Following the pro-Hong Kong protest statements from professional Hearthstone player Chung “blitzchung” Ng Wai and Blizzard Entertainment’s suspension of the player, many have wondered how much influence Chinese investors or profits from the region have influenced such a decision. The truth is, very little.
“Activision fell under Vivendi’s control way back in 2007 when it merged with subsidiary Vivendi Games in order to join forces with Blizzard and benefit from the enormous success of World of Warcraft. Five years later, the merged companies of Activision Blizzard announced a deal to buy back Vivendi’s stake in the company and become independent, and Tencent jumped at the opportunity to buy 5 percent of the company for an undisclosed amount.”
The Daily Beast also made claimed Blizzard “earned 12 percent of its revenue from the Asia-Pacific region last quarter.” Delving into the Investor Relations for Activision Blizzard’s Second-Quarter 2019 Financial Results, we can see that is the case.
The Americas earned 55% ($764 million), Europe, the Middle East, and Africa- or EMEA- earned 33% ($459 million). Asia Pacific- a region including China, Japan, India, Thailand, Australia, and more- contributed 12% from $173 million.
In addition, looking at the company’s 2018 annual report (specifically page 141, Net Revenues By Geographic Region) paints a similar picture. In 2018, the Americas contributed 52% of Activison Blizzard’s net profit, at $3.88 billion. EMEA contributed 35% ($2.618 billion). Asia Pacific however, contributed only 13% of the company’s 2018 profits ($1.002 billion). This results in a total consolidated net revenue of $7.5 billion.
We must dispel certain falicies some may draw from the above data, to prevent misinformation or unnecessary hyperbole. The above information is reflective of all profits made by Activision Blizzard. Without a per-franchise break-down of profits, we are unable to determine exactly how much profit Hearthstone generates per-region.
We also cannot operate under the assumption that if one game were to be banned or upset Chinese viewership, that it would result in a ban or boycott of all the company’s products in the region- in spite of past behavior of that government.
Furthermore, as the Asia Pacific region includes more than China alone, it logically means that China must have contributed less than these totals for the whole region. We also do not know exactly how much Activision Blizzard makes from China.
Finally, there may be factors we do not know due to a lack of data. These include if there are other deals not known to the public, or if larger investors made demands of the company.
The company’s financial reputation- while profitable- has had some black marks for consumers, investors, and employees. This includes accusations of paying little to no tax by abusing legal loop-holes and tax-havens (1, 2, 3 Editor’s Note: The third link has an autoplaying video with sound).
In January of this year, Pomerantz LLP began investigating claims from investors that Activision Blizzard had committed securities fraud or other unlawful practices. This was seemingly sparked when Activision Blizzard announced it would be separating from Bungie, and the latter would be gaining the full publishing rights of the Destiny franchise; a decision that reportedly resulted in the company’s stock price sharply falling that day.
In addition, Activision Blizzard has laid off numerous employees over the last two years. First in late December 2018– even paying the employees to leave- and then nearly 800 laid off in February 2019.
For Activision Blizzard to make $7,500 million net profit in 2018 (and allegedly not needing to pay taxes) still needing to cut costs is surprising to say the least. Yet, courting the Chinese market makes little sense considering how small a percentage of profits the region makes up at current.
Blizzard has openly admitted they would be making mobile versions of all their major franchises. Some business-focused outlets (1, 2) have proposed that Chinese players are willing to “pay-to-win” (buy microtransactions that give them an advantage in competitive games), while western players are not. Could Blizzard have been hoping to sell pay-to-win focused business model games to China? If so, how much did they believe they could make?
There is also the esports audience factor to consider. According to Esports Charts, the Hearthstone GrandMasters 2019 Season 2 (running from August 23rd to October 14th) has as this time of writing a total of 84,300 average viewers across all regions (153,000 peak). Europe had 33,743 average viewers (62,394 peak), the Americas had 25,434 (40,425 peak), while Asia Pacific had 25,067 (51,285 peak).
This would mean the Asia Pacific average viewership at almost 30% of total viewership (and 33% of total peak viewership). While Europe may have gotten a larger audience due to the events broadcasting time, the Asia Pacific viewership is roughly as large as the Americas’ viewership- with a slightly higher peak. The Grandmasters Season 1 (held from May 17th to July 14th) had a similar ratio of viewership with smaller numbers overall (1, 2, 3). However the Asia Pacific region were slightly less than the Americas.
Again, we must emphasize that due to China being part of the statistics of the whole Asia Pacific region, we cannot determine how many viewers are from China. Many players entering the tournaments are also Korean, Japanese, and Australian. Further, we cannot rule out viewers from one nation watching matches featuring players not representing their country, or viewing tournaments outside of their region.
Even so, large viewer numbers appear good for the brand- proving there is interest in the game to investors and potential future players. Tournaments began at the end of 2014, a few months after the game’s release on March 11th, 2014. As the game was released globally- including in China- we can assume the Asia-Pacific player-base has had the same time to grow as the European and Americas. Looking at the earlier data, that audience has grown to a mere 13% of yearly profit.
In addition; more viewers, players, and tournament entrants mean larger prize pools. Larger prize pools mean more entrants into future tournaments, more viewers as the stakes and presentation are increased, and more interest in the game is generated among investors and potential new players.
Nonetheless, losing 30% of viewership, 13% of annual profit, or a 5% investor is something most companies would wish to avoid- especially a company that makes $7.5 billion in a year. That 13% is just over $1 billion. Investors may also react on very small changes in profit, believing them to be a fore-bearer of larger gains or losses- seeking to maximize the former and mitigate the latter.
Blizzard is a company, a company that seeks to generate profit and keep investors happy. They likely made a decision they believed would prevent or mitigate controversy that would be bad for profits and/or investors. Yet- even sheer common sense failed to result in tactful action.
A player speaking out against a regime heavily criticized for harsh punishments and censorship, was punished by a show of force for him speaking about a subject that was “forbidden,” taking away prize money he had earned. It is not hard to imagine how comparisons and exaggerated parallels came about. While banning the player may have resulted in some brief negative PR, Blizzard’s action only fueled the fire.
Many have accused Blizzard of chasing “Chinese money”- appealing to Chinese censors to ensure profit from the region. Seeing how little profit that generates, we must ask why? Do they believe the region will become more profitable? Are other investors- from China or otherwise- less keen to be involved with a company who is not selling a product or service in China?
Are operating costs and budgets so tight, that the hypothetical loss of profits or viewership from the Chinese region could be disastrous for Blizzard? With the company laying off staff, there may be a grain of truth to that theory.
Ultimately, knowing even a little more about Blizzard causes more questions. Their actions showed an intense fear of controversy, yet acting in a way almost guaranteed to upset customers in the Americas, and other English speaking nations- thereby bringing in the European region.
They have risked a far larger profit-base and equally large tournament viewership turning against them, especially after how “hot-button” the issue has become thanks to the NBA’s reaction to a very similar situation. Did they not think anyone in the west would object to what they did to Blitzchung?
This incident is likely to be studied by future generation interested in public relations, and others will continue to dig into Blizzard’s every action for more insight. No matter what information comes to light later, one question is likely to endure the longest- hanging above Blizzard’s head. “Was it worth it?”
Looking at the cards on the table, it is one question Blizzard may not want the answer to.
What do you think? Sound off in the comments below!
Image: Diablo III