, Europe, and Japan to develop big-budget titles. Neither source was authorized to speak publicly about NetEase's plans.

The cost of the retrenchment will land on independent developers who built business plans around NetEase sponsorship. Stress signals are already visible at three of the studios the publisher promoted as recently as 2022.

Which studios have already moved?

Three previously announced teams have entered visible distress since November.

Canada-based Worlds Untold suspended operations and cut staff last November, roughly a year after NetEase unveiled the studio in November 2023.

Seattle-based Jar of Sparks halted production on its debut project in January and began searching for a new publishing partner. NetEase had announced the studio in July 2022.

Sweden-based Liquid Swords notified staff of a proposed workforce reduction on Monday, citing "shifting market conditions" on its website. NetEase invested in the Stockholm studio in 2022.

What has NetEase said on the record?

A NetEase representative declined to comment on the specific cuts reported here or on whether the broader divestiture extends to additional studios. The spokesperson confirmed only ongoing internal review.

"All studios and projects are in constant review and evaluation, and NetEase will determine changes needed to be made throughout that process," the spokesperson told Game File.

The wording leaves open whether exits will run through outright sales, quiet defunding that allows studios to raise independently, or full closure. NetEase did not address the "more than a dozen" number cited by Game File's sources.

What changes for studios and teams?

Each team already in distress has followed a similar pattern: a production pause or spending cut first, then a hunt for a replacement backer. Worlds Untold and Jar of Sparks are both publicly seeking new funding or publishing partners.

Studios that cannot replace NetEase capital before existing commitments expire will most likely close rather than sell, according to one of Game File's sources. That framing raises the prospect of concentrated staff layoffs in Stockholm, Seattle, Vancouver, and other established Western development hubs, alongside any Japanese teams inside the divestiture pool.

NetEase is actively shopping the publishing rights and equity stakes of additional studios to prospective buyers, per the people familiar with the effort. Studios have had limited runway to assemble replacement pitches of their own.

What happens next?

The first concrete signal will come from outcomes at Worlds Untold, Jar of Sparks, and Liquid Swords, each of which is publicly seeking fresh capital. A completed fundraise at any of the three would set a workable template; a shutdown would confirm the closure path.

Watch for naming of the remaining studios in subsequent cuts and whether rival publishers pick up discounted assets. NetEase's pullback will land in what Game File characterized as a season of broader industry hurt likely to deliver pain worldwide.