December 4, 2022

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Activision Blizzard games will go offline in China after NetEase deal fell through

3 min read

Popular American video games like World of Warcraft and Overwatch will go offline in China in the coming months, bringing revenue to their creator Activision Blizzard as the company seeks to complete a $75 billion sale to Microsoft.

China is the world’s largest games market, but foreign developers need a local partner to distribute their games in the country. Beijing also heavily censors game content and controls the number of new releases through a licensing system.

Activision Blizzard said Thursday it could not reach an agreement to renew a license agreement with NetEase, one of China’s largest game developers and publishers, which has been distributing the games in the country for years.

The California-based company announced last week that the disputed NetEase agreement accounted for about 3 percent of its net revenue last year, which translates to about $264 million in revenue.

Activision Blizzard President Mike Ybarra said the company is “immensely grateful for the passion” Chinese gamers have for their titles and that the company is looking for alternative distribution partners.

NetEase CEO William Ding said they made “extreme efforts and attempted with the utmost sincerity” to negotiate with Activision Blizzard, but were unable to resolve “material differences on key terms.” The company said the affected games accounted for a low single-digit percentage of its revenue and profits. NetEase shares fell more than 10 percent in Hong Kong on Thursday.

Activision Blizzard needs new game licenses from the government when it finds a new partner, which can take months or even years, said Cui Chenyu, gaming analyst at research firm Omdia.

“The companies could still come to an agreement, but there are challenges because both are currently changing their business strategies. Blizzard is gearing up for Microsoft’s acquisition and NetEase is focused on global expansion,” she said.

The contract dispute between NetEase and Activision Blizzard is the latest hurdle for a US game developer in the highly lucrative but heavily regulated Chinese market.

Online gaming company Roblox was forced to withdraw the local version of its hit game in China in December over unspecified data processing issues. Almost a year later, it remains offline despite a partnership with gaming giant Tencent.

A person familiar with the discussions between NetEase and Activision Blizzard said the dispute centered on a disagreement over trading terms and was not the result of geopolitical tensions between the US and China. Negotiations to extend the deal began ahead of Microsoft’s offer to acquire Activision Blizzard, this person said.

Affected games include World of Warcraft, the StarCraft series, Hearthstone, Heroes of the Storm, and Overwatch. New sales of the titles will cease in the coming days, with the servers supporting online play likely to be shut down in January when the current deal expires.

Activision Blizzard and NetEase began working together to distribute the games in China in 2008, and the deal has been renewed several times.

The two companies have a separate agreement for Diablo Immortal, a mobile game that has proved particularly popular in China since its launch this summer. She is unaffected by the dispute.

Additional reporting by Eleanor Olcott in Hong Kong

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