The gaming industry in China is strange but potentially lucrative. However, over the past few years, the Chinese government has put into place rules that have made it difficult to release games from outside of the country, as well as to keep a game profitable. Now, Blizzard's relationship with NetEase, their in-country publishing partner, has come to an end, taking with it Blizzard games in China.
Who is NetEase?
NetEase Inc. is a Chinese Internet technology company established in 1996. NetEase games are published by Blizzard Entertainment and marketed by their subsidiary, NetEase Online Games. The company also operates a web portal for games, web hosting, online game services, and cloud computing services, as well as an online retail division called NetEase Cloud Platform. NetEase has been the top company in China since 2006 by market capitalization.
Blizzard has used NetEase to alter and publish their games in China, as content restrictions are incredibly strict. This YouTube video illustrates the differences between Blizzard games in China versus the rest of the world. For example, blood, gore, and even skulls are not allowed in the country. As such, NetEase knows the detailed ins and out of the country's content rules and alters the games for publishing through their platform in the country. This relationship has been good for both companies, making the publishing process easier for Blizzard, and giving international distribution to NetEase's games.
Blizzard and NetEase's divorce
The contract between NetEase and Blizzard, however, has come to an end and it will not be renewed. This means that Blizzard games will soon be leaving the country of China, as there will be no partner to alter and distribute the games. It does not appear that the end of the relationship is a positive one, with both companies stating that they were unable to come to a mutually acceptable agreement. William Ding, CEO of NetEase, said of the negotiations,
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. However, there were material differences on key terms and we could not reach an agreement. We hold high regard in our product and operational standards and abide by our commitments to Chinese players.
We are honored to have had the privilege of serving our gamers over the past 14 years and have shared many precious moments with them during that time. 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
So what does this mean for gaming in China? The short answer is a lot. While Blizzard may have already changed their marketing efforts to focus on the West, China was a large supporter of Blizzard titles. The initial situation will be a near complete withdrawal from China in the beginning of 2023, with titles like World of Warcraft, StarCraft 2, and Diablo 3 leaving the country on January 23, 2023. The only title that won't be pulled on that date is Diablo Immortal, a new game released in 2022, which is covered under a separate agreement.
It is possible that Blizzard will look into new relationships with other Chinese distributors, to fill the gap in their business. It is also possible that the Microsoft acquisition might be one of the stumbling blocks in the NetEase relationship. Microsoft might have the resources to help alter and distribute titles for China, if the merger goes through.
As far as what this means for the overall gaming industry in China, it will be a hit to overall distribution. However, it will not change anything as far as how China handles gaming in general. The Chinese government will not see this as a problem that deserves reconsidering their rules. Instead, they will likely see it as a win as Western titles will be removed from the country.