Katie Zhao

Blizzard & NetEase drama

Overview

China Blizzard office after the announcement of the contract coming to an end https://twitter.com/Wowhead/status/1615831691888664585/photo/1

Blizzard Entertainment has had licensing agreements with NetEase since 2008, covering the publication of Blizzard games in China on a separate server. After failing to reach a consensual deal, the two companies did not renew the contract at the end of 2022, ending the 14-year partnership. Starting from the 23rd of January, 2023, millions of gamers in China can no longer enjoy Blizzard franchises. That includes the following games:

• Overwatch
• Hearthstone
• World of Warcraft
• Diablo
• Starcraft
• Heroes of the Storm

Blizzard games going offline in China is not only a dispute between two industry leads on the opposite sides of the globe, but it also means erasing progress data that players have been investing in for years. Many devotees of the popular game took to social media networks to bemoan the loss, including mainstream celebrities such as Joker Xue, who posted on Weibo saying “Don’t know what the hell Bobby Kotick is doing, but Blizzard is still the best real-time strategy creator in my heart. I also believe it will come back. I hope we can still meet in the lost temple and big game hunters. Goodbye young us…” (machine-translated). “Knowing that the split is set in stone, I’m still deeply saddened by how things ended,” a Weibo user wrote, adding a series of crying emojis. “Playing WoW with my homies was such a major part of my childhood and adolescence. These are memories I’ll forever cherish,” another person commented. Sentiments like this are prevalent as many uncertainties are still in the air.

Background

Under Chinese law, all digital games are required to receive a license from authorities in order to be distributed locally and fully monetized. Because non-Chinese entities can’t submit games to Chinese regulators for review, foreign publishers have to team up with local companies if they want to introduce games to the Chinese market. Although the Chinese gaming market is compatible in size and importance, the strict regulations and content policies makes it extremely difficult for foreign companies to break into or partner with, especially in the past few years with the Chinese government introducing many new restrictions limiting how much under aged people can play video games, as well as how companies can grant license approval process .

The Dissolution

Blizzard Side

In 2019, Blizzard suspended a professional Hearthstone player named Ng Wai Chung from play for a year and forced him to forfeit tournament winnigs in the Hearthstone Grandmasters Tournaments. Around the same time, one of the largest series of political demonstrations were taking place in Hong Kong, where people cried for the Chinese Communist Party to not intervene with the political system in Hong Kong. During a Taiwan Hearthstone stream interview, Chung expressed his stance to “liberate Hong Kong”, which would be deliberately going against the goal of the Chinese Communist Party . Blizzard banning Chung indicates that they sided themselves with the CCP, which created a lot of controversies surrounding Blizzard’s relationship with Chinese censors. It is possible that, major tech company like NetEase, would have an adverse reaction to their partner favoring the government.

Blizzard’s reputation has also taken a down turn in recent years. In July 2021, a lawsuit against Blizzard began with employees protesting against the company’s poor handling of ongoing sexual harassment allegeations. “For years, Activision Blizzard’s open ‘frat boy’ environment fostered rampant sexism, harassment and discrimination with 700 reported incidents occurring under CEO Robert Kotick’s watch,” the lawsuit explains. “The sexual misconduct was often committed by executives and in the presence of HR.” A report from the Wall Street Journal last year found that the CEO knew for years about rampant sexual harassment at the company, but failed to act. The nosedive in Blizzard’s reputation could just be adding another layer of consideration to NetEase’s decision to end their decade-long partnership contract.

Not long after the lawsuit began, on January 18, 2022, American tech giant Microsoft announced that they plan to acquire Blizzard for $68.7 billion in cash. If approved by regulatory and shareholders, it will be the largest vide game acquisition in history, making Blizzard, among with its other merged sectors, be under the Xbox Game Studios brand. There are theories saying Microsoft may have intervened in the Blizzard-NetEase negotiations, since the official merge would come soon after the supposed contract renewal. On Feburary 8, 2023, the CEO of Activision Blizzard, Bobby Kotick went on CNBC to ease UK regulators’ reluctance to approve the Microsoft acquisition. “Sony Studios goes back 80 years. Nintendo has the very best characters that exist in video games. I think [European regulators] are a little confused about where competition is today. The best companies in the world right now are companies like Tencent and ByteDance. And these are all companies that have protected markets. We struggle to enter the Japanese market, we can’t enter the Chinese market without a joint venture partner. The competition isn’t actually European companies and American companies, it’s really those companies in Japan and China.” Kotick wanted to give the impression that U.S. and Europe are united against the two entirely different nations of China and Japan, and ultimately, keep the market dominance within the white nations.

Another theory argued that Mircrosoft had nothing to do with the deal between Blizzard and NetEase. Microsoft has been partnering with NetEase to distribute its popular action-strategy game Minecraft for the Chinese market. Coincidentally, the contract is also set to expire in 2023, close to the expiration date of the Blizzard-NetEase contract. As of today, there is no sign that NetEase or Microsoft will terminate the partnership. However, if Microsoft deliberately let the contract expire without renewal, then it would be clear that Microsoft is up to Blizzard’s neck on this matter .

Between Blizzard & NetEase

In Activitsion Blizzard’s 2021 Third Quarter Financial Results Report Report, their long-term publishing partner NetEase’s name was not mentioned in the document, but replaced with “a third party covering the publication of several Blizzard titles in China”. The China market was noted to be only 3% of Activision Blizzard’s consolidated net revenues, which can come off as downplaying NetEase’s contribution, creating adverse sentiments. The report also prophesied that “regarding the renewal of [the] agreements [expiring in January 2023], a mutually-satisfactory deal may not be reached.” The relationship between the two companies was already at tense back then.

On November 16 2022, Blizzard announced in a press release that it will be suspending most Blizzard game services in mainland China due to expiration of the current licensing agreements with NetEase on January 2023. Soon after, NetEase issue their own announcement, saying it has been doing its best to negotiate with Activition Blizzard, hoping to advance the contract renewal.

On January 19, 2023 Blizzard released a lengthy statement stating that they re-sought to NetEase about a possible six month extension to their partnership, while “exploring a reasonable and long-term path forward in the China region.” The release ends with notes on that Blizzard is continuing to search for a new local licensing partner, saying they “have started talks with a number of potential partners who share our player-first values.” In fact, there are many other tech or gaming companies in China eyeing on the situation, and perhaps been sought after by Blizzard already. For one, Blizzard already has their Call of Duty: Mobile operating in China under Tencent’s Timi Studio Group. Considering Tencent’s strong distribution channels and its experience managing overseas game franchises, it is possible that Tencent may replace NetEase in order for Blizzard to keep their game franchises running in China. The post amassed nearly 40,000 comments, with many harshly criticising Blizzard for their alleged recklessness. “It’s too late to act regretful. If you really cared about players, you could have planned things out more carefully,” a Weibo user commented. NetEase rejected the extension deal and posted a fiery response to clarify that they are not at fault for the breakdown of negotiations. NetEase listed a number of financial and intellectual property disputes that contributed to the failed negotiations, and condemned the fact that Blizzard was negotiating with other companies on a three-year contract period. They stated, “considering the non-reciprocity, unfairness and other conditions attached to the cooperation, therefore, the parties could not reach an agreement in the end.”

NetEase Cutting Ties - Literally

In response to the incident, the NetEase social media team hosted a live stream for 30,000 people where employees destroyed a Blizzard statue outside their Blizzard office, as a part of dismantling the work. During the livestream, they also showcased the newest drink available at their coffee station: the Blizzard “Green Tea”, which is a modern Chinese slur referring to a manipulative person who tries to appear wholesome, innocent, or traditional, but is decidedly not so.

While Chinese social media may play a different set of rules than Western brands do online, calling their past partner a derogatory slur and racking their physical representations clearly marks the “breakup” unsavlagable.

Ethical Implication

After the decision to end the partnership came to light, in a letter to users in December, 2022 (machine translated), John Hight, general manager of Blizzard’s Warcraft franchise, said the team was “working hard to develop a function that will allow you to save your game characters, props, and progress.” The company tried to reassure players that they won’t lose how far they have gone in the game. However, as the date came closer to the shutdown, many players were still struggling with the tool trying back up their data. Blizzard failed to make sure the players’ years of digital lives in Warcraft are safely archived. They could not hold up their promise, which further disappointed the players. NetEase spectated this issue and responded to disappointed players saying the tool was unilaterally developed by Blizzard, such as it wasn’t tested by NetEase for security reasons, denying any responsibility regarding the loss of progress data.

The situation not only adversely affect players in the region, but also staffs. The ~100 person team that maintained the various services on Blizzard’s behalf is being rapidly downsized. There will only be a 10-people skeleton group remaining to take care of technical support and customer service relating to the switch off, but they don’t expect to be there longer than 6 months. The rest of the employees will be either laid off or transferred to a different team within NetEase.

The sudden announcement of the contract coming to an end caught both players and staffs off guard. They have to react hastily to obtain their needs — for players, their game data; for staffs, their jobs and wages. Between the official announcement of extension denial and the shutdown date, Blizzard only gave these stakeholders less than two weeks to scrape everything together, including its internal engineers to develop an archival system for the Chinese players to back up their Warcraft data. The switch-off was messy and stress-inducing due to the short amount of time given. From a utilitarian perspective, providing a larger time frame between ending the contract and shutting down the games could make the transition smoother for all.

The Activision Blizzard CEO, Bobby Kotick’s appearance on national television to talk about the two major tech/gaming giants in China unveils another side of Blizzard’s intention to cease the contract with NetEase. During the segment, Kotick begins the interview talkingabout the uncertainties in the video game industry and the economy as a whole. As things move quickly onto the Microsoft purchase, it started to sound like there is more to just the gaming industry — it was a calculated move to get European regulators on his side with a potent political threat: the possibility of Asian technological supriority. “Whether it’s the FTC or the CMA or the EU, they don’t know our industry”, he says. “I don’t think they fully appreciate that it’s a free-to-play business, that the Japanese and Chinese companies dominate the industry.” “You look at Sony, you look at Nintendo, they have these huge libraries of intellectual property. Sony has Sony Studios that goes back 80 years, Nintendo has the very best characters that exist in video games.” He emphasized that his company is struggling to enter the Japanese market because the Chinese and Japanese enjoy “protected markets.”To him, this proofs that the real competition in the industry isn’t between American and European companies, but the Asian giants. He is trying to create a defined line between the companies in the West versus the East — a “us” versus “them” situation. “If you’re the UK, and you have an incredibly educated workforce, you have a lot of technical talent, places like Cambridge, where the best AI and machine learning is, I would think you would want to embrace a transaction like this, where you’re gonna see job creation and opportunity,” he said. The points he made during his interview all seem to be reviving the 80s xenophobia against Asian companies that were seen as stealing western manufacturing jobs. It is unclear whether Kotick deep down truly wants the gaming industry to have two frontiers against each other’s development, or that he is just cultivating fear in the UK regulators to approve the Microsoft acquisition by appealing them to Europe’s ugliest nationalist anxieties. Either way, it is all about his private gains. Even though he says “it is really about the future of technology”, once the Microsoft deal goes through, Kotick is the biggest beneficiary as he is due for a massive payout of potentially $22 million. On top of that, he will dodge all accusations concerning sexual harassment in his company. Nonetheless, it is unethical for Kotick to create nationalist fear in order to make things go his way. He framed and non-existent enemy and is trying to push the UK to join the war front with him. Although he went around and steered away from mentioning the Blizzard and NetEase drama on CNBC, him going back and forth with NetEase hoping for a better deal while completely ignoring their loyal players losing game data they invested years, or even decade on, are just plotting even more black marks on his image. The gaming industry is trembling because of Kotick’s selfishness, but the gamers and the staffs are the ones whose interest is at stake.