LogInNetEase and Activision executives reportedly had different interpretations of a call to renegotiate their contract, with NetEase's conciliatory gesture being perceived as a threat by Activision.
In late January, Blizzard and NetEase, which was handling Blizzard titles in China, announced that they ended their 14-year-long relationship. As a result a number of Blizzard games, including World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm, became unavailable in the country.
Most recently, The New York Times investigated the partnership's termination and published its findings on the reasons behind it.
Since 2020, China's antitrust regulators have been reviewing mergers and joint ventures that received substantial foreign capital in the past, and last summer, the Chinese government introduced new antitrust amendments raising a fine for violations discovered during those inspections.
According to the outlet, the implementation of these new regulations made NetEase executives apprehensive about compliance, which led to negotiations over the company's longstanding contract with Activision.
Seeking to sidestep restrictions, NetEase management urged Activision Blizzard to provide additional data to Chinese regulators, such as information on annual revenues and details about parts of its business. The NYT's sources claim that the American company declined to do this, citing compliance with the law as the reason.
In the course of contract negotiations held every few years with Activision, NetEase expressed a desire to end the joint venture agreement between the two companies – this agreement had facilitated NetEase's distribution of games from Activision's subsidiary, Blizzard Entertainment, in China.
NetEase suggested that Activision license games directly to it, providing NetEase with better operational autonomy and greater regulatory compliance without assistance from Activision.
Throughout negotiations with Blizzard, NetEase faced several disputes. Activision Blizzard CEO Bobby Kotick expressed concern that the licensing agreement might irritate Chinese regulators in view of the Microsoft-Activision Blizzard deal. Furthermore, the CEO was dissatisfied with NetEase's potential to receive more leeway under the updated agreement.
Negotiations between company leaders were frequently conducted through translators. At one stage, Activision Blizzard representatives sensed that NetEase was threatening Kotick by implying that it would encourage the Chinese government to block the deal with Microsoft if Activision did not switch to a licensing deal.
However, sources cited by NYT claim that the interpreter conveyed the message inaccurately. According to them, NetEase's point was that if Activision did not adopt a licensing deal, Microsoft would encounter the same regulatory obstacles when acquiring the company.
Following this round of negotiations, Activision Blizzard proposed a counteroffer. The company suggested that it would agree to a licensing deal with NetEase if the Chinese company paid around $500 million upfront instead of payments spread out over the duration of the agreement. By doing so, Activision Blizzard aimed to reduce the risk of its games getting tangled up in government approval processes or being replicated without its permission.
NetEase called Activision Blizzard's terms "commercially illogical" and did not accept them.
With the companies' 14-year deal nearing its end, Blizzard proposed to extend the publishing partnership for an additional six months which was followed by NetEase calling this proposal "rude and unreasonable." In an act of protest, the Chinese giant even destroyed the World of Warcraft Orc statue outside its offices.
It appears that the Chinese company is no longer willing to collaborate with Blizzard. In late January 2023, the company reached out to former World of Warcraft players and urged them to switch to Justice Online, a comparable MMO developed by NetEase.
Meanwhile, Activision is looking to return to China and is in talks with various Chinese companies to distribute its games. Tencent and ByteDance, the owner of TikTok, have reportedly shown interest in partnering with Activision. Additionally, the company is exploring collaborations with telecommunications firms such as China Mobile, according to the NYT's sources.
You can learn more by reading the original report here. Also, don't forget to join our 80 Level Talent platform and our Telegram channel, follow us on Instagram and Twitter, where we share breakdowns, the latest news, awesome artworks, and more.