Last week, as part of its Q3 2022 investor report, Activision-Blizzard included what we described as an ominous note about its apparent difficulties negotiating a new licensing deal with Chinese counterpart NetEase, specifically in regard to partnerships set to expire in January of next year. We’d speculated that the worst-case scenario would be the loss of Blizzard’s games in the region, and unfortunately, that speculation has become a reality, as late this evening Activision-Blizzard announced that the companies will be suspending most game services in China as a result of those failed negotiations – and that means effectively sunsetted MMORPGs and multiplayer titles across the board, perhaps permanently if Blizzard can’t find a solution.
It’s a huge roster of games going dark, with the main exception being Diablo Immortal, which we already knew was organized under a different licensing agreement.
“Blizzard Entertainment, Inc. announced today that it will be suspending most Blizzard game services in mainland China due to the expiration of the current licensing agreements with NetEase, Inc. on January 23, 2023. This includes World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm®. Diablo Immortal co-development and publishing is covered under a separate agreement between the two companies. Blizzard Entertainment has had licensing agreements with NetEase since 2008, covering the publication of these Blizzard titles in China. The two parties have not reached a deal to renew the agreements that is consistent with Blizzard’s operating principles and commitments to players and employees, and the agreements are set to expire in January 2023. We will suspend new sales in the coming days and Chinese players will be receiving details of how this will work soon.”
Readers will recall that disagreements between Blizzard and NetEase have previously led to the cancellation of a Warcraft mobile title codenamed Neptune; we also saw Diablo Immortal delayed in China earlier this year. Activision-Blizzard had previously maintained that the NetEase publishing deal accounted for 3% of Activision-Blizzard’s 2021 net revenues, but of course they make up significantly more of Blizzard’s revenues themselves: Our napkin math using the 2021 figures puts it around $264M (equivalent to 14.4% of Blizzard’s revenues in 2021).
Blizzard’s Mike Ybarra says that the company is “looking for alternatives to bring [its] games back to players in the future.” Our sympathies go out to the Chinese players who are the victims of these sunsets.
“NetEase Games would like to thank all the fans in China for their continuous support and love for Blizzard’s games. It has been an honour to have accompanied them on this journey together, creating and sharing unforgettable game experiences and we would like to express our heartfelt thanks to them. We share the passion for Blizzard’s game products and are deeply disappointed that our respective organizations could not reach a renewed contractual agreement. We have been doing our best to negotiate with Blizzard, doing our best to keep the relationship and to be able to keep providing these games to our gamers’ community. Unfortunately we were not able to reach an agreement with Blizzard on some key terms of cooperation. We regret that Blizzard today announced that it will cease cooperation and we will have to accept this decision. It has been our pleasure to partner with Blizzard Entertainment over the last 14 years and we wish them well going forwards. NetEase will continue to fulfill its responsibilities and serve the players until the last moment.”
The press release itself is a little more specific, as CEO William Ding says, “We have put in a great deal of effort and tried with our utmost sincerity to negotiate with Activision Blizzard so that we could continue our collaboration and serve the many dedicated players in China. However, there were material differences on key terms and we could not reach an agreement. We hold high regard in our product and operational standards and abide by our commitments to Chinese players. We are honored to have had the privilege of serving our gamers over the past 14 years and have shared many precious moments with them during that time. We will continue our promise to serve our players well until the last minute. We will make sure our players’ data and assets are well protected in all of our games.”
It remains unclear what those key terms were, exactly, that were suitable for 15 years of collaboration as well as the separate Diablo Immortal licensing agreement.
NetEase further claims that net revenues from these games “represented low single digits as a percentage of NetEase’s total net revenues and net income in 2021 and in the first nine months of 2022” and therefore that “[t]he expiration of such licenses will have no material impact on NetEase’s financial results.”
“After the game server is closed, all account data and character data in each game (including but not limited to character data, remaining game time, each game items, materials, subscription and paid information, etc.) will be sealed. We will properly handle the game data in accordance with the requirements of laws and regulations to protect the legitimate rights and interests of users. For players who have paid but not consumed online game virtual currency and paid game time (if any) that has not yet expired, we will start to arrange refunds after Blizzard game products cease operation.”
Interestingly, Wowhead also quotes a top NetEase exec – Global Investment and Partnership of NetEase Games President Simon Zhu – blasting the situation on Linkedin and saying he felt “heartbroken” over the loss of his own account. “One day, when what has happened behind the scene could be told, developers and gamers will have a whole new level understanding of how much damage a jerk can make.” Sure would be a shame if somebody, y’know, leaked whatever happened behind the scenes, right?
