Activision Blizzard, a leading video game company, recently ended its 14-year partnership with Netease in November 2021. The decision was made after negotiations for a contract renewal fell apart due to disputes over Netease’s proposed change from a distribution-based relationship to a more profitable licensing deal. Moreover, Activision executives were concerned about the switch and some alleged threats by Netease related to Microsoft’s potential acquisition of Activision Blizzard.
Activision Blizzard and NetEase’s Disputes Over Deal Renewal
Negotiations between Activision Blizzard and Netease for their partnership renewal started in October 2020. The two companies have had a long and prosperous history of cooperation in China, where Netease serves as the distributor for games like “Overwatch” and “World of Warcraft.” However, during contract renewal talks, Netease proposed changes that would switch their distribution-based relationship with Activision to a licensing deal that would earn more profit.
According to sources, Bobby Kotick, CEO of Activision Blizzard, felt threatened by NetEase during a conference call in October 2020. At the time, both parties had varying interpretations of the conversation that led to tension between them.
Alleged Threats Related to Microsoft’s Potential Acquisition
The conference call that took place in October 2020 also saw executives from Activision believing that Netease could sway the Chinese government to potentially block Microsoft’s potential acquisition of ABK (Activision Blizzard King). The perception of some alleged threats by NetEase further deteriorated their relationship with Activision Blizzard.
Netease allegedly made a statement regarding Microsoft’s acquisition that was interpreted by Activision as a threat, which led to the end of the partnership. These allegations seem more credible when one considers that NetEase executives had been unhappy with Bobby Kotick’s “unreasonable demands” in the years before the contract negotiations.
Selling Games in China is a Challenging Process
Selling games in China has always been a challenging process due to strict regulations from the National Press and Publication Administration, which approval every game before it can be sold legally. This obstacle means having the right distribution partner in China is critical to a successful launch.
Before their split, Netease was instrumental in Activision Blizzard’s rise as a gaming powerhouse in China. The company had to contend with various challenges ahead of the separation, including NetEase’s investment in Bungie and a game company founded by a former Activision employee.
Response from Chinese Gamers
Chinese gamers are currently unable to play any of Activision Blizzard’s games due to their split with Netease. However, Activision Blizzard is planning to return to the region and is in talks with other Chinese companies to distribute its games.
The Microsoft acquisition of Activision Blizzard resulted in Netease laying off or reassigning most staff from the team operating ABK’s games in China. This situation has left players worried about losing connections made in games like “Overwatch” and “World of Warcraft.”
Japan Approves Microsoft’s Acquisition of Activision Blizzard
Japan’s Fair Trade Commission recently gave its approval for Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard. The JFTC ruled that the merger would not substantially restrain competition in a particular field of trade, nor cause supply restrictions on other platforms.
With Japan joining Brazil, Chile, and Saudi Arabia in giving approval, Microsoft still faces scrutiny from regulators elsewhere. The EU, UK, and US have all given particularly tough regulatory attention to the deal. The EU has issued formal antitrust warnings, while the UK’s Competition and Markets Authority remains concerned.
Conclusion
Activision Blizzard’s split with Netease highlights the importance of maintaining healthy relationships between companies in the gaming industry. Despite facing different business strategies, both parties may have been able to meet in the middle and continue to work together to offer high-quality games in China.
At present, the absence of Activision Blizzard’s games from China’s market has affected gamers’ connections with their peers. The return of Activision Blizzard to Chinese markets through new distribution channels may help alleviate some of these concerns.
Meanwhile, the Japanese approval of Microsoft’s acquisition of Activision Blizzard is a positive signal that could ease concerns about possible delays. Nevertheless, given the regulatory scrutiny by other major markets, Microsoft must still address the challenges ahead.
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