Mike Ybarra, president of the video game developer Blizzard, told employees Thursday that the company’s partnership with Chinese video game distributor NetEase was ending due to a misalignment in principles and approach. In an email viewed by The Washington Post, Ybarra granted employees at the company a more candid assessment of the breach between the two companies, which will result in Chinese gamers losing access to “World of Warcraft” and other popular titles like “StarCraft” and “Overwatch 2.”
“Every few years we review our agreements with them. We have been working through this process in good faith to extend our existing agreements,” Ybarra said. “However, their approach was not aligned with our commitment to players, employees, and our operating principles.”
In the email, Ybarra wrote that the company plans to suspend new sales in China in the coming days, and will notify Chinese gamers about next steps. Still, the local releases of “World of Warcraft: Dragonflight,” “Hearthstone: March of the Lich King,” and season 2 of “Overwatch 2” — content that was planned for this year — won’t be affected, according to the email.
“Hearthstone,” “Heroes of the Storm” and “Diablo III” will also end operations in China. The only title to remain unaffected is the mobile and PC title “Diablo Immortal,” which was covered under a separate agreement.
Ybarra also wrote that esports partnerships and programs in China would be affected. The licensing agreement between Blizzard and NetEase ends on Jan. 23, 2023.
NetEase sent out an email blast Wednesday evening informing media that “there were material differences on key terms,” and that the two parties could not reach a deal. The press release noted that the licensed Blizzard games “represented low single digits as a percentage of NetEase’s total revenues and net income in 2021 and in the first nine months of 2022.”
NetEase stock shares plunged 15% in Hong Kong after the news.
NetEase’s head of partnerships Simon Zhu wrote in a LinkedIn post Thursday that “one day, when what has happened behind the scene [sic] could be told, developers and gamers will have a whole new level understanding of how much damage a jerk can make.” Zhu said he was also a gamer who spent ten thousand hours in “WoW,” “StarCraft” and “Overwatch” and that he was “heartbroken” over the prospect of losing access to the games next year.
China is a significant market for Blizzard. The company noted in a Securities and Exchange Commission filing on Thursday that NetEase’s expiring contracts constituted approximately 3% of Activision Blizzard’s net revenues in 2021. This comes out to $264 million, given that Activision generated roughly $8.8 billion in net revenue last year.
The PC title “World of Warcraft” rose to popularity in the mid to late 2000′s, when China’s 15-year ban on consoles was still in effect. In recent years, video game companies in China have felt pressure around strict laws dictating which kinds of new games can be approved for release. Tencent, a prominent Chinese multimedia conglomerate, reported its first decline in revenue in August, falling 3 percent to a total of $19.78 billion, with gaming revenue declining 1 percent.
Activision Blizzard is set to be acquired by Microsoft for nearly $69 billion by June 2023, pending regulatory review.
This is a developing story and it will be updated.