Now that China has lifted the ban on the sale of foreign-made game consoles, a whole new world has opened up for the 700 million Chinese who currently play games on a local network. And it’s a staggering opportunity for the biggest game manufacturers: Microsoft (MSFT), Sony (SNE) and Nintendo (NTDOY).
Microsoft made the first move, announcing on Tuesday that it would launch the Xbox One there in September. Last year, Chinese gamers spent $12.3 billion on games, and 89% played them on PCs, according to research firm IHS Technology. The remainder used mobile devices.
By some estimates, 10 million Chinese households will buy the Xbox One and buy them as quickly as they did smartphones and tablets. Microsoft thinks that number is closer to a half billion, and has hooked up with Shanghai-based BesTV, a provider of TV services, to help with the launch and future sales.
Supplanting pirated products
Gamers have been exposed to pirated Xboxes as well as cheaper consoles that sell for $100, but now that Microsoft’s product will be legitimate, those boxes brought over from Japan and Hong Kong should fall out of favor. China’s booming middle class, with growing disposable income, is expected to go for the real thing. `
The fact that the Chinese government needs to inspect every order and wants games to be violence-free could pose minor problems for Microsoft’s blockbuster “Call of Duty” series. But Microsoft said it is welcoming the help of local game developers.
Microsoft’s Devices and Consumer Hardware division didn’t need China in the first quarter FY 2014. Revenues reached $1.97 billion, a 41% year-over-year increase. A price hike in the Xbox resulted in a 45% jump in revenue from the product, of which 1.2 million were shipped globally in that quarter.
Microsoft may be the first, but Sony will likely be right behind it with Playstation, and Nintendo with the DS and Wii.
Like Microsoft, $18.3 billion Sony makes money a million different ways. In 2013, revenue from Playstation contributed $1.6 billion to its yearly total of $72 billion.
Nintendo could be the biggest beneficiary among the trio. For the $13.3 billion company, gaming is the only game in town. However, it has struggled since the death of long-time company leader Hiroshi Yamauchi and a forecast that slashed its global Wii U sales by nearly 70% in first quarter 2014. Nintendo’s revenue also fell 8% for the nine months ended Dec. 31, 2013 to $4.8 billion and profit slipped 30%
Nintendo needs China
Nintendo doesn’t have other divisions to fall back on when sales of the DS, 3DS or Wii falter, which makes its foray into China far more meaningful to Nintendo’s bottom line.
Games like “Mario Cart 8, to be released the end of May, and older classics like “Donkey Kong” and “Zelda” should appeal to the younger Chinese generation. Nintendo’s systems definitely live long lives; GameBoy (now the DS) just turned 25. The new ones pose the most problems, with the Wii U called a “disaster.”
China may provide a much-needed turnaround for Nintendo, and an added bonus for Microsoft and Sony.