Two months after the "breakup" incident between NetEase and Blizzard fermented, Blizzard and NetEase determined that negotiations had failed and would not renew their cooperation.
On January 17, Activision Blizzard officially issued an announcement that it would suspend the national server game service on January 23 in accordance with the announcement of NetEase Ease server suspension. NetEase is a subsidiary of NetEase, which is used to contact Blizzard and operate Blizzard games in mainland China.
Reliable sources close to Blizzard pointed out that last week Blizzard Entertainment and NetEase launched final negotiations and communication to explore an agreement based on the established terms that NetEase had agreed to in 2019, and the cooperation was extended for six months. The proposal is intended to allow the game to avoid disrupting operations, while Blizzard buys more time to seek future partners, including new negotiations with NetEase to renew its contract.
The source told reporters that last week's communication was initiated by Blizzard Entertainment President Mike Ybarra, with the participation of NetEase executives, but the latter did not accept the proposal to extend the existing game service agreement. Blizzard had objected to the layoffs on NetEase's side, because the layoffs might affect the subsequent handover, but they were not adopted.
Split stems from IP control?
On November 17, Blizzard and NetEase successively issued statements saying that they would terminate their cooperation after the expiration of the agreement. Since reaching an agency agreement in 2008, NetEase has cooperated with Blizzard for 14 years, and games such as "World of Warcraft" and "Hearthstone" have accumulated a group of loyal players in China, and this "breakup" has caused an uproar in the industry and player groups.
Blizzard said in a statement that from 0:00 on January 24, 2023, all national server games, including "World of Warcraft", "Warcraft III: Remake", "StarCraft" series, "Hearthstone", "Heroes of the Storm", "Overwatch" and "Diablo III" will cease operations.
The reasons for the break in cooperation between Blizzard and NetEase have different rhetoric on both sides.
A reliable source close to Blizzard recently told CBN that the reason for the breakdown of the entire negotiation is that NetEase wants to fundamentally change the form and structure of cooperation between the two sides, which will make Blizzard lose control of the game IP, which is unacceptable to Blizzard.
Blizzard Entertainment's previous statement pointed out that it did not reach a renewal agreement with NetEase that was in line with Blizzard's operating principles and commitments to players and employees.
On November 17, NetEase said in a post on its WeChat public account that after a long period of negotiations, it was still unable to reach an agreement with Blizzard on some key cooperation terms related to sustainable operations and the core interests of the Chinese market and players.
In the third quarter earnings call, NetEase CEO Ding Lei said that NetEase very much hopes to continue to represent Blizzard games and has made a lot of efforts to this end, but Activision Blizzard's requirements are unacceptable for some key cooperation terms related to sustainable operations and the core interests of the Chinese market and players.
Previously, some media reported that Blizzard had proposed sky-high conditions, such as Blizzard's share of more than 50% of revenue and net profit compared with the 2019-2022 contract period, and Blizzard's game pricing will adopt a global synchronization strategy, while the previous national service pricing was generally about 20% lower than that of other parts of the world.
In this regard, people close to Blizzard China revealed that these statements are not entirely accurate. In terms of share, Blizzard did not open its mouth and asked for a further significant increase in the share ratio; In terms of game pricing and charging, Blizzard did not require NetEase to implement a global synchronization strategy, that is, raise prices in China.
Regarding the information circulating in the market that Blizzard wants to control "the data of millions of players across China", people close to Blizzard China said that Blizzard has no relevant intentions. NetEase has not publicly expressed its position on matters related to player data.
Blizzard had proposed a six-month extension of the partnership
Just next week, on January 23, the agreement between NetEase and Blizzard will expire, but there is no official confirmation of the new agent.
CBN learned from sources that Blizzard is still negotiating with a number of potential partners, and the list is gradually narrowing, but the negotiations are expected to continue for some time. Blizzard wanted to find a local partner who could provide high-quality and stable gaming services.
Previously, on December 13, Blizzard China released a letter from John Hight, general manager of the Warcraft production team, to Chinese server players on its official Weibo, in which it mentioned that it was negotiating with some potential distribution partners in the national server region for World of Warcraft, and "it is expected that the transition and handover of the national server with the new partner will proceed smoothly." ”
Tencent, Byte, Station B, Perfect World, Mihayou, Jiucheng and other companies are all considered potential interested parties of Blizzard, but no related companies have confirmed it. Zhang Shule, a game industry analyst, told CBN that Blizzard may need a powerful but not explosive manufacturer to go all out to operate its games, "just like Jiucheng's desperate all-out operation that created the glory of 5 million Chinese players." ”
Zhang Shule believes that in the handling of issues related to the suspension of the server, Blizzard and NetEase will definitely refer to the past of World of Warcraft's Chinese agency from Jiucheng to NetEase in 2009. "There will inevitably be new agents, or Tencent, which has already cooperated, but it may also be like choosing a weak person to fully promote the game operation, as in 2004, as in choosing Jiucheng, instead of choosing too much and being half-hearted like NetEase."
Faced with the gap problem, Blizzard last week wanted to renew its contract with NetEase for six months based on existing agreements and frameworks, but NetEase did not accept the proposal.
The latest round of negotiations and communications, initiated by Blizzard Entertainment President Mike Ybarra and NetEase executives, explored an agreement based on NetEase's 2019 agreement to agree to established terms, hoping to extend the cooperation for six months.
Blizzard said in the announcement, "Unfortunately, NetEase is not willing to extend the game service for six months based on the existing cooperation terms while we are looking for a new partner, so that everyone can continue to play during this time." ”
Some media recently reported that most of the employees of the local team responsible for running Blizzard games, NetEase, have left. The team previously had fewer than 100 people, mostly operations, and has only 10 employees left to work on the aftermath.
Reliable sources close to Blizzard said that Blizzard had raised objections to NetEase's layoffs because they might affect subsequent handovers, but there was no response.
In the "breakup" incident, Activision Blizzard and NetEase both disclosed the revenue brought by game cooperation, and both said that the proportion of revenue contribution was not large.
Activision Blizzard's Q3 2022 earnings report shows that the current agreement with NetEase that needs to be renewed covers a number of games released in Blizzard China (World of Warcraft, StarCraft II, Hearthstone, Overwatch, etc.), which account for about 3% of Activision Blizzard's consolidated net revenue in 2021.
However, the 3% figure is based on the revenue of 8.803 billion US dollars from the head office Activision Blizzard, and if the net income of Blizzard Entertainment related to NetEase agency business is 1.827 billion US dollars, NetEase agency business should account for about 15% of Blizzard Entertainment's revenue.
In the third-quarter earnings report, NetEase said that the percentage of net revenue and net profit contributed by games represented by Blizzard to NetEase's net revenue and net profit in 2021 and the first nine months of 2022 were all low single digits. The expiration of the license will not have a material impact on NetEase's financial results.
NetEase's 2019, 2020 and 2021 annual reports show that revenue from agency games accounted for 7.5%, 9.1% and 9.5% of its total revenue, respectively, of which agency game companies include Blizzard, Microsoft and so on.
As of press time, the reporter has not contacted NetEase Games to respond to the relevant information.