NetEase vs. Activision Blizzard: Why NetEase Had to Refuse a Six-Month Extension

Pictured: What the NetEase - Activision Blizzard joint offices looked like last week. Credit: TEA

U.S. game publisher Activision Blizzard announced on Tuesday that its Chinese distributor NetEase had refused a proposal to extend their 14-year long-term partnership deal for another six months as it seeks to find an alternative distribution partner in China.

“Since NetEase posted its ending announcement [posted on Nov.17, related to the end of the partnership between NetEase and Activision Blizzard], we are all suffering from the situation, as we always put our gamers and users in the first place,” Activision Blizzard claimed in an announcement in China. “Last week [Jan.9-13], we reached out to NetEase and asked for a six-month extension, which is based on the deal that NetEase agreed to in 2019. However, NetEase refused the proposal, and we had no choice but to close the game service on Jan.23, according to the NetEase ending announcement.”

But the timeline of events presented by Activision Blizzard doesn’t match up; In fact, it was Activision Blizzard that initiated the ending announcement on its official website on Nov. 16, at 9 p.m. EST, and first detailed the expiration date of the partnership – Jan.23. NetEase responded to Activision Blizzard at 4:49 a.m. EST on Nov. 17, and confirmed that all Blizzard games, including World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, StarCraft I and II, Diablo III, and Heroes of the Storm would be suspended by midnight local time on Jan. 24, 2023.

Working on that understanding of Activision Blizzard’s timeline, NetEase disbanded the NetEase Blizzard local team, laid off close to 100 employees, and left around 10 employees to handle follow-up work, sources close to NetEase told The Esports Advocate. In addition, the office of the original joint department of NetEase Blizzard has been closed. A photo of the office obtained by TEA shows that it is empty. At this point, It’s basically impossible for NetEase to agree on an extension of six months. Activision Activision Blizzard is claiming that it negotiated the proposal with NetEase last week.

Activision also claimed that it was still looking for alternative partners in China: “Unfortunately, NetEase is not willing to extend the game service for another six months based on the existing terms while we seek a new partner, so that everyone can continue to play during this period,” Activision said, emphasizing that it would “…will still thrive on finding partners who share the same beliefs.”

It is important to note that, even if NetEase accepted Activision Blizzard’s proposal and was willing to extend the partnership an additional six months, it’s nearly impossible for the U.S. publisher to find an alternative partner who can get multiple game approvals for Blizzard games during that time period. According to China’s regulations, if a foreign game developer changes its distributor in China, all suspended games must apply for a new game approval from the Chinese government.

The process of applying for game approval for foreign developers is long and sometimes difficult: it can take as long as two-three years in some cases. Multiple sources in the Chinese gaming industry confirmed this to TEA on Tuesday.  For example, Riot Games’ Valorant was published in June 2020 in the rest of the world, but didn’t get final game approval in China until December 2022. Backed by Tencent—the biggest game publisher in China—Riot Games still waited over two years to get game approval.

In addition, potential Chinese partners for Activision Blizzard, such as Tencent, Perfect World, Bilibili, or ByteDance, have to consider two factors—how much Activision Blizzard CEO Bobby Kotick and Microsoft will be involved in the negotiation. With a pending merger coming later this year it might not make a lot of sense to negotiate a multi-year partnership until that transaction is either completed or ended.

The story is developing. TEA reached out to NetEase,  who declined to comment as of writing. However, NetEase has responded to Activision Blizzard’s claims about asking for a six-month extension and claims that NetEase did not want to control Blizzard’s IP.

“For an unknown reason, Activision Blizzard reached out to NetEase and looked for a six-month extension and other conditions, and claimed that they are not stopping finding potential partners,” NetEase wrote in an official statement posted online. “NetEase learned that the deals Activision Blizzard negotiated with other companies were based on a three-year term. Considering the unequal, unfair, and other conditions attached to the deal, we failed to reach an agreement in the end.”

In addition, NetEase also criticized Activision Blizzard’s statement to the media, calling it “outrageous,” and “unseemly with no business logic.”

“We believe that Activision Blizzard’s proposal and today’s announcement are outrageous, and unseemly with no business logic. A narcissistic company shows no respect to its gamers and partner, by using this, is tantamount to ‘Divorce but [they] still want copulation’ behavior,” NetEase wrote.

A number of media outlets have also reported that NetEase was looking to control Blizzard’s IP. NetEase strongly denied these accusations.

“As a distributor, NetEase never asked for Blizzard IP and controlled it. In the past 14 years, NetEase used Blizzard IPs or authorizations based on the partnership terms and got approval from Activision Blizzard,” NetEase wrote.