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China lifted Console Ban

Jan 22 2014, 2:55am CST | by

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China lifted Console Ban
 
 

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China lifted Console Ban

On January 6,th 2014 title="State Council of the People's Republic of China" rel="homepage">the State Council of the People’s Republic of China announced that it had officially, though temporarily, lifted a ban on video game consoles that on September 27, 2013 it had said it intended to lift in the future. September 27th was the day it announced the Shanghai Free Trade Zone, and consoles are one of the products without restriction within the Shanghai FTZ. Eventually the ban could be lifted for manufacturing in the other current and future free trade zones, or maybe all of the country, but for now it pertains to only products made in the Shanghai FTZ. In addition, we all are waiting for a detailed set of regulations as it has yet to be released.

In my opinion the public excitement about how much new business Microsoft, Nintendo and Sony will generate as a result of this policy change should be tempered. For at least 8 years between 2002-2009 my company, Niko Partners, collected data on grey market (illegally imported) sales in mainland China of legitimate console units by the big three makers, as well as sales of “shanzai” (copycat) products by companies such as “Wee”. Each year during that period at least 1.2 million units of consoles were sold illegally. Upon the launch of Nintendo’s Wii roughly 500,000 units were sold in China, and when Xbox360 was launched roughly 450,000 units were sold. The PS2 (not the PS3) reigned highest among that generation and the previous generation of consoles in China because it could accommodate the broadest library of pirated game titles, and content is king. The PS3 had a rougher time because it was much more difficult to play pirated games on that system compared to the others.

In those 8 years and the subsequent 4 years of our overall Chinese and Southeast Asian games market research business, China’s PC online gaming market exploded and continues to boom in 2014. Add to that the fact that mobile smartphones and tablets are in high demand and mobile games are extremely popular on the mobile platform. This means that after 13 years of denying Chinese gamers legal access to consoles there may or may not be demand for them upon launch. More to the point, illegally imported console units are so widespread and easily found in China that gamers who have wanted a console in the past have already purchased one (at international prices). These units are imported via Hong Kong or Guangzhou, or places north, and then put on trucks to various destinations. There is even a city in the north that is known for the re-export to points further west of consoles that have been imported illegally. Still, a new generation of consoles always attracts new purchases, and China should be no exception.

The current console gamers in China have a few truths they all adhere to: 1) they all use mod chips, 2) they all download illegal copies of console games, and 3) they have no intention of paying full price for a packaged title – though a few years ago there were some sales of illegally imported full price titles because the quality is much better. Finally, 4) gamers play console games in single-player or local multiplayer mode only because they cannot connect to PlayStation Network or Xbox Live in China unless they go through servers in Hong Kong, and that gets very convoluted.

Microsoft, Nintendo and Sony Computer Entertainment are the best poised to benefit from the lifting of the ban on consoles, though domestic competition will emerge (most likely from Lenovo, Tencent, Xiaomi, HTC, Huawei, and others). Note: Nintendo and Microsoft are either current or past clients of Niko Partners’ market intelligence services. Even gamers who own previous generation consoles will appreciate the new opportunity to connect to other console users in the newly legal market segment. All vendors will need to adopt a China-appropriate business strategy including online rather than packaged product distribution, and content that will survey the laborious censorship process. Inevitably the online component will require console vendors to partner with domestic Chinese online game operators too, as foreign companies will not be allowed to distribute online directly. Most importantly, we have no idea what the regulations will be for hardware specifications, game content, online distribution requirements or other critical business factors.

For now, we are “wait and see” about what will happen. And nothing will happen until the regulations are finalized. Keep up to date with our news analysis on this and other topics by signing up for our free weekly Niko News via a link in the upper right corner of the homepage on www.nikopartners.com.

Source: Forbes

 

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<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
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