Activision Blizzard to End Most Game Services in China, NetEase Partnership

The existing licensing agreements cover some of the most popular Blizzard titles in China. Besides suspending game services starting Jan. 24 once the agreements expire, Blizzard will also halt game sales in China in the coming days, the company said in a statement.

Blizzard said in its statement that the two companies didn’t reach a deal that is “consistent with Blizzard’s operating principles and commitments to players and employees.”

NetEase said in a public letter sent to game players that it and Blizzard disagreed “on a number of key partnership terms that relate to sustainable operations and core interests of the Chinese market and players.” Activision Blizzard’s announcement, which came hours before NetEase’s, left it with no choice but to accept the decision, the Chinese company said.

NetEase’s Hong Kong-traded shares fell 10% Thursday. 

The termination of the partnership comes as China’s videogame sector grapples with tighter regulations, fewer government licenses for new games and a slowing economy. NetEase and its bigger rival

Tencent Holdings Ltd.

have been relying on existing years old hits to generate revenue, as their new games await approvals. Popular foreign titles could be a catalyst for Chinese publishers, though Beijing hasn’t given the green light for any foreign games since June 2021.

Other key obstacles that blocked the renewal include disagreements over the ownership and rights around certain game franchises, people familiar with the negotiations said. 

In China, officials have been concerned about how to protect personal data as well as the export of data of domestic internet users and have tightened rules for transferring data overseas. Meanwhile, U.S. policy makers also have been scrutinizing the data-management practices of Chinese companies and services. 

Blizzard President Mike Ybarra said in a statement that the company is looking for alternative ways to bring its games back to China. Blizzard is in talks with a few potential partners including Tencent, people familiar with the matter said. 

Tencent, with strong distribution channels and experience of operating foreign game franchises, is likely the sole logical partner for Activision Blizzard to replace NetEase, said Lisa Hanson, founder of videogame industry research firm Niko Partners. Having no other strong candidates could put Activision Blizzard at a disadvantage in negotiating with Tencent, which already partners with Activision for its “Call of Duty: Mobile” in China, she added. 

The partnership between Blizzard and NetEase has helped the U.S. game developer access the world’s biggest computer and mobile game market, while bringing globally famed titles to NetEase. 

Around 3% of Activision Blizzard’s revenue last year came from China and the company has said it considers China a growth driver despite a more challenging environment there for videogames. 

NetEase said in its statement that the expiration of licenses won’t have a material impact on its financial performance as Blizzard games contributed low-single-digit shares to its revenue and income. Still, for computer games, Activision Blizzard contributed about 10% to the segment for NetEase, according to Niko Partners.

Blizzard and NetEase said that “Diablo Immortal,” a multiplayer game NetEase co-developed with Blizzard and launched in China in July, would continue to be offered in the country, as it is covered under a separate agreement between the two companies.

Write to Raffaele Huang at [email protected]