Blizzard ends 14-year licensing deal with NetEase in China

In a somewhat surprising turn, Blizzard Activision, the California-based gaming publisher behind global hits like World of Warcraft and Overwatch, will be suspending most of its games in China due to the expiration of licensing agreements with NetEase, the second-largest gaming company in the country.

Blizzard's announcement is set to end a 14-year licensing partnership between the two gaming giants. All told, Blizzard has been providing gaming services in China through various partners, including Electronic Arts-backed The9, for 20 years.

From January 2023, most of Blizzard's titles will stop operating in China. That includes the likes of World of Warcraft, Warcraft III: Reforged, Overwatch, the StarCraft series and Diablo III. Diablo Immortal co-development and publishing is covered under a separate agreement between the two companies, Blizzard said. This could mean the game will likely continue its service in China.

The companies each released their own response explaining how they reached the end of the marriage.

"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," said Blizzard.

The decision came at a time when a silver lining appears in China's gaming industry, which has been hit with heavy-handed regulations over the last few years. China's state media outlet People's Daily published an op-ed this week titled "the opportunity in the gaming industry cannot be missed," sending Chinese game stocks surging.

But Blizzard isn't giving up on China and is open to finding alternative publishing partners, which are required for foreign games that serve the market. “We’re immensely grateful for the passion our Chinese community has shown throughout the nearly 20 years we’ve been bringing our games to China through NetEase and other partners,” said Mike Ybarra, president of Blizzard Entertainment. “Their enthusiasm and creativity inspire us, and we are looking for alternatives to bring our games back to players in the future.”

Even if Blizzard manages to land a new partner, the process of reapplying for regulatory permits for its franchise of games could be an ordeal. China has significantly slowed down the approval process of video games after implementing a spate of strict regulations on the sector.

The termination of the partnership seems to have a limited impact on NetEase's bottom line. The firm said in a statement that "the net revenues and net income contribution from these licensed Blizzard games represented low single digits as a percentage of NetEase's total net revenues and net income in 2021 and in the first nine months of 2022."

Still, NetEase's shares plunged 11% on the news Thursday afternoon in Hong Kong.

Interestingly, NetEase also had this to say: "We hold high regard in our product and operational standards and abide by our commitments to Chinese players."

Is NetEase hinting at its dissatisfaction with how Blizzard operates in China? In any case, the divorce doesn't sound like an amicable one. Indeed, Simon Zhu, president of global investment and partnership at NetEase Games, posted a bitter message on LinkedIn:

"As a gamer who spent ten thousand hours in the world of Azeroth, starcraft and overwatch, I feel so heartbroken as I will not longer have the access to my account and memories next year. One day, when what has happened behind the scene could be told, developers and gamers will have a whole new level understanding of how much damage a jerk can make. Feel terrible for players who lived in those worlds."