Blizzard Entertainment, a leading game developer and publisher based in California, announced on November 16 that it will be suspending most game services in mainland China due to the expiration of current licensing agreements with China’s NetEase on January 23, pushing NetEase‘s stock price down by more than 13%.
This includes notable game titles such as World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm. Diablo Immortal’s co-development and publishing is covered under a separate agreement between the two companies.
Blizzard Entertainment has had licensing agreements with NetEase since 2008, covering the publication of these titles in China. The two parties have not reached a deal to renew the agreements that is consistent with Blizzard’s operating principles and commitments to players and employees, and the agreements are set to expire in January 2023.
NetEase said it has been doing its best to negotiate with Blizzard and hoped to push ahead with renewals, but the efforts had failed. NetEase said it regretted Blizzard’s announcement but would have to accept the decision, also promising to perform its duties and serve players.
An individual close to NetEase said that Blizzard set strict requirements for the renewal of the contract, leading to the broken deal. Blizzard required its game pricing to be synchronized globally, but previously prices in China have been about 20% lower than the rest of the world. In addition, Blizzard asked NetEase to develop other mobile games following the model of Diablo Immortal, but NetEase will only enjoy a share of its revenue in China. The insider stated frankly that if the contract extension conditions are true, it seems like Blizzard is requiring NetEase to work for free.
In August 2008, Blizzard entered into an agency agreement with NetEase, agreeing to exclusively authorize the latter to use StarCraft II, Warcraft III: Reforged, and Warcraft III: Reign of Chaos for a period of three years.
In April 2009, Blizzard again authorized NetEase to operate its popular product World of Warcraft for three years. However, there were additional costs associated with matching data and reviewing content when Blizzard changed agencies. Although both Blizzard and NetEase said at the time that they would try their best to smooth the transition and ensure the players’ experience, World of Warcraft was suspended for about two months due to the same reasons.
2009 was the first year of success. NetEase said in its earnings statement that its game business revenue increased by about 60% in Q4 2009 and 50% in Q1 2010, mainly due to the operation of World of Warcraft.
In 2012, Blizzard renewed an agency agreement with NetEase and transferred the operation rights of Diablo III in China to NetEase. NetEase overcame all difficulties and successfully introduced Diablo III to Chinese servers two years after its release on global servers. The product sold two million copies immediately after its launch in China.
Since then, Blizzard has jointly launched Hearthstone, Heroes of the Storm, Overwatch and other products with NetEase. With the development of self-developed games, the popularity and reputation of Blizzard’s titles, NetEase gradually became the second-largest game manufacturer in China.
Blizzard has cooperated with NetEase for more than 14 years, and the cooperation agreement between the two parties has been renewed in stages until January 2023. However, Blizzard has witnessed poor performance due to the loss of mobile gamers and the falling reputation of its games. The most anticipated festival for Blizzard players has been suspended since 2021.
Blizzard went through a series of personnel changes last year. Not only have Overwatch’s director, Jeff Kaplan, and Overwatch 2’s executive producer, Chacko Sonny, left the company, but the company has fired multiple employees in the wake of a sexual harassment scandal.
Fortunately for the firm, Blizzard has released two products this year – Diablo Immortal and Overwatch 2. Blizzard reported a 10% year-over-year increase in net revenue in Q3 2022, thanks to the launch of this game in China in July.