Activision Felt Netease Threatened Them In Contract Negotiations, Leading To Breakup

The New York Times has a new report that’s helped shed light on the split between Activision Blizzard King and former Chinese partner NetEase.

The final straw was an incident where Kotick felt that the Chinese company threatened them, BUT, this was the final straw to a souring relationship.

NetEase and Activision Blizzard had invested in a joint venture, a subsidiary of Activision Blizzard called Blizzard Entertainment, that was based in China. This was how Blizzard’s games like Overwatch and Diablo were distributed in the country, but there had been bumps in the road of this relationship.

In 2018, NetEase invested $ 100 million in Bungie, then owned by Activision and working on Destiny. Bobby disliked this movie because Destiny had been behind schedule and Bobby considered the move a distraction.

In the same year, NetEase also invested in a company founded by a former Activision employee. In 2019 Activision signed a deal with them that would ban NetEase from making similar investments again.

To add to this was the complicating matter of the Chinese government’s state regulation.

Activision Blizzard had been doing business in China for nearly twenty years, and it that time saw the country tighten its grip on the tech industry with increasing regulation. Foreign companies are constrained to the point that they have to partner with Chinese companies to do business there.

However, Chinese companies themselves are also victim to their country’s regulation. At times, the regulation seems so random that tech companies don’t know what to expect from the country.

In 2020, China’s antitrust and competition regulators decided to review mergers and joint ventures that brought in a lot of money from abroad. There were also massive fines for failing to follow these rules. NetEase asked Activision Blizzard to submit documents related to this regulation, but Activision Blizzard suspected there was more to it.

Netease wanted to end their joint venture, shut down Blizzard Entertainment, and license the games directly from Activision Blizzard themselves.

Under such an agreement, Netease would have control over Activision Blizzard games in China, including more control over operations, and hypothetically, make it easier for them to meet Chinese state regulations.

This is all the backdrop to the incident, that occurred last October 2022. In negotiations for the new deal Kotick spoke to William Ding, NetEase’s CEO. Kotick said that he would consider NetEase’s licensing request, even if he didn’t want to give them more control over Blizzard’s games.

Ding suggested to Kotick that NetEase could convince their government to accept or reject whatever deal Activision Blizzard offered to them. This was interpreted as a threat by Kotick.

However, NetEase’s intent was apparently, and literally, lost in translation. NetEase was supposedly trying to tell Activision that if they did not accept NetEase’s licensing offer, they would have to deal with the Chinese government directly in getting their business approved or denied.

Later, Activision sent NetEase a counteroffer. To accept the deal, they would have to pay Activision $ 500 million up front, to cover the risks of the Chinese government rejecting the deal.

Today NetEase’s and Activision Blizzard’s relationship has completely soured. When asked for comment, Activision Blizzard’s Michael Lee stated that they had a positive experience in China for twenty years, and this case was an anomaly. On their end, NetEase stated that they had moved on, and advised Activision Blizzard to do the same.