Sometimes it’s not fun to work in this particular industry. Not in the sense that it’s horrible, but in the sense that you’ve written a column, you’re all set, and you aren’t worried about it… and then late at night Blizzard and NetEase sever ties, and you realize that you now have to scrap your plans and change everything up because people are going to wildly misconstrue this all over the place in both directions.
That was happening within a few minutes, by the way, so it wasn’t so much “theoretical” as “observed” within short order.
If you want to make sure you’re in the right mindset to read the rest of the column, let’s just put the teal deer right here up front: This is bad news for Blizzard. Not cataclysmic news, but bad all the same. And considering when the news came in, I suspect there are probably some rather tense meetings scheduled for today in California, if they haven’t happened already. I’m very curious about the future fate of several projects right now, and yes, that includes World of Warcraft and WoW Classic, even though those games are unlikely to be on the chopping block. Let’s dig deeper.
The first step of digging deeper, of course, is assessing the actual impact. How does this hurt Blizzard’s bottom line?
The problem you run into right away is that Activision-Blizzard’s accountants do not provide a breakdown of the amount of money made from the Chinese market because they do not have to do so. Activision-Blizzard has claimed that 3% of the group’s revenue comes from China, but that’s for all three component parts, though of course for Blizzard, it’s a much higher percentage.
How much higher? We have a pretty good idea. MOP’s own Andy, writing about the situation back when Blizzard bent over backwards to serve the Chinese government in 2019, cited a figure of around 12% back in 2019. (That’s a really good article, by the way. You should read it.) If you apply some back-of-the-envelope math to last year’s earnings from ABK and assume all of that revenue from China is for Blizzard (which is likely wrong), you wind up with about 14.4% of Blizzard’s revenue, or $264M annually in 2021 money.
Unfortunately, here is where you start wading into the weeds. It has probably gone up this year, but it’s impossible to say for sure because we don’t actually have numbers, and all of the numbers you can use for comparison are arbitrary and speculative. Bree and I talked about it a bunch last night, and while our gut checks are different, I’d say that at the end of the day, the most reasonable estimation for “how much did Blizzard get from China, excepting Diablo Immortal” is somewhere between 15% and 25% of its revenue.
This is significant. It’s not “time to say good night, kids” levels to lose, but it is definitely the sort of impact that the leadership is going to feel. And I’m not going to attempt to nail it down more precisely because the real importance isn’t whether it’s 23% or 24%, so to speak. What matters more is that this is not evenly distributed across all of Blizzard’s properties or projects… or the games it has in development.
Video games take some time to develop. You all know that by now. Diablo IV had been humming along in development for some time before Blizzard decided to tell everyone about it. Games are designed, greenlit, and progress pre-announcement based in no small part upon what the company expects to have as a good market in a few years of time. And you can’t assume Blizzard has not developed and released titles knowing what’s popular over in China over the past few years.
Heck, we know that’s the case, especially because there’s apparently a separate agreement for Diablo Immortal that ensures that keeps running. It’s pretty clear that some of Blizzard’s projects were targeted at that market, and the home market was a bonus on top of whatever else it got.
Which projects? Unfortunately, that’s down to speculation again. We know that some things are very popular in that market like WoW Classic but we don’t have an actual regional breakdown. Without firm data, we can’t know, but it’s not like it would be shocking to find out that some of Blizzard’s tone-deaf management of projects was informed chiefly by the idea that the American audience was fundamentally the bonus rather than the target.
Now that target is going to have to pivot, hard. And I’m not sure Blizzard can or will do that particularly deftly; this is not a company known for nimble development at the best of times, much less when it has been forced to realize late in the game that its expected market no longer exists. We’re going to see some changes and shaking because the company’s biggest growth plan just waved goodbye and flew away.
And let’s not forget the innate hilarity in the initial announcement where Blizzard claimed that an agreement couldn’t be reached because, and I quote, “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.”
That statement is just absurd to me. Blizzard’s “operating principles” are, at best, ruthlessly and straightforwardly just capitalism in the latest possible stage. This is not some company with high-minded ideals, as demonstrated pretty deftly in the aforementioned 2019. Its commitment to employees seems to start and end at union-busting and targeted harassment. Commitment to players? That’s a big yikes all around. That ain’t it, chief.
I dearly want to know what actually scuttled the deal because it’s almost certainly not something that we have been told and it’s clear that Blizzard is trying to paint itself as the good guy here. Back in 2018 it might have even worked for a lot of people. But now we have too much evidence that Blizzard really did not have any moral red lines for Chinese regulation to cross, which means that the only principles left are making as much money as possible. Not a good look!
Unfortunately we’re probably not going to know for a while because, as mentioned, Diablo Immortal is covered under a separate deal, and odds are that neither Netease nor Blizzard wants to wreck that with leaks. We’re likely to get some rumors and innuendo, as we already have, but it’s going to be a long time before we find out exactly what went down. Just know that whatever happened was almost certainly a matter of money, not the implicit idea that Blizzard somehow was unwilling to compromise a moral position.
Yes, I’m aware that the announcement does not say that was the case outright. It wants you to note the implication just the same. Think, Mark!
Blizzard is not going to be able to pivot immediately after this, and if anything, the studio is going to collectively try its best to act like this was not a big deal. That just makes basic logical sense. No one wants to be told that if you love WoW Classic, for example, that you were essentially a free gumball for the actual market where you are a minority. But this is a significant blow to the studio, and it’s going to take a while before the studio can get a foothold back in China. Don’t expect a last-minute reprieve, either; Blizzard wouldn’t have announced an ending if there were still space for negotiation.
It’s bad news for Blizzard. Not collapse-level bad, but significantly bad. But considering that Blizzard made it clear that it was going all-in on pitching to China regardless of the compromises that involved, I think it’s also a well-deserved loss. No matter what happens next.