Activision-Blizzard and NetEase’s breakup was caused by long-brewing disputes and alleged threats

And gamers' MMOs are still dead

Same old story.

One of the biggest MMO and gaming stories capping off the end of 2022 and spilling over into the start of 2023 was the dissolution of the Activision-Blizzard-NetEase partnership that governed the publishing of Blizzard’s games in China. The companies’ inability to reach a new agreement at the end of their multi-year contract resulted in the closure of multiple games in China, including World of Warcraft, and created waves of drama and sniping.

Though both companies insisted the failed partnership was of no financial signifigance, Blizzard suggested NetEase’s proposals ran contrary to its operating principles, while NetEase implied Blizzard negotiated in bad faith and blasted Blizzard for a last-minute WoW-saving proposal it said was “brash, unseemly and commercially illogical.” A NetEase exec ultimately pinned the blame on an unnamed Blizzard “jerk,” but the full details of how the partnership soured weren’t public, and the games went dark for millions of Chinese players and the Chinese staffers who worked on them.

Thanks to new reporting in The New York Times, we’re getting a slightly clearer picture of what went wrong behind the scenes – and who the unnamed Blizzard “jerk” NetEase’s Simon Zhu referred to back in November might be.

The Gray Lady reports that the dispute flared up in a October 2022 Zoom call during which NetEase reps were concerned about the Chinese government’s ongoing antitrust crackdown on gaming. NetEase apparently wanted Activision-Blizzard to file specific disclosures with the Chinese government to ensure NetEase could comply with antitrust regulators; according to multiple sources, Activision-Blizzard refused, “disput[ing] that it was out of compliance with the law or that it was required to turn over more information.” ABK apparently maintained that NetEase was just trying to squeeze out a better deal using regulation as cover.

“In the contract renegotiations with Activision, conducted every few years since the partnership started, NetEase said it wanted to end the companies’ joint venture agreement — a business entity that helped NetEase distribute games from Blizzard Entertainment, an Activision subsidiary, in China,” The Times says. “NetEase said it wanted Activision to license its games directly to NetEase, which would give NetEase more control over operations and allow it to better comply with the new regulations without Activision’s help.”

It sounds as if NetEase had been clashing with ABK CEO Bobby Kotick for several years before this specific dispute, chiefly because of NetEase’s investments into what ABK considered rival spin-off companies (Destiny 2’s Bungie is mentioned by name, and though the other isn’t, the timing and context tell us it’s Ben Brode’s Second Dinner, which launched Marvel Snap thanks to NetEase’s funding). In fact, Activision and NetEase inked a deal in 2019 to stop NetEase from “hiring former Activision employees or investing in gaming studios directed by them.”

The stage for the October conference call dust-up was further set by the ongoing Microsoft buyout of ABK; Kotick was supposedly concerned that agreeing to NetEase’s demands would cost ABK IP control and cause more intrusion from Chinese regulators, not less. And then the meeting fell apart entirely.

“At some point in the conversation, which was conducted at times through translators, Activision executives felt that [NetEase CEO William] Ding threatened Mr. Kotick. The Chinese government was reviewing the Microsoft acquisition, and the executives recalled that Mr. Ding said NetEase could sway the government either to block or support that deal depending on the outcome of the licensing discussion, according to two people familiar with the call and a document reviewed by The Times. But NetEase executives did not intend to make a threat and were trying to be conciliatory toward Activision, said two other people familiar with the conversation. The point they intended to make was that if Activision did not switch to a licensing deal, Microsoft would face the same regulatory hurdles when it acquired the company. Mr. Voica, the NetEase spokesman, denied that Mr. Ding had threatened Activision. He said Activision was continuing to ‘harass and taunt companies and regulators worldwide.'”

(If you’re getting that sinking feeling in the pit of your stomach realizing these MMOs were brutally demolished over a game of corporate telephone sprinkled with a pinch of corruption and/or extortion and/or execs looking hard for reasons to bail, then yeah, I feel you.)

Following that fiasco, Activision apparently offered a new deal that required NetEase to pay it half a billion dollars up front (rather than throughout the contract’s lifetime), which NetEase rejected as “commercially illogical,” which leads us to today: when Blizzard China is gone, save for whatever remnants are keeping the lights on for Diablo Immortal until that license expires too. And as for NetEase, it’s got Justice Online now, an MMO that it swears isn’t World of Warcraft but could certainly be mistaken for a fraternal twin.

A few other bits to note: The NYT article suggests Blizzard’s Chinese playerbase was only 3M players and represented $750M in annual revenue (we had assumed more players and far less money based on Activision-Blizzard’s claims; our best guess was closer to a third that in annual revenue, meaning this split was much more costly than we thought). Oh yeah, and Microsoft? It’s staying out of the imbroglio; it (wisely) no-commented The Times.

Source: NYT. Cheers, Leiloni!
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