NetEase Declines Activision's Proposal to Extend China Licensing Agreement

NetEase Inc., a Chinese videogame publisher, saw its shares dip 0.32% on the news that Singapore authorities had raided one of its offices. The raid is part of an ongoing investigation into possible illegal gambling activities associated with the company's popular game, Fantasy Westward Journey.

Activision has refused to comment on the situation.

Blizzard Inc. has offered to extend its licensing partnership with Tencent, the companies said, deepening a rift between the firms over operations in the world’s biggest mobile game market.

Blizzard Entertainment Inc. has proposed a six-month extension to its partnership with NetEase, which is set to expire next week. The licensing partnership has brought Blizzard’s globally popular videogames such as “World of Warcraft,” “Diablo III” and “Overwatch” to the Chinese market through NetEase.

Mike Ybarra, president of Blizzard Entertainment, met with NetEase executives in China last week to discuss a possible extension of the partnership, according to people familiar with the matter.

NetEase has rejected Blizzard's proposal, the company said in a statement on its Weibo social media account. Blizzard also said it is in talks with several other videogame companies to find a new partner in China.

NetEase said that the six-month extension period that Blizzard offered was uncommon. ” Blizzard typically strikes deals with partners for three years, but considering the non-reciprocity, inequity and other conditions attached to the proposed partnership, the two parties couldn’t reach an agreement,” NetEase said.

NetEase said Blizzard's proposal and Tuesday's statement were "rude, improper and commercially foolish." NetEase said Blizzard was trying to extend the partnership to cover the gap of service while Blizzard negotiates for a better deal with others.

Blizzard was not available for comment on NetEase's statement Tuesday night.

In November, Blizzard and NetEase announced that they were planning to shut down the services. On Jan. 23, Blizzard said that the decision came after months of negotiations soured around control of intellectual properties and player data. According to The Wall Street Journal, this was a major blow to the Chinese gaming market.

NetEase, in the Tuesday statement, denied that it tried to seek control of any Blizzard intellectual properties. NetEase stated that it has been a cooperative partner with Blizzard for many years and has never had any intention of harming the company or its IPs.

China's videogame sector has been facing tighter government oversight and a slowing economy. According to market tracker CNG, last year the market shrank by 10% from a year earlier to around $40 billion, the first decline in more than a decade.

Despite the recent thaw in the Chinese videogame market, there is still a great deal of uncertainty surrounding the industry. Following a months-long freeze that started in July 2021, authorities have been issuing publication licenses for new videogame titles, including resuming approvals for foreign titles in December. While this is a positive sign, it remains to be seen how long the market will remain open and what restrictions will be placed on future titles.

The 14-year partnership between Blizzard and NetEase has helped Blizzard access the Chinese videogame market, while bringing Blizzard’s global hits to NetEase. However, sentiment on Weibo, a Twitter-like social-media platform popular in China, has been largely critical of Blizzard.

NetEase last week launched a version of its multiplayer role-playing game “Justice” with features that NetEase said are similar to Blizzard’s “World of Warcraft.” NetEase also said the latest version of “Justice” was designed for Chinese players of “World of Warcraft” that is set to close. NetEase said it started developing the version after the negotiations with Blizzard failed.

Blizzard has announced that it will be launching a tool on Wednesday that will allow players of "World of Warcraft" in China to download their progress for future use. This comes after NetEase earlier said that player data will be stored and handled in accordance with laws.