Lifting of game-console ban in China offers opportunity

China's decision to lift a ban on the making and selling of videogame consoles by overseas companies could shake up the domestic gaming industry.

Under the new rules, both foreign and domestic gaming console makers would be allowed to manufacture and sell their devices anywhere in the country, according to a statement from the Ministry of Culture released last week.

China's ban on gaming consoles had previously limited foreign console makers to operations within the Shanghai Free Trade Zone (FTZ).

One analyst cautioned that it will take a major push by companies like Microsoft Corp, Nintendo Co and Sony Corp to take a bite out of the domestic gaming industry in China.

"China has been a headache for Microsoft, as well as a number of other tech players - really outside of Apple," said Daniel Ives, managing director and senior analyst for FBR Capital Markets. "But they can't ignore a fertile growth opportunity like China, especially what it has become on the consumer side, which is almost a ‘Wild Wild West' in terms of consumer gaming and other areas.

"Ultimately, given how fertile a market China is - now that Microsoft is going down a major growth path with Windows 10 and Cloud, as well as their gaming initiatives - China is one of the long-term growth targets for Microsoft."

The change of heart in Beijing allows access to a cash cow market that has seen computer and mobile videogames dominate due to limited access of devices like Microsoft's Xbox, Nintendo's Wii and Sony's PlayStation.

The video gaming market in China in 2015, including sales of consoles and mobile games, has an estimated value of $22.2 billion. That figure is up 23 percent year-over-year, according to Newzoo BV, a global gaming research firm.

"As you start to think about Microsoft's initiatives down the road, with Windows 10 and augmented reality, and how that all ties into gaming, I think Microsoft is possibly better-positioned just given the broader product suite," Ives told China Daily on Monday.

"Xbox is really going to be an integral piece to [the company's] vision of the next-generation of Microsoft within the consumer," Ives said. "In that sense, they're better-positioned, but it really remains an arms race in terms of trying to succeed in the Chinese market on the gaming side as Nintendo, Sony and Microsoft are going after this greenfield opportunity."

"The future is bright for gaming in China," a Microsoft spokesman wrote in an e-mail on Monday to China Daily. "We created the path in launching Xbox One last year because we saw a huge opportunity to bring the world of console gaming to China - and China's game industry to the world."

A Sony Computer Entertainment official told The Wall Street Journal that the Chinese government's decision to lift the ban is "great news for us".

Sony and Nintendo could not be reached for comment.

Due to government officials' concern over objectionable content, a moratorium was placed on video game consoles in 2000. As a result, Microsoft, Nintendo Co and Sony Computer Entertainment Inc, three of the world's largest video game console makers, had been shut out of China's lucrative video game industry.

China modified the ban in January 2014 as part of a pilot test program in the Shanghai FTZ.

The Xbox, which was available at more than 4,000 retail outlets in 37 cities at the time of its launch in September, was priced at 3,699 yuan ($602) without the Kinect motion detection system and at 4,299 yuan with it.

Sony's PlayStation 4 came to China in March, with an initial price tag of 2,899 yuan ($467).

"Microsoft and CEO Satya Nadella need to embrace the Chinese market," Ives told China Daily. "That's really the untapped area where they can succeed as opposed to other geographic regions that remain just a massive uphill battle."

jackfreifelder@chinadailyusa.com