Microsoft Corp.'s Xbox One Is Entering a New $10 Billion Market

Following a 13-year ban, the Xbox One just became the first gaming console available in China.

Jul 30, 2014 at 10:29AM

Microsoft stock, Xbox One, China

Microsoft's Xbox One just became the first console available for pre-order in China. Credit: Microsoft Corporation

It's official: following the end of a 13-year ban on video-game consoles in China, Microsoft Corporation's (NASDAQ:MSFT) Xbox One this week became the first gaming console available for pre-order in the country of more than 1 billion people. 

In fact, because the original Xbox wasn't introduced until late 2001, this technically marks Microsoft's first direct foray into the Chinese video-game industry, which PricewaterhouseCoopers LLP estimates will generate at least $10 billion in sales next year.

Specifically, the orders are arriving through Beijing-based JD.com (NASDAQ:JD), which is initially allowing users of Tencent's (NASDAQOTH:TCEHY) WeChat and mobile QQ messaging software to reserve the Xbox One with a deposit of 499 yuan, or just under $81. That might not sound impressive at first, but it's a huge start, considering QQ and WeChat collectively boasted nearly 1.2 billion monthly active users as of the end of 2013. As for the Xbox One, Microsoft has previously stated that the consoles are expected to ship in September.  

How did we get here?
To explain the ban, Chinese officials pointed to violent and otherwise questionable content as potentially fostering moral decay in China's youth. Even so, the ban did little to prevent immense growth in China's mobile, online, and PC gaming markets, considering the number of Chinese gamers easily surpassed 500 million earlier this year -- or more than the entire population of the United States. 

Microsoft stock, Xbox One

Content restrictions may prevent Xbox One gamers in China from accessing certain titles. (Shown: Titanfall), Credit: Microsoft

So when China created a new free-trade zone in Shanghai last September with the intention of easing those restrictions -- and noting that the deregulation still required foreign companies to have domestic partners for their console sales -- Microsoft unsurprisingly jumped at the chance by quickly forming an Xbox One-centric joint venture with Shanghai Media Group subsidiary BesTV. Through that partnership, Microsoft and BesTV confirmed in April they have worked feverishly to ensure that the Xbox One would "be the first system of its kind to launch in China."

At the same time, it's also safe to expect Microsoft's primary competition won't be far behind; in May, Sony set up a similar joint venture with China's Shanghai Oriental Pearl Group to produce and market its PlayStation 4 consoles in the country. As it stands, however, Sony still hasn't confirmed a definite time frame for its entry into the China gaming console market.

Meanwhile, Nintendo recently opted for a different approach: rather than launching existing hardware in emerging markets including China, Nintendo is instead building a lower-cost console from the ground up "that most of the middle class can afford." That system could be ready for the mass market as early as next year.

Difficulties, opportunities remain
Keep in mind that today's news does come with a few big caveats.

First, note that China's Shanghai free-trade zone was originally instituted on an experimental basis, all with the aim of allowing businesses within its boundaries to operate without many of the previously strict regulations the government had employed. As a result, there are no long-term guarantees that the lifted ban on video-game consoles will stick.

In addition, the content on these systems will almost surely still be subject to some form of regulation. That said, Microsoft's collaboration with BesTV also involves an "innovation program" aimed at helping Chinese creators build, publish, and sell their games on the Xbox One platform. And that's not to mention any future game-derived partnerships with Tencent, which purchased a 15% stake in JD.com earlier this year and already boasts a significant presence in the online gaming market.

In the end, challenges or not, I can't blame Microsoft for diving head-first into the new China gaming console market -- especially given the sheer magnitude of this opportunity. After all, you can't win if you don't play.

Steve Symington 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 don't 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers