How Miscommunication Over Microsoft Acquisition Led To Activision Blizzard-NetEase Split

In October of last year, American video game company Activision Blizzard ATVI and Chinese gaming company NetEase NTES held a Zoom video conference to discuss their partnership of 14 years to offer Activision's games in China.

What Happened: NetEase said it could influence Chinese regulators' decisions on Microsoft MSFT's proposed $68.7-billion acquisition of Activision, The New York Times reported. NetEase said this was intended as a conciliatory gesture, but Activision executives saw it as a threat, the report said.

Consequently, the two companies terminated their partnership, which was reportedly generating $750 million annually, a month later.

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The Impact On China's Gamers: As a result of the partnership's termination, over 3 million Chinese players lost access to Activision's iconic games, such as "Overwatch" and "World of Warcraft."

During the Zoom call to negotiate the terms of their contract renewal, William Ding, NetEase's chief executive, proposed switching their relationship from distribution-based to a licensing deal. This proposed change would have been more lucrative for NetEase and, according to the company, better positioned it to comply with new Chinese government regulations.

This proposal came after NetEase's stock value dropped $60 billion in September 2021 due to new government restrictions on children's video game playtime.

Yet negotiations broke down after Activision CEO Bobby Kotick expressed concern the licensing deal would complicate regulatory talks regarding Microsoft's planned acquisition of Activision.

In the call, Ding allegedly suggested that NetEase could use its influence with Chinese regulators to either prevent or allow the acquisition, which was under review at the time. NetEase argued that if Microsoft did not offload Activision Blizzard's properties to NetEase, it would have to navigate Chinese regulatory laws.

Nevertheless, Activision executives felt that NetEase had "threatened" Kotick, according to The Times. As a result, Activision offered NetEase a licensing deal but demanded the company pay $500 million upfront to offset the cost of regulatory complications. NetEase rejected the offer, stating that it was "commercially illogical."

"It is unfortunate that Activision Blizzard continues to harass and taunt companies and regulators worldwide, making unfounded accusations to distract everyone from its real problems," NetEase said to Kotaku.

The company added: "Our recent negotiations revealed a clear misalignment between the two companies, both in commercial terms and in corporate values, therefore we decided it was not in our long-term interest to serve the short-term goals of Activision Blizzard’s current leadership or to deviate from our founding principles."

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