Can China Change The Game For Microsoft’s Xbox One And Sony’s PS4?

Looking at the potential impact that China lifting its console ban could have on Microsoft and Sony

Jan 9, 2014 at 2:45PM

At least according to official edict, it's been illegal and impossible for a Chinese consumer to get his or her hands on Microsoft's (NASDAQ:MSFT) Xbox One or Sony's (NYSE:SNE) PlayStation 4 in the Middle Kingdom.

This is nothing new for the Chinese gaming market. More broadly, it's actually been illegal to import any foreign video game console into the People's Republic of China since 2000.  

However, in a recent ruling the Chinese government reversed course, saying it will allow video game console producers like Microsoft and Sony to make and sell their respective gaming devices in the Shanghai free-trade zone, effectively opening the Chinese market to the likes of Microsoft and Sony.

China is, of course, one of the fastest-growing major emerging economies in the world. So just how significant an impact could this news have on Microsoft and Sony as the two competitors vie for video game dominance?

The show has gone on
Current estimates peg the market size at around $10 billion in annual sales. So in terms of addressable market, the Chinese gaming market certainly presents an attractive money making opportunity for both Sony and Microsoft.

However, cracking into the Chinese gaming market might be easier said than done for Microsoft and Sony. Because despite their undeniably strong gaming brands, the Chinese gaming industry has largely evolved beyond the kind of console gaming that Sony and Microsoft offer.

This is largely a byproduct of the same ban that China recently repealed. By isolating and localizing the market to such a high degree, the Chinese government created a industry climate where home-grown domestic gaming names like Tencent could thrive. It's the business equivalent of the Galapagos Islands, a place that gave rise to its own distinct set of species as a result of its isolation. 

And rather than use consoles like the Xbox and PlayStation 4, Chinese gamers prefer to use either desktop computers or mobile devices like smartphones and tablets. So given that gaming platforms on other devices are already the mainstream norm, getting Chinese consumers to shell out the additional several hundred dollars to buy a console seems a high hurdle indeed.

The nature of the market isn't the only reason that Microsoft and Sony might find breaking into the Chinese gaming space problematic though.

Unofficial presence
Although it's certainly harder to quantify, it seems that, legality aside, Chinese consumers have always been able to get their hands on a Xbox One or PlayStation 4 if they so desired. According to reports, a robust black market had developed around such banned goods offering ample availability of Microsoft's and Sony's leading consoles. By some accounts, these illicit vendors would go as far as even advertising that they sold Xboxes and PlayStations.  

And while it appears Chinese consumers have had access to Microsoft's and Sony's devices, bringing their sales channels out of the shadows and into the mainstream could have two benefits for the tech giants though.

The first is the possibility of lowering prices. It's no secret illegal markets allow prices to be set by those that take the risk of selling such wares. And since illegal vendors at least in theory faced possible legal retribution for selling black market goods, it's certainly possible Xboxes and PlayStations were sold with some kind of markup above what their retail prices would be. The second potential win for Microsoft and Sony comes on the distribution front. Legalizing their sale should allow Microsoft and Sony to tap into much broader distribution and sales channels as well.

Foolish bottom line
Although the two aforementioned advantages are nothing to sneeze at, it's hugely unclear whether or not a Microsoft or Sony have a meaningful market opportunity in China.

After so many years of evolving without their presence, it could easily prove fruitless for either company to break into this space. This is only an emerging storyline at this point. However, it's at least clear that the deck is stacked against Microsoft and Sony in the Chinese gaming market today.

A better way to invest in China's growth
As Chinese consumers grow richer, savvy investors can take advantage of this once-in-a-lifetime opportunity with the help from this brand-new Motley Fool report that identifies two automakers to buy for a surging Chinese market. It's completely free -- just click here to gain access.

Fool contributor Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers