NetEase and Blizzard magically reunited

Author | Huang Yu

Editor | Zhou Zhiyu

There are no eternal enemies in the market. After a brief "breakup" for a year, NetEase and Blizzard, this pair of "gaming CP" who once fought together in the gaming industry for fifteen years, finally reconciled.

Early on April 10th, NetEase Games, Blizzard, and Microsoft jointly announced that NetEase will reintroduce Blizzard games to the Chinese market starting in the summer of 2024. The updated game publishing agreement will cover various Chinese games under the previous agreement, including "World of Warcraft" and "Hearthstone."

It is reported that Blizzard and NetEase are working on a return plan and will announce more details in the future. Some players exclaimed, "The moonlight is finally coming back, not easy!"

In this reunion between Blizzard and NetEase, Microsoft, the new owner of Blizzard, played a significant role in driving the collaboration. According to the announcement, Microsoft Games and NetEase have also reached an agreement to try to bring new NetEase games to Xbox and other platforms.

NetEase seems to be the biggest winner, not only regaining the rights to Blizzard games but also further opening up channels for game globalization.

This is a cooperation full of imagination. Reflected in the capital market, on April 9th, NetEase's US stocks rose by 3.76%. On April 10th, NetEase's Hong Kong stocks rose by a maximum of 2.41%, closing at HKD 158.8 per share, an increase of approximately 0.83%.

Starting Point

Activision Blizzard left, Microsoft Blizzard returned.

NetEase and Blizzard initially "joined hands" in August 2008. At that time, NetEase had been in the gaming industry for 7 years, rapidly rising with the two pioneering works "Fantasy Westward Journey" and "Westward Journey Online," entering the second stage of business development.

During their cooperation, Blizzard Entertainment was the developer of the games, while NetEase's subsidiary, NetEase Online, acted as the agent operator of the games, attracting a large number of loyal Blizzard game players in China, with the iconic "World of Warcraft" Bloodhoof Axe sculpture also located in the NetEase campus.

Blizzard's popular game IPs played an important role in promoting NetEase's development in the gaming field, and with the rise of NetEase's self-developed games, it gradually solidified its position as the second-largest game company in China.

However, the close relationship between the two sides changed after 15 years of cooperation. In November 2022, due to dissatisfaction with the high renewal terms proposed by Blizzard, Blizzard and NetEase announced the suspension of several Blizzard games' services in the mainland Chinese market, shocking the entire gaming industry.

After the breakup, the relationship between the two sides plummeted, the Bloodhoof Axe sculpture was dismantled live, and NetEase's stock price also declined for a while. However, NetEase's stock price quickly stabilized, mainly because by then, Blizzard's game influence had waned, bringing in limited revenue for NetEase.

Huatai Securities estimated in a research report that around 7% of NetEase's game revenue in 2022 came from Blizzard's game agency. CICC estimated a lower proportion, believing that NetEase's revenue from Blizzard's agency games in 2022 accounted for less than 5% of total revenue, considering the lower profit margin of agency games compared to self-developed games, expecting a more limited contribution to profits Some believe that the high copyright fees demanded by Blizzard are making the cooperation between the two parties in the domestic market more like NetEase spending money to maintain player sentiment.

The turning point came in October last year. At that time, Microsoft spent about $6.9 billion to acquire Activision Blizzard, and Bobby Kotick, the CEO of Activision Blizzard who was seen as the "culprit" for the split with NetEase, officially resigned on December 29.

Since December last year, news of "Blizzard returning to the Chinese market" has been constantly circulating, and the official NetEase-operated Dashen Community app also resumed the discussion area for "World of Warcraft" on December 20.

After twists and turns, NetEase and Blizzard have finally "remarried", symbolized by the recasting of the Bloodhoof Axe sculpture representing the friendship between the two parties, and old games are also being gradually recalled.

According to a letter from Blizzard Entertainment and NetEase's game distribution team to Chinese players of Blizzard games: "When the servers are opened, we will ensure that your account data is fully preserved. The agreement has been signed, but we still need some time to prepare technically for the server opening. Games will be opened one by one, and the first game to return will reunite with everyone in the summer."

Data shows that as of noon on April 10, nearly 200,000 people have pre-registered for "World of Warcraft" on NetEase's Dashen platform.

Everything seems to be returning to the starting point, but it's also different.

Ambition

In this cooperative relationship, Blizzard used to be superior, but now times have changed, and Blizzard seems to be the one who needs NetEase more.

Blizzard is certainly unwilling to give up such an important market as China. There are reports that Blizzard has also tried to establish cooperation with other domestic game companies, including Tencent Holdings, ByteDance, miHoYo, etc., but with no results, among which the game license is a key factor affecting Blizzard Entertainment's change of agent operation.

For Blizzard, the longer they stay away from the Chinese market, the weaker their presence in the market will be, making it increasingly difficult to return later. Microsoft, well aware of this, will undoubtedly make every effort to renew ties with "old partner" NetEase.

In addition, Microsoft values NetEase's experience in mobile game development.

Phil Spencer, CEO of Microsoft's gaming business, previously stated that Microsoft has initiated the construction process of the Xbox mobile game app store and has begun contacting external partners. Spencer pointed out that if Microsoft cannot successfully enter the mobile game market, the company's importance in the gaming market will decrease, as the mobile game market is larger than the console and PC markets.

From NetEase's perspective, reuniting with Blizzard is just icing on the cake, after all, even in the year 2023 when they parted ways with Blizzard, NetEase had a good year, with the mobile games "Egg Party" and "Justice" crossing the 100 billion revenue mark for the first time, with a year-on-year increase of 7.2% to 103.468 billion yuan.

However, analysts at Huatai Securities also pointed out that if they return to cooperation, NetEase may benefit from PC game revenue, IP collaboration, and long-term development of Warcraft games, and a considerable number of old game players will return to Blizzard games JP Morgan expects that cooperation with Blizzard can bring a 3% to 4% increase in NetEase's online game revenue. The profit impact is limited.

NetEase's bigger goal is its partnership with Microsoft.

Internet industry analyst Zhang Shule told Wall Street News that NetEase is not cooperating with Blizzard, but with Microsoft, and Blizzard is just a bridge to connect the two giants.

Zhang Shule believes that based on Microsoft's desire to enter the mobile game market, NetEase may have the opportunity to develop and operate mobile games including but not limited to Blizzard IPs in the future, which is the biggest remaining value of Blizzard.

In addition, Microsoft will provide NetEase with a platform to expand into overseas markets. Analysts at CICC International pointed out that the agreement between NetEase and Microsoft will help enhance long-term cooperation opportunities for both parties in overseas markets. The agreement to promote NetEase's new games on platforms like Xbox will benefit NetEase's multi-terminal layout in overseas games.

Today, Microsoft is not only the world's most valuable technology company but also a gaming giant. According to previous forecasts by global game market research firm Newzoo, after acquiring Blizzard, Microsoft's share in the global game market will rise to 10.7%, making it the world's third-largest gaming giant after Tencent and Sony.

Microsoft's ambition to grow its gaming business is evident. Riding on Microsoft's success, NetEase's journey to expand internationally will undoubtedly receive significant support.

Globalization is the core strategy for most Chinese game companies at this stage, and NetEase also hopes to increase its overseas market revenue share from the current 10% to 50%.

As one of the earliest internet companies in China, NetEase has achieved multiple leaps forward. Going global with games and launching strong games will be the key engine driving NetEase to achieve a new leap forward.

By deepening cooperation with global tech giant Microsoft through Blizzard as a bridge, this is NetEase's strategic move.

Against the backdrop of the AI big model wave, the technology industry is undergoing unprecedented changes, and all companies must actively seek new development directions to maintain their positions or seek further breakthroughs. Both Microsoft and NetEase are no exception