Activision’s decision to pull out of China stems from a comment that was lost in translation.

A little background: Last November, Activision Blizzard abruptly ended ties with Chinese gaming firm Netease during negotiations to renegotiate the terms of its 14-year partnership. Netease distributed and managed regional versions of Diablo 3, Overwatch, and World of Warcraft. Therefore, the players were upset when in January, when the contract ended, support for the games ended.

It was puzzling how such a long-term relationship could deteriorate so quickly. However, a recent document received The New York Times, and confirmed by anonymous insiders of the talks, sheds some light on the situation. It looks like it was all a misunderstanding caused by the loss of words in translation.

According to the document, the contract renewal negotiations took place in Zoom with the participation of translators who helped in the discussion. The new terms were required due to several changes to the rules of the game in China, including laws passed restricting, among other things, how often and when minors can play.

During negotiations, Netease CEO William Ding told Activision head Bobby Kotick that he wanted a “licensing” agreement rather than their usual distribution partnership. Netease had already lost about $60 billion in stock valuation due to China changing laws governing minors, so Ding felt pressured to strike a better deal.

Kotick was somewhat receptive to the idea, but feared that the licensing agreement would hurt Microsoft’s negotiations with regulators to acquire it. He voiced these concerns to Ding, who, through an interpreter, said that Netease could persuade Chinese officials to prevent or allow a merger with Microsoft. Activision took the offer as a threat that if it did not complete the licensing agreement, it would face negative relations with Chinese regulators.

Despite the perceived threat, Activision said it would agree to the licensing deal, but only if Netease provided an upfront payment of around $500 million instead of an installment payment over the life of the contract. He planned that the payment would itself be a safeguard against the potential danger of his games being subject to government approval or played without its permission. Netease called the $500 million condition “commercially illogical” and the deal fell through.

However, NYT sources say that NetEase executives did not threaten Activision, but instead tried to reach a reconciliation. Dean meant his words as a warning that Microsoft would face similar regulatory hurdles. after it acquired Activision if not switched to a licensing agreement. By licensing games under the Netease license, Activision could avoid all the red tape involved in distributing games in China.

It’s not clear if the executives discussed the misunderstanding, but it appears not. NYT notes that Activision is interested in re-entering the Chinese market, but is looking for partnerships with other companies. Both Tencent and TikTok’s parent company ByteDance have previously expressed interest in collaborating. Activision is also considering partnerships with telecommunications companies such as China Mobile.

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