Matt Hayward
NetEase (NASDAQ: NTES) confirmed that it has renewed a recently expired publishing deal with Blizzard Entertainment – now part of Microsoft (NASDAQ:MSFT) – which will bring Blizzard’s popular multiplayer games back to China.
A previous agreement covering 14 years has expired in late 2022 (when Blizzard was still part of Activision Blizzard) amid a dispute over terms.
Now press the included titles World of Warcraft (and other Blizzard titles Warcraft game universe), Overwatch, Diablo AND Heartstone will return to mainland China in a phased approach starting this summer.
The two companies also announced an agreement to explore the possibility of bringing NetEase titles to Xbox consoles and other platforms.
“Blizzard and NetEase have done an incredible job to renew our commitment to gamers – Blizzard universes have been part of the lives of gamers in the region for many years,” said Microsoft Gaming head Phil Spencer. “Returning legendary Blizzard games to players in China while exploring ways to bring more new titles to Xbox demonstrates our commitment to bringing more games to more players around the world.”
The move likely means more favorable financial conditions for NetEase, Morgan Stanley estimates. Blizzard’s return will likely add to revenue of 3 billion yuan (about $415 million) a year for NetEase (NTES): about 14% of PC gaming revenue and 4% of total revenue, in 2023, according to analyst Alex Poon.
What’s different about the new agreement? NetEase titles could come to Xbox, for example. NetEase (NTES) Tip of the Infernal Blade was its first Xbox console title in June 2022 and is still among the top 25 free-to-play titles on the platform, Poon noted. The game maker also has a number of multi-terminal titles in the works.
Meanwhile, although the cost structure was not part of the announcement, Poon writes that the previous terms meant limited profits for NetEase (NTES) due to high royalties. “Better financial terms could also open up avenues for additional game licensing in the future, for example Diablo IV, released in June 2023 and cancelled World of Warcraft mobile game in August 2022 due to a dispute over financial terms. We think they also imply better longevity for existing titles.”
Morgan Stanley is overweight NetEase (NTES) with a $135 price target, implying a 37% upside.
NetEase shares (NTES), which gained 3.8% Along with the news on Tuesday, the new deal was close down 1.9% at midday on Wednesday as part of a market-wide downtrend on the back of hot inflation data.