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

Nov 17 (Reuters) – Blizzard Entertainment (ATVI.O) announced on Thursday that it will stop offering games like World of Warcraft and Hearthstone in China starting next year once the deal with NetEase (9999 .HK) ends. which caused shares of the Chinese internet giant to plummet.

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

NetEase said in a Chinese statement that it could not agree on key terms of the collaboration, adding in a second statement in English that the licenses expiring would not have a “material impact” on its financial results.

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

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

NetEase rose to become China’s second largest gaming company behind Tencent Holdings (0700.HK), in large part because it struck deals to become Blizzard’s publishing partner in China in 2008 when Blizzard closed its deal with The9 Ltd (NCTY. O) finished.

Their agreements expire on January 23. Blizzard said new sales would be suspended in the coming days and players would be receiving more details.

Banned games include World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm.

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

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

The lack of Blizzard games could cut NetEase’s revenue by 6-8% over the next year, Daiwa Capital Markets wrote in a Nov. 9 research report. The calculation was based on his estimate that licensed games make up about 10% of NetEase’s total revenue. Blizzard accounts for 60-80% of licensed games.

China’s massive gaming industry, once characterized by unbridled growth, has been badly damaged by Beijing’s efforts to tighten regulation of the sector, including by reducing the number of gaming licenses issued and capping teen gaming time.

Blizzard Entertainment announced that upcoming releases for World of Warcraft: Dragonflight, Hearthstone: March of the Lich King, and Season 2 of Overwatch 2 will continue later this year.

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

NetEase-listed shares on the Nasdaq have almost halved to about $71 from their February 2021 peak of $132.

Reporting by Bharat Govind Gautam in Bengaluru; Edited by Rashmi Aich, Savio D’Souza and Sherry Jacob-Phillips

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