The testy breakup, after months of talks, ended a relationship that had seemed to prove that global commerce could thrive despite deepening geopolitical rifts. A partnership that had been worth about $750 million in annual revenue, according to company filings and the video game research firm Niko Partners, had become another case study in the increasing difficulty of doing business in China.
Details of the breakdown in negotiations between Activision and NetEase provide an unusual, behind-the-scenes look at how Chinese and American companies are struggling to balance the interests of the Chinese government with what they believe is best for their businesses.
China’s government, under its leader, Xi Jinping, has clamped down on China’s largest internet companies and urged businesses to adhere to the Communist Party’s priorities. It has barred children from playing video games on school days and tightened its already strict approval processes for companies to distribute new games. Last year, China’s $39 billion gaming market contracted for the first time in years.
“The private sector in China is in a very weak position now,” said Duncan Clark, the chairman of the Beijing-based investment advisory firm BDA China. “The cost of accessing the China market has gone up for Western companies, and for domestic companies, there is a greater fear of arbitrary regulations.”
In a statement, Michael Lee, an Activision vice president, said the company’s experience in China had been “very positive” for nearly 20 years, including its decade-long partnership with Tencent to offer Call of Duty. “While it’s true that the partnership you’re describing took a surprising and troubling turn, it’s important to recognize that this was an anomaly,” Mr. Lee said.