A game services license for the Chinese market between major US developer Blizzard Entertainment and local firm NetEase has lasted for 14 years, promoting top international games in mainland China. However, on November 17, Activision Blizzard suddenly announced that its existing agreement with NetEase will expire on January 23, 2023.
The focus of industry attention, in addition to the reasons behind the breakdown of this cooperation, now lies in who will take over the agency rights of Blizzard Entertainment’s games in China. A Tencent insider has disclosed that multiple Chinese game developers who are negotiating agency rights with Blizzard Entertainment include Tencent, ByteDance’s Nuverse, Perfect World, Bilibili and others, according to a report by a media outlet under Caijing. There are other reports that The9, a Shanghai-based online game operator that was former agent of Blizzard Entertainment games in China, is also in talks with Microsoft, which is going to acquire Blizzard next year.
In this report, the insider disclosed that at the beginning of this year, there was news that NetEase and Blizzard had come into conflict and might terminate their licensing contract. Meanwhile, Chinese internet giant Tencent has reportedly been in contact with Blizzard for at least a year. However, the source believes that the possibility of Tencent taking over this cooperation is unlikely. “I feel that Tencent will be an also-ran. The game industry as a whole is in a downturn this year. It is unlikely that Tencent will spend a large amount of money to sign the contract.”
Game approval numbers issued by the Chinese government are one of the factors that cause developers to hesitate. The approvals of Blizzard Entertainment games in China belong to a subsidiary under NetEase, which is 100% owned by CEO William Ding. In China, for online games that have been pre-approved or imported by the China General Administration of Press and Publication, if the operating unit is changed, the approval procedures shall be re-submitted. From the date of change of the operating unit to regaining approval, all services for involved games will be stopped. Violators will be treated under the transgression of illegal online publishing.
It is unlikely that NetEase will transfer its approval numbers to other game developers. In this case, Blizzard Entertainment will need to stop game services in China for a period of time. The time to obtain the approval number is full of uncertainty, ranging from a few months to a year. However, it was reported that Blizzard requires the future cooperation operator to pay two-year income in advance, which means that the new game agent needs to face the situation that there is no relevant revenue while waiting for the approval number while still having to pay a large amount of money. For this reason, ByteDance, which appears to have abundant funds and an urgent need to expand its influence in the game field, has become a possible successor, as speculated by some experts in the industry.
According to the previously mentioned insider, there is a high possibility that NetEase will continue to serve as the agent. This is because in March next year, after Microsoft completes its acquisition of Blizzard (this move is being investigated by the European Union, and it will be decided whether to approve it before March next year), it will appoint a new CEO. This position is currently filled by Bobby Kotick, who is believed to be the primary actor behind the recent collapse in collaboration. If this occurs, the cooperation agreement can remain the same and avoid the approval issue.
Regarding the reasons for the breakdown of cooperation, Chinese media reported that Blizzard Entertainment put forward four conditions. First, the share ratio of Blizzard was further increased compared with more than 50% of revenue and net profit during the contract period from 2019 to 2022. Second, NetEase will develop other IP mobile games of Blizzard for global distribution, but only enjoys the revenue share of the Chinese market, and NetEase must pay a deposit. Third, regarding the game approval problem in China, Blizzard put forward binding clauses that cannot be guaranteed. Fourth, when signing the renewal contract, NetEase has to pay two-years cooperation money in advance, amounting to hundreds of millions of dollars.
NetEase has not issued a response regarding the matter and Blizzard Entertainment has not issued any follow-up. An insider close to NetEase disclosed in the report that these four conditions are true.
On the evening of November 20, a NetEase-operated Chinese social media account called “Blizzard Entertainment Game Channel” released a video on Blizzard Entertainment’s games in China, recording the history of the two firm’s cooperation since 2008.
Many employees of Blizzard China then forwarded the video on their own social media accounts. One wrote, “Stand on the last shift and help you dress up before you go… I believe that we will definitely meet again!” An official comment area offers other perspectives, with one user writing, “Thank you for the company, after this I wish Blizzard Entertainment an early bankruptcy.”