Activision And NetEase To Take Revenue Hit As They Fail To Renew 14-Year Old Deal In China

Activision Blizzard, Inc's ATVI revenue will likely take a hit as it will suspend its popular American video games due to the expiration of the current licensing agreements with NetEase, Inc NTES on January 23, 2023.

The affected games included World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm. 

The Diablo Immortal game remains unaffected as it is under a separate agreement between the companies.

Also Read: Tencent's Q3 Revenue Takes A Hit Due To Domestic Slowdown And Regulatory Crackdown

China is the largest gaming market, but foreign developers need a local partner to distribute their games, the Financial Times reported. The companies have been under a deal since 2008.

Beijing also heavily censors gaming content and controls the number of new releases through a licensing system.

Activision said last week that the NetEase agreement in dispute accounted for about 3% of its net revenues last year, translating to roughly $264 million in sales.

NetEase said the affected games represented a low single-digit percentage of its revenues and profits.

Blizzard will need new game licenses from the government if it finds a new partner, which may take months or even years, said Cui Chenyu, a gaming analyst at Omdia.

"The companies could still come to terms, but there are challenges because they are both shifting their business strategies at the moment. Blizzard is preparing for its Microsoft Corp MSFT takeover, and NetEase is focused on expanding globally," she said.

The dispute centered on a disagreement over commercial terms rather than geopolitical tensions between the U.S. and China.

Negotiations to renew the deal began before Microsoft's bid to acquire Activision Blizzard.

New sales of the titles will halt in the coming days, with the servers that support online play likely to be turned off in January when the current deal expires.

Price Action: NTES shares traded lower by 1.16% at $70.50 in the premarket on the last check Thursday.

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