In January 2023, NetEase and Blizzard Entertainment plan to end their longstanding partnership that has created hits like Warcraft and Overwatch. The Chinese company will be stripped of its revenue share and will suspend service to some of the country’s most popular games.
The Hangzhou-based publisher and Activision subsidiary Blizzard could not agree to continue their 14-year partnership. Blizzard Entertainment will suspend the release of key games such as Overwatch 2 and World of Warcraft in China – they, as well as Hearthstone, Starcraft, Heroes of the Storm, Diablo III and Warcraft III: Reforged, will be unavailable in the country from January 23, 2023.
New sales will be stopped in the coming days, and Chinese players will receive detailed information soon. Upcoming releases World of Warcraft: Dragonflight, Hearthstone: March of the Lich King, and Season 2 of Overwatch 2 will arrive later this year.
According to a separate statement from the Hangzhou-based firm, the affected games account for a small single-digit percentage of NetEase’s total revenue and profits.
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“We have put in a lot of effort and tried with all sincerity to negotiate with Activision Blizzard to continue our cooperation and serve the many dedicated players in China. However, there were significant disagreements on the key terms of the agreement, and we were unable to reach an agreement,” the founder said in a release. and NetEase CEO William Ding.
NetEase shares fell 15% in Hong Kong after announcing the end of cooperation.
Financial conditions aside, key issues for NetEase’s deal extension were intellectual property rights and control over the data of millions of players across China, anonymous Bloomberg sources say.
The growing political tension between the US and China also concerns the use of user data. Short video platform TikTok, run by China’s ByteDance, has been criticized by U.S. politicians as a national security threat, after which the social network has had to create a firewall between its users in the United States and any operations in China.
Signed in 2008 and renewed in 2019, the agreement was a success for both companies, filling NetEase with global hits and giving Activision access to the world’s largest PC and mobile gaming arena. China generated at least 3% of Activision’s net income in 2021 and is a significant driver for future growth. Last year, it accounted for over $400 million in esports revenue and over 400 million fans.
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China remains the largest esports market in Asia and the largest single-country market in the world with $403.1m in esports revenue and 434m esports fans last year.
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Blizzard has several competitive gaming organizations, such as the Overwatch League, which include Chinese teams.
At NetEase, Blizzard has been distributing World of Warcraft in China through The9’s Shanghai facility since its release in 2004-2008. But this partnership was subsequently broken off: Chinese players did not have access to the game for more than a month.
The No. 2 gaming giant in China emerged as Blizzard tried to find a new local publisher, first signing an agreement to launch StarCraft II and Warcraft III, and then buying World of Warcraft, which at the time was the most popular online game in China.
Signs of conflict between the two sides emerged over the summer when the companies scrapped plans for a World of Warcraft smartphone game that had been in development for three years. NetEase disbanded a team of over 100 developers who were supposed to be creating content for the game. Activision also warned in its latest financial report that an understanding “may not be reached to renew licensing agreements in China.”
“As a player who has spent ten thousand hours in the world of Azeroth, I feel overwhelmed. Next year, I will no longer have access to my account and memories. One day, when we can talk about what happened behind the scenes, developers and gamers will have a whole new level of understanding of what damage has been done,” Simon Zhu, NetEase president of global investments and partnerships, wrote on LinkedIn.
Without finding an alternative partner, Activision is unlikely to be able to continue its Chinese business. It is unknown if the company was in talks with market leader Tencent Holdings or another local distributor.
China’s internet sector has changed drastically in recent years as a result of a wide-ranging government crackdown that has imposed stricter restrictions on youth playtime and suspended licensing of new games for several months. With all that, this summer NetEase managed to successfully release Diablo Immortal, a role-playing game for mobile devices. Players will still be able to play Immortal in China after January as the game is the subject of a separate long-term agreement.
Collaboration with two major Chinese game publishers NetEase and Tencent has become the most reliable way for foreign companies to enter and stay in the Chinese market. Nintendo, for example, uses Tencent as its local distributor for the Switch console and software. However, even with Tencent’s involvement last year, Epic Games abandoned its years-long effort to bring its most famous game, online shooter Fortnite, to the Chinese market after failing to win regulatory approval.
Source: Bloomberg, Engadget