How one call between Activision and NetEase execs, on top of existing feuds, closed gates for Blizzard in China

The New York Times today published an article detailing the rift between NetEase and Activision that led to the suspension of World of Warcraft, Hearthstone, StarCraft, and other Blizzard games in China. It is based on the words of four sources familiar with the negotiations, as well as an internal document obtained by the NYT.

What caused the rupture between Activision Blizzard and NetEase?

• Disagreements between the companies began long before the licensing agreement between them expired last November.
• In June 2022, the Chinese government passed new antitrust amendments, which raised fines for violations. NetEase then asked Activision to file documents containing information about its annual revenues and other data, to which the US publisher refused.
• The Chinese company also decided to close its joint venture with Activision so that Activision would license its games directly to NetEase. It argued that it would allow it to better comply with the new antitrust regulations.
• But these were not the first tensions between the companies. According to two sources, NetEase has been making “unreasoanable demands” over the years. On top of that, Bobby Kotick wasn’t happy when the Chinese company invested $100 million in Bungie in 2018, which at the time was making Destiny for Activision.
• The biggest rift happened last October during a call between Kotick and NetEase CEO William Ding. Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard was one of the top talking points, with Kotick worrying that a new licensing deal would rattle Chinese regulators reviewing the deal and would give NetEase more control over Activision’s IP.
• According to two sources, Ding said during the call that NetEase could sway the Chinese government to either block or support the merger depending on the outcome of the licensing negotiations. Activision execs saw it as a direct threat.
• It is unclear what NetEase’s true intension was, but the entire conversation was conducted through translators, so there could be some misunderstandings. According to the NYT sources, the Chinese company just tried to warn Activision that if it didn’t extend the agreement, Microsoft would face the same regulatory pressure after the merger is completed.
• A NetEase spokesman told the NYT that Ding hadn’t threatened Activision.
• But after listening to Ding, Activision made a counteroffer to NetEase, requiring the Chinese company to pay it about $500 million upfront, ostensibly to mitigate the risks of potential pressure from local authorities.
• In January, NetEase called Activision Blizzard’s proposal “outrageous, inappropriate, and not in line with business logic.” And the two companies couldn’t agree on the new terms, leading to all Blizzard titles going offline in China.

What do Activision Blizzard and NetEase plan to do next?

• In January, NetEase approached World of Warcraft players in China, offering them to switch to its own MMORPG, Justice Online. Many people then noticed that some in-game items were similar to those in WoW, but the company denied all the similarities.
• NetEase has no plans to partner with Blizzard again, with its spokesman telling the NYT that the company had moved on, and “we suggest Activision Blizzard do the same.”
• Activision Blizzard is currently in talks with new potential partners to return to the Chinese market. Tencent and ByteDance are said to have expressed interest in a deal, and Activision has also reportedly considered working with telecommunications companies like China Mobile.