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The reporter | peng new

Activision Blizzard said in a statement on its website on Nov. 16 that it will suspend most of its Blizzard game services in mainland China due to the expiration of the current licensing agreement between its subsidiary Blizzard Entertainment and NetEase on Jan. 23, 2023. Activision Blizzard said the two sides did not reach a renewal agreement consistent with Blizzard's operating principles and commitments to its players and employees.

Activision Blizzard and NetEase "break up" news, that is, in the capital market caused a stir. On November 17, Beijing time, NetEase's share price continued to fall after the opening, by the end of trading in Hong Kong, down more than 9.05%.

In addition, speculation about the reasons for the termination of the two sides is still fermenting in the public opinion field. According to media reports, Blizzard proposed a high price for the contract extension, and quoted a NetEase source as saying that Blizzard "requires NetEase to work for free".

According to the above sources, Blizzard's terms for NetEase's renewal include: a further increase of Blizzard's share of revenue and net profit over 50% of the 2019-2022 contract period; Blizzard's game pricing will be synchronized globally, which is about 20% lower than the rest of the world. In addition, Blizzard has asked NetEase to develop other Blizzard IP mobile games for global distribution in the Diablo: Immortal model, but NetEase will only enjoy a share of the revenue in China.

In response to the report, a person close to Blizzard China told Jiemian News that it is not true to say that "NetEase is required to work for free", and the three points mentioned in the report are obviously not true: Blizzard did not make a big offer on the share, requiring a further increase in the share ratio; In terms of game pricing, Blizzard has not asked NetEase to implement the global synchronization strategy, that is, to raise prices in China.

Blizzard also asked NetEase to follow Diablo: The source told JiemianNews that it was not clear what the meaning of the statement was. Blizzard did cooperate with NetEase to develop a mobile game based on Blizzard's game IP before, but the game was canceled internally due to quality problems, and there was no discussion of sharing.

The cooperation between Blizzard Entertainment and NetEase began in 2008. In August of that year, Blizzard and NetEase signed a three-year cooperation agreement on games such as StarCraft II, Warcraft III: Frozen Throne and Warcraft III: Reign of Chaos. In 2009, NetEase acquired Blizzard's popular product World of Warcraft for three years. In a filing with the Securities and Exchange Commission, NetEase disclosed that it would pay a fee of no less than $301.5m for both agreements.

In the past 14 years of cooperation, Blizzard and NetEase have successively launched Hearthstone, Heroes of the Storm, Overwatch and other new products in the domestic market. NetEase was able to secure the No. 2 position in the domestic game market, and Blizzard was able to expand into the Chinese game market through NetEase.

In the third quarter financial report, Activision Blizzard mentioned that the game agency agreement is about to expire, and NetEase is discussing renewal, and said that "ultimately may not be able to reach a mutually satisfactory result." The games covered by the agreement represent nearly 3% of Activision Blizzard's consolidated 2021 net revenue, or $264 million based on the company's total 2021 revenue of $8.8 billion.

NetEase also disclosed the contribution of Blizzard Games to its revenue and profit in its financial results today: In 2021 and 2022, the net revenue and net profit contribution percentage of the first nine months of agency Blizzard Games were both in the low single digits. NetEase added that the expiration of the license will not have a material impact on NetEase's financial results and that the co-development and distribution of Diablo: Immortal will be covered by a separate long-term agreement.