World of Trouble

“I never thought one day I would never again log in to Azeroth (the fictional land in WoW) with my 10-year-old account,” Liu told NewsChina. 　

The 31-year-old gamer was among millions lamenting the move after California-based Activision Blizzard, maker of the global hit multiplayer game released in 2004, announced it would not renew its licensing agreement with NetEase, WoW’s distributor on the Chinese mainland. 　

According to Blizzard’s statement on November 17, 2022, it would pull WoW and other popular Blizzard titles such as Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series and Diablo III from the Chinese mainland at midnight on January 24, 2023, officially ending its 14-year partnership with NetEase in the world’s largest gaming market. 　

As gamers like Liu hoped for renegotiations, NetEase announced the launch of a new independent server for Justice Online, its martial arts fantasy online multiplayer, tailored for incoming ex-WoW players. The server includes gameplay and pricing changes to make Justice Online, seen as a local competitor to WoW upon its 2018 launch, feel more like the Blizzard game. On January 17, Blizzard issued a statement claiming that NetEase had refused an offer to extend their deal for six more months. 　

NetEase responded the same day, accusing Blizzard of “being rude, improper and commercially illogical.” NetEase claimed that Blizzard’s six-month offer came with unfair conditions, namely the company would continue negotiations with other potential distributors during that period. NetEase likened it to “seeking a divorce but still remaining attached.” 　

On January 23, NetEase officially announced it would take down its Blizzard servers and block game downloads. The move left Chinese players in the cold, many of whom had dedicated thousands of hours to crafting and developing their virtual characters. 　

“I started playing in 2012. Although I’ve been AFK (away from the keyboard) since I got married in 2019, I never thought of selling my account. It holds the memories of my youth,” Liu said. 

　

Although Blizzard emphasized it is still looking for another Chinese partner, a requirement for overseas games to operate on the mainland, there are still no takers. 

According to The Washington Post, Mike Ybarra, president of Blizzard Entertainment under Activision Blizzard, wrote in an email to employees that “it was a mismatch in values” that led to the non-renewal, without going into further detail. 　

NetEase, the mainland’s second-largest game developer after rival Tencent, released an English-language response to Blizzard’s statement: “We have put in a great deal of effort and tried with utmost sincerity to negotiate with Activision Blizzard so that we could continue our collaboration and serve the many dedicated players in China,” the statement said. “However, there were material differences on key terms and we could not reach an agreement.” 　

The statement did not further detail what the “material differences” are. 　

Chinese news portal guancha.cn quoted an insider as saying Blizzard proposed “high-price” conditions for the renewal and called some of the terms “ridiculously unacceptable.” 　

According to the insider, Blizzard sought a revenue share greater than in its previous contract. The company allegedly required that NetEase help develop and launch mobile versions of Blizzard’s other titles, but would only be eligible to earn profits from the Chinese market. The insider said Blizzard required NetEase to pay a deposit and compensation if NetEase fails to hit a certain revenue quota. 　

The insider called the terms “working for Blizzard free of charge.” 　

Another insider told NewsChina that NetEase initially saw developing Blizzard IPs as mutually beneficial, but Blizzard allegedly required a two-year advance on projected revenue growth in the neighborhood of several hundred million yuan. 　

“It was not acceptable that they required payment based on projected revenue rather than actual revenue,” the insider told NewsChina. 　

Bloomberg reported that the primary disputes behind the split involved “intellectual property” and “Blizzard’s intentions to control the data of millions of Chinese players.” However, the insider interviewed by NewsChina said the latter is unlikely, as NetEase owns and controls the servers. 

According to the insider, Blizzard and NetEase had disputes involving joint ventures after Microsoft announced its offer to snap up Activision Blizzard for US$68.7 billion on January 18, 2022 in what would be the largest buyout in the industry’s history. 　

Microsoft’s stock price plunged the same day. Some analysts called the deal “irrational.” Gaming journalist Jeff Grubb tweeted “Activision is slowly disintegrating and making fewer games than ever,” to which senior Asian game market analyst Daniel Ahmad replied “A specter is haunting the games industry, the specter of consolidation.” 　

Such comments increased amid allegations of sexual harassment and workplace misconduct at Activision Blizzard against female employees dating back to 2016. 　

In 2022, 1,800 employees petitioned for Activision Blizzard CEO Bobby Kotick to resign after it was revealed that he withheld knowledge of the allegations from the company’s board. Kotick is expected to leave the company once the deal with Microsoft closes, Forbes reported. 

　

These may be reasons why Blizzard proposed stricter terms for renewal. “Blizzard’s executives may want to leverage their performance in the Chinese market to negotiate a higher position in Microsoft following the acquisition,” the insider told NewsChina. 　

Neither side has commented on these insider claims. But in an open letter to WoW players, NetEase said that the negotiations were harder than expected and that it could not accept some terms concerning sustainable operations and players’ core interests. 　

Following the company’s statements, Simon Zhu, president of global investment and partnerships for NetEase, posted to his LinkedIn page in English: “One day, when what happened behind the scenes can be told, developers and gamers will have a whole new level of understanding of how much damage a jerk can make.” The post triggered online debate among Chinese gamers about whether the “jerk” is from NetEase or Blizzard. 

NetEase’s shares plunged following the announcement in November. They recovered after the company claimed that Blizzard’s games contributed a “low-single-digit percentage” of its net revenue and net income. According to Netease’s fiscal report in the third quarter of 2021, its income from the third party’s games was 9.5 percent of the total. 　

However, of Activision Blizzard’s five units (Activision Publishing, Blizzard Entertainment, King Digital Entertainment, Major League Gaming and Activision Blizzard Studios), the Chinese market mainly benefits Blizzard Entertainment. If calculating only for the total revenue of Blizzard Entertainment, the Chinese gaming market contributes around 15 percent. 　

Analysts pointed out that NetEase intended to cooperate with Blizzard in more ways, such as their co-developed MMORPG Diablo: Immortal in July 2022. The game saw around 35 million pre-orders worldwide in the first quarter of 2022, 15 million coming from China, according to NetEase. The game is covered by a separate long-term agreement and not on the list of suspensions. 　

Over the years, NetEase accumulated valuable experience in its cooperation with Blizzard, and has been promoting its own games on the global market. 　

According to NetEase’s fiscal report, overseas markets contributed 10 percent to its total profit for Q1 2022. According to NetEase’s CEO William Ding, that share will increase to 40-50 percent with its launch of more titles and game studios overseas. NetEase’s The Lord of the Rings: Rise to War, which launched in Europe, North America and Southeast Asia in September 2021, reportedly earned 47 percent of its revenue from the North American market as of April 2022. In May 2022, NetEase established its first game studio in the US, Jackalope Games. 

That is why many players hoped NetEase and Blizzard would return to the negotiating table. But those hopes were dashed when Blizzard opened a new Asian server for Chinese mainland players in November 2022 and NetEase announced its WoW-themed server for its own MMO game Justice Online in December 2022. According to NetEase’s statement, they will make changes to Justice Online so WoW players can quickly adjust to the game. NetEase said they planned to inject at least 30 million yuan (US$4.3m) into the project. 　

The WoW-themed server, also called the “veteran server” among Chinese gamers, opened on January 13, attracting hundreds of thousands of ex-WoW players, including many who had not logged into their WoW accounts for years. The influx forced NetEase to temporarily add two servers to accommodate them all. 　

But many veteran players are prepared to leave WoW forever. Kevin Liu said he contacted many of his former teammates to log in for some final screenshots together. Some expressed their “deep disappointment” in Blizzard, feeling abandoned by them. Among their greatest concerns are their caches of virtual weapons, items and assets in the game – many purchased for real money – that are for now inaccessible. 　

On January 18, Blizzard provided WoW mainland players a “digital box” to seal up their game accounts and records, but many players complained that the “box” was more like a shabby and unsecure applet. On February 1, NetEase opened a refund channel for players of suspended games for unused game currencies and services, but it did not include the already-purchased virtual items. Chinese media reported that NetEase and Blizzard are in dispute over which company should be responsible for them. 　

But others hold on to hope that another major Chinese company will take the reins, such as Tencent, Bilibili or Bytedance. 　

In late November 2022, media reported that Blizzard’s former partner The9 Ltd had expressed interest in signing a deal, but players doubted whether the smaller company would accept Blizzard’s terms or could bear the operating costs. 　

For any game developer in China, the greatest obstacle is the required government-issued game license. According to local laws, operators must re-apply for new licenses when games change hands. But this became more difficult in 2021, when the Chinese government tightened supervision of online games in response to media and parental outcry over the effects of gaming on children. 　

According to Sina Finance, only 314 licenses were issued between March and November 2022. Although restrictions have since loosened, many experts are still wary. 　

“Nobody can predict how long the wait will be for a new license. It could be several months or even several years. If Blizzard insists on a two-year advance on fees, few companies will take such a gigantic risk given the present economic state,” the above-mentioned insider told NewsChina. 　

Another possibility for NetEase is renegotiating with Microsoft once it acquires Activision Blizzard. However, the US Federal Trade Commission has attempted to block the US$68.7 billion deal with a lawsuit against Microsoft over concerns it will affect competition in the industry. 　

Although Kotick reportedly assured employees in an email that Activision Blizzard will win the lawsuit, nobody knows how long it will last and how it will influence the deal. 　

But ultimately, Chinese fans of the WoW franchise are losing out most. “Accept the worst result,” Kevin Liu said. “We players have no power or say in the matter. We have to face reality and say farewell to our youth.”