Activision-Blizzard and NetEase have parted ways over a protracted dispute and alleged threats

One of the biggest MMO and gaming stories, ending in late 2022 and spilling over into early 2023, was the dissolution of the Activision-Blizzard-NetEase partnership that governed the release of Blizzard’s games in China. The companies’ inability to reschedule their multi-year deal at the end of their multi-year deal led to the closure of several games in China, including World of Warcraftand caused waves of drama and snipers.

Although both companies insisted that the failed partnership had no financial implications, Blizzard suggested that NetEase’s proposals violated its operating principles, while NetEase implied that Blizzard negotiated in bad faith and blew up Blizzard at the last minute WowThe austerity proposal, it was said, was “bold, unseemly and economically illogical”. A NetEase executive eventually blamed an unnamed Blizzard git, but the full details of how the partnership went awry have not been public, and the games went dark for millions of Chinese players and the Chinese staffers who worked on them.

Thanks to new reports in the New York Times, we’re getting a slightly clearer picture of what went wrong behind the scenes — and who NetEase’s unnamed Blizzard git Simon Zhu might be in November.

The Gray Lady reports that the dispute flared up in a Zoom call in October 2022, in which NetEase officials were concerned about the Chinese government’s ongoing antitrust crackdown on games. NetEase apparently wanted Activision-Blizzard to file certain disclosures with the Chinese government to ensure NetEase could comply with antitrust authorities; According to multiple sources, Activision-Blizzard refused to “dispute[ing] that it broke the law or that it was required to provide more information.” ABK apparently claimed that NetEase was just trying to squeeze a better deal using regulation as a cover.

“In contract renegotiations with Activision, which have been held every few years since the partnership began, NetEase said it wanted to end the companies’ joint venture agreement — a business unit that helped NetEase develop games from Blizzard Entertainment, a subsidiary of Activision to distribute 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 like NetEase clashed with ABK CEO Bobby Kotick for several years prior to this particular dispute, largely over NetEase’s investments in what ABK considers competing spin-off companies (destiny 2 Bungie is mentioned by name, and while the other isn’t, the timing and context tell us that it’s Ben Brode’s second dinner to start Marvel snap thanks to funding from NetEase). In fact, Activision and NetEase signed a deal in 2019 to prevent NetEase from “hiring former Activision employees or investing in gaming studios they run.”

The stage for the October conference call was further set by Microsoft’s ongoing acquisition of ABK; Kotick was reportedly concerned that agreeing to NetEase’s demands would cost ABK IP control and cause more Intrusion by Chinese regulators, no less. And then the meeting completely fell apart.

“At some point in the conversation, sometimes through translators, Activision executives sensed that [NetEase CEO William] Ding threatened Mr. Kotick. The Chinese government is considering Microsoft’s acquisition, and executives recalled that Mr Ding said NetEase could persuade the government to either block or support that deal depending on the outcome of the licensing discussion, according to two people who answered the call and are familiar with a document reviewed by The Times. But NetEase executives didn’t want to make a threat and were trying to be forgiving to Activision, said two other people familiar with the conversation. They wanted to point out that if Activision didn’t move to a licensing deal, Microsoft would face the same regulatory hurdles when it acquired the company. NetEase spokesman Mr. Voica denied that Mr. Ding threatened Activision. He said Activision will continue to “harass and taunt companies and regulators worldwide.”

(If you get that queasy feeling in the pit of your stomach when you realize these MMOs have been brutally demolished at a corporate phone game sprinkled with a sprinkling of corruption and/or extortion and/or executives are looking for grounds for bail, then yes, I do can relate to that.)

After that fiasco, Activision apparently offered a new deal that would require NetEase to pay half a billion dollars upfront (rather than throughout the contract term), which NetEase dismissed as “commercially illogical,” which brings us to today: when Blizzard China is gone , apart from the remains, for which the light stays on Diablo immortal until that license expires. And as for NetEase, it has Justice on the Internet now an MMO it swears it isn’t World of Warcraft but could well be confused with a dizygotic twin.

A few other notes: The NYT article suggests that Blizzard’s Chinese player base was just 3 million players and represented $750 million in annual revenue (we assumed more players and far less money based on the claims of Activision-Blizzard; our best estimate was closer to a third that in annual sales, meaning this split was a lot more costly than we thought). Oh yes, and Microsoft? It stays out of the Imbroglio; it (wisely) did not comment on The Times.

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