Console Wars: Can Sony Corporation's PlayStation 4 Win China?

Sony has announced that it is launching the PlayStation 4 in China. Will Microsoft and Nintendo let it succeed?

Jun 7, 2014 at 5:00PM

Sony (NYSE:SNE) announced that it is launching its PlayStation 4 in China. The move by Sony comes after Microsoft (NASDAQ:MSFT) announced plans to sell its Xbox One machine in China and Nintendo said it intends to expand in emerging markets with new devices.

The Chinese gaming market is desirable for console providers. The market has grown into a $13.75 billion industry. With growth of 38% in 2013 and analysts projecting 2014 revenue of $17.61 billion, there are significant prospects for Sony and Microsoft.

Number one spot
Sony's PlayStation 4 beat the Xbox One console to first place in U.S. console sales in April, according to NPG. Sony reported that 7 million PlayStation 4 consoles have been sold. Microsoft posted on a company blog that 5 million units of the Xbox One had shipped to retail outlets.

The Chinese deal
This step allows Sony to offer its console in China as a rival to Microsoft's Xbox One. In the deal, Sony agreed to form two ventures with Shanghai Oriental Pearl to make and sell PlayStation 4 consoles in China. One venture will be responsible for the PlayStation's hardware, while the other will be focused on the software. One of the ventures will be 51% owned by Shanghai Oriental and 49% owned by Sony's China operations. The other will be 30% owned by the Chinese company and 70% owned by Sony in China.

Mainland China is likely to be a difficult market for game consoles, which regulators only permitted this past January. The Chinese market for games is very different from traditional console markets in Japan, Europe, and the U.S. Chinese gamers mainly play computer and mobile games.

Sony will have to battle the rampant piracy of movies, music, and games in China. Without total certainty on the respect of its intellectual property, Sony may find it difficult to make money.

Entering a huge market in China comes with other risks. Will Sony face issues with censorship? Will the rampant theft of its intellectual property cut into Sony's software sales? Sony will face these issues.

However, with its large footprint Sony should overcome its challenges. The partnership with Shanghai Oriental Pearl gives the company a big advantage when it comes to sales in China. While Microsoft has a first-mover advantage, Sony's move could help it catch up with Microsoft in the market.

Foolish takeaway
In moving into China, Sony is seeking to tap players in the world's largest market and rebound from a projected sixth loss in seven years. Eventually, Sony will turn its PlayStation 4 into a main driver of the company's fast-growing network and streaming-services business. This will in turn spur sales across Sony's product categories where the Playstation 4 now has the top spot. The move could also help the PlayStation 4 maintain its global sales lead over the Xbox One console and ultimately decide the winner of the console wars.

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Jun 12, 2015 at 5:01PM

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