US-based video game developer Blizzard Entertainment announced on November 17 that it will suspend most of its game services in the Chinese mainland when existing license agreements with local game firm NetEase expire on January 23. Sources familiar with the matter disclosed that Activision Blizzard, led by CEO Bobby Kotick, put forward stricter conditions in contract renewal negotiations with the Chinese firm, including requiring it to pay the cooperation income of the next two years to Blizzard in advance once it completes the contract renewal, according to a report by the e-sports channel of People’s Daily on November 18.
In the third-quarter financial report released by Activision Blizzard on November 7, its performance in the period declined year-on-year. The above sources believe that the US game developer’s request is to improve its financial performance and further enhance its financial statements when it completes an acquisition by Microsoft in June of next year.
According to the financial system and relevant standards of listed companies, this move is suspected to constitute financial fraud, so it is not surprising that NetEase has the right to refuse to meet this requirement. Besides, Activision Blizzard also put forward more requirements for transferring operational risks to NetEase such as cooperation mode, which led to slow progress in negotiations between the two sides.
The sources mentioned that NetEase had tried to reach a consensus with Activision Blizzard at the last minute, and that the NetEase team was still communicating with the other company several hours before the latter released a sudden announcement. However, limited by regulations of the HKEx, when breaking news was exposed, NetEase could not respond immediately during trading hours, which led to an intraday plunge in its stock price. Therefore, the sources called Blizzard Entertainment’s move “a moral issue.”
On the evening of November 17, in a financial report conference call, in response to investors’ questions about Blizzard’s announcement to terminate licensing cooperation, NetEase CEO William Ding said that the company very much hoped to continue the cooperation and had made a lot of efforts to achieve this. However, recent challenges with the negotiation process far exceeded NetEase‘s expectations. Ding added that Blizzard’s requirements were unacceptable for some key cooperation clauses involving sustainable operations and the core interests of the Chinese market and gamers.
In addition, the report by the People’s Daily sub-brand mentioned that Microsoft’s acquisition of Activision Blizzard is at a critical stage, and the anti-monopoly authorities of the European Union and the UK are deeply reviewing and evaluating this transaction. At this delicate point in time, Microsoft can’t exert more influence on Activision, giving Bobby Kotick the chance to be an arbiter.
The sources said that for Microsoft, the most important thing at the moment is to ensure that all the operations of Activision Blizzard are compliant for a smooth handover, and the fluctuation of specific operating performance will not affect the deal. However, Kotick chose to put forward higher interest demands to the agent in the Chinese mainland. If this goes successfully, he will get more personal bonuses; If it doesn’t succeed, the victim won’t be himself, so he can do whatever he wants.
At present, who will take over the agent rights of Blizzard Entertainment’s games in China and the data and memory of players spanning more than 10 years has become a topic of concern to the domestic game community. Companies including Tencent, miHoYo, Perfect World, ByteDance, Bilibili and other internet giants have all emerged in related rumors.
However, according to Chinese regulations, if an online game that has been approved or imported by China’s General Administration of Press and Publication changes its operating unit, it must go through the approval or import procedures again, and all operating services of the game should be stopped from the date of change of operating unit to the regain of approval. Otherwise, it will be treated as illegal online publishing.
Coupled with the harsh conditions put forward by Blizzard, the sources believe that as long as Kotick is in office and continues to insist on relevant requirements, it will be difficult for other Chinese companies to take over the agent deal.