Blizzard to Pull Games from China Amid Fallout with Distribution Partner

Blizzard Entertainment and its rich library of six game titles is set to cease distribution in mainland China beginning January 2023, after the California-based developer failed to reach a new agreement with its longtime publishing partner, NetEase.

The titles that will cease service include the massively popular, multiplayer online game “World of Warcraft;” first-person shooter “Overwatch 2;” real-time strategy “StarCraft II;” dungeon crawler “Diablo III;” card game “Hearthstone;” and multiplayer, online battle arena “Heroes of the Storm.”

After 14 years of doing business together, NetEase and Blizzard’s breakup comes on the eve of Microsoft’s plan to acquire the American gaming giant—and the breakup does not come amicably, which may prove detrimental to other parts of Blizzard’s business. NetEase announced the decision in a statement late Wednesday evening, with Blizzard confirming the news shortly thereafter.

“We have put in a great deal of effort and tried with our utmost sincerity to negotiate with Activision Blizzard so that we could continue our collaboration and serve the many dedicated players in China,” NetEase CEO, William Ding, said in a press release. “However, there were material differences on key terms and we could not reach an agreement.”

The change will affect millions of players of Blizzard titles in China, NetEase told Kotaku on Thursday, although a specific number was not disclosed.

NetEase said the move will not significantly affect its revenues. And according to regulatory filings, the NetEase deal constituted about 3 percent of Activision Blizzard’s revenues in 2021 for a total of $264 million out of $8.8 billion top-line revenue.

Simon Zhu, president of global investment and partnership in NetEase’s games division, made a cryptic LinkedIn post on Wednesday evening, critiquing Blizzard for the fallout of the deal.

“One day, when what has happened behind the scene could be told, developers and gamers will have a whole new level understanding of how much damage a jerk can make,” Zhu wrote.

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New sales for many of Blizzard’s titles will cease in the next few days, according to an email sent by Blizzard president Mike Ybarra to employees and later obtained by The Washington Post. Ybarra said that some of its upcoming releases—expansions for “World of Warcraft” and “Hearthstone” planned for the end of 2022, as well as season 2 of content for “Overwatch 2”—will still go live in China.

“We have been working through this process in good faith to extend our existing agreements,” Ybarra said according to the Post. “However, their approach was not aligned with our commitment to players, employees and our operating principles.”

But Ybarra’s email also pointed out another issue, albeit vaguely: Blizzard’s esports partnership with NetEase.

NetEase was one of the first 12 franchise buyers in the Overwatch League, acquiring regional rights to Shanghai, China, and establishing the Shanghai Dragons, who still compete in the league today.

How the end of the publishing deal will affect the Dragons is not exactly clear, although Overwatch League officials contacted other team owners about the NetEase publishing breakup shortly before its public announcement on Wednesday, according to a source.

In the debut season of the Overwatch League in 2018, the Dragons went winless (0-40), shattering the record for the worst losing streak in professional sports history. They later made history by signing Kim “Geguri” Se-yeon, the first woman to compete in professional “Overwatch,” during that 2018 debacle. After several rebuilds, the Dragons became the champions of the league in 2021.

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Prior to the deal’s collapse, “World of Warcraft” remained an extremely popular game in China, and its roots run deep there. PC gaming, unlike in the U.S. and most of the Western world, is much more common in China and other areas of East Asia, in part due to better broadband connections and common spaces like Internet cafés.

But also, in 2000, the Chinese government banned sales of video game consoles due to fears around their effects on mental health. As a result, PC gaming increased. Almost all of Blizzard’s titles are PC-exclusive, and “World of Warcraft,” released globally in 2005, became a staple of Chinese gaming culture. It has remained a major player for the past 17 years. NetEase and Blizzard first inked a publishing deal in 2008. China later lifted the console ban in 2015.

Activision Blizzard, the parent company of Blizzard Entertainment, is in the middle of due diligence and regulatory approval to be acquired by Xbox creator Microsoft in a $68.7 billion deal—the most valuable of all-time in gaming mergers and acquisitions. Most of the scrutiny around that deal has focused on “Call of Duty” and fears that Microsoft will box out its console competitors from the game, such as PlayStation, despite commitments not to. The deal between Microsoft and Activision Blizzard is expected to close in summer 2023, before the end of Microsoft’s fiscal year in June.

The short-term solution to Blizzard games publishing in China prior to the Microsoft acquisition, though, is unclear.