In January, gamers in China lost access to Blizzard games, including World of Warcraft, Hearthstone, Diablo 3, and Overwatch, as a result of a falling out between Activision and its Chinese partner, NetEase, a few months earlier. But a New York Times report says that while the relationship between the two had been strained for some time, the incident that finally ended it may have been a misunderstanding.
The relationship between Activision and NetEase had been under strain for some time, according to the report. For one thing, Activision CEO Bobby Kotick was unhappy with NetEase's $100 million investment in Bungie in 2018, because Bungie was behind schedule on Destiny 2 content and Kotick worried the investment, which was to help Bungie become a "multi-franchise entertainment studio," would slow down the work even further. Kotick was also reportedly unhappy with another NetEase investment into a studio founded by a former senior employee at Activision; that resulted in a 2019 agreement that prevented NetEase from hiring former Activision employees or investing in their studios.
Those tensions were presumably still lingering when representatives of both companies began negotiating a proposed change to the licensing deal between Activision and NetEase in October 2022. NetEase wanted to license Activision games (including Blizzard games) directly, rather than through a joint-venture third party as had previously been the case, because it would enable the company to more easily comply with China's tightening game regulations; Activision was reluctant to give NetEase more control over its game properties than it already had.
During the negotiation call, which was held through translators, NetEase CEO William Ding reportedly said his company could persuade the Chinese government to either block or approve Microsoft's proposed acquisition of Activision Blizzard, depending on how the new licensing negotiations went. Activision executives took the statement as a threat—give us what we want or we'll kill the Microsoft deal, basically—but NetEase executives say they were simply pointing out that without a new licensing agreement giving more control to NetEase, Microsoft would have to deal with strict Chinese regulations itself after it takes control of Activision.
After the call ended, Activision said it would agree to the new licensing deal if NetEase paid $500 million up front. NetEase said no, and later declined a last-ditch offer to extend the existing deal for another six months in order to keep the games accessible while Activision searched for a new publishing partner in China.
It was clearly a bad breakup. Just before Blizzard games went dark in China, NetEase employees smashed a giant statue of World of Warcraft's legendary two-handed axe Gorehowl that sat outside the studio that handled the Blizzard licenses. And the situation doesn't seem to have improved any since: A NetEase spokesperson accused Activision of continuing to "harass and taunt companies and regulators worldwide" with its actions.
Activision said when its games went dark that it is "committed to" players in China, and that it would look for alternative ways to run its games there. One possible replacement distributor is rumored to be The9, which published World of Warcraft in China prior to Activision's move to NetEase. The proposed Microsoft acquisition also appears to be making headway: The UK's Competition and Markets Authority recently changed its mind about the deal, saying—provisionally—that it is no longer concerned about the possibility that Microsoft will make the Call of Duty games an Xbox exclusive.