Blizzard to Establish China Game Services as NetEase’s Sole Licensee

Activision Blizzard said Thursday that it will suspend most Blizzard game services in mainland China when its licensing agreements with NetEase expire in January.

Blizzard Entertainment said it was unable to reach an agreement with the Chinese internet and gaming giant “that is consistent with Blizzard’s operating principles and commitment to players and employees.”

Hangzhou-based NetEase said in a statement in China that it could not agree on key terms of the partnership and added, in a second statement in English, that the expiration of the licenses would not have a “significant impact” on its financial results.

NetEase’s share price fell nearly 11 percent in morning trading in Hong Kong, reversing a steep decline following the announcement.

NetEase has become the second largest game company in China behind Tencent in large part due to its status as Blizzard’s publishing partner in China since 2008-2009 when Blizzard ended its agreement with The9.

California-based Blizzard said new sales will be set up in the coming days and players will receive more details.

Games that will be suspended starting January 23 include World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm.

According to NetEase, the recently published Diablo Immortal, developed jointly by NetEase and Blizzard, is covered by a separate long-term agreement, which allows its service to continue in China.

NetEase said Blizzard games contributed a single-digit percentage to total revenue and net income in 2021 and the first nine months of 2022.

The absence of Blizzard games could reduce NetEase’s revenue by 6-8 percent next year, Daiwa Capital Markets wrote in a research report on November 9. The calculation was based on an estimate that licensed games comprise about 10 percent of NetEase’s total revenue. and Blizzard. accounting for 60-80 percent of licensed games.

China’s massive gaming industry, once marked by unbridled growth, has been hit hard by Beijing’s efforts to tighten its oversight of the sector, including reducing the number of gaming licenses issued and limiting youth playing time.

Blizzard Entertainment said the upcoming releases of World of Warcraft: Dragonflight, Hearthstone: March of the Lich King, and season 2 of Overwatch 2 will continue later this year.

“We are looking at other ways to bring our games back to players in the future,” Blizzard President Mike Ybarra said in a statement.

NetEase’s Nasdaq-listed shares fell to around $71 (roughly Rs. 5,800) from their February 2021 peak of $132 (roughly Rs. 10,800).

© Thomson Reuters 2022

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