China’s NetEase tumbles after ending 14-year gaming deal with Blizzard

Blizzard Entertainment said on Thursday, November 17, it will no longer offer games such as World of Warcraft and Hearthstone in China from next year once its deal with NetEase ends, prompting shares in the Chinese internet giant to tumble.

California-based Blizzard said it was unable to reach a deal with NetEase that was “consistent with Blizzard’s operating principles and commitments to players and employees.”

NetEase said in a Chinese statement that it was unable to agree on key terms of cooperation and added, in a second statement in English, that the expiration of the licences would have no “material impact” on its financial results.

Shares of Hangzhou-based NetEase slid about 11% in morning trading in Hong Kong, pulling back slightly from a steeper drop following the announcement.

“We will continue our promise to serve our players well until the last minute. We will make sure our players’ data and assets are well protected in all of our games,” William Ding, CEO of NetEase, said in a statement.

NetEase rose to become China’s second-biggest gaming company behind Tencent Holdings in large part due it clinching deals to be Blizzard’s publishing partner in China in 2008 when Blizzard ended its deal with The9 Ltd.

Their agreements are set to expire on January 23. Blizzard said new sales would be suspended in the coming days and players would receive further details.

The games to be suspended include World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm.

According to NetEase, the recently published Diablo Immortal, co-developed by NetEase and Blizzard, is covered by a separate long-term agreement, allowing its service to continue in China.

NetEase said Blizzard’s games contributed a low-single-digit percentage to its total net revenue and net income in 2021 and the first nine months of 2022.

The absence of Blizzard games could lower NetEase’s revenue by 6-8% next year, Daiwa Capital Markets wrote in a research report on November 9. The calculation was based on its estimate that licensed games account for around 10% of NetEase’s total revenue and Blizzard accounts for 60-80% of licensed games.

China’s massive gaming industry, once marked by unbridled growth, has been heavily bruised by Beijing’s efforts to tighten its oversight of the sector, including by reducing the number of gaming licenses given out and limiting play time for teens.

Blizzard Entertainment said upcoming releases for World of Warcraft: Dragonflight, Hearthstone: March of the Lich King, and season 2 of Overwatch 2 will proceed later this year.

“We are looking for alternatives to bring our games back to players in the future,” Blizzard President Mike Ybarra said in the statement.

NetEase’s Nasdaq-listed shares have nearly halved to about $71 from their February 2021 peak of $132. – Rappler.com