Can Microsoft Corporation Really Sell 5 Million Xbox One Consoles in China?

China has approved the initial sale of 5 million Xbox One consoles. Credit: Microsoft Corporation

When Microsoft Corporation  (NASDAQ: MSFT  ) officially launched the Xbox One in western markets last November, it took until the following April before total unit shipments reached 5 million. But if recent comments from Microsoft's Chinese partner BesTV are any indication, the tech behemoth might well match that number for the Xbox One's launch in the Middle Kingdom next month.

This is a massive new market ...
For perspective, the entrance of Microsoft's Xbox One into the Chinese market is the first of its kind following the end of a 13-year ban on video game consoles in the country. That ban was instituted by Chinese officials seeking to mute any negative moral effects violent and otherwise questionable content might have on China's youth.

But as mobile, online, and PC gaming markets continued to grow, China decided to ease those restrictions and foster economic growth by including gaming consoles under the canopy of a new free-trade zone created last September in Shanghai. The caveat? Foreign companies were required to find domestic partners to help facilitate their respective launches -- which is where BesTV comes into play.

To be sure, when BesTV reported earnings last week, it revealed the Chinese government has approved the sale of 5 million Xbox One units in China, where the console hits the market on Sept. 23. And that seems fair enough, especially considering BesTV also stated China's $10 billion-per year video game industry is expected move as many as 50 million total console units over the next five years.

... but challenges remain
Of course, investors certainly shouldn't take the government's approval as a guarantee Microsoft's efforts will quickly move 5 million Xbox One consoles.

Not far behind, for example, will be the Playstation 4 from Sony (NYSE: SNE  ) , which has capitalized on Microsoft's early pricing and digital rights management blunders to sell a whopping 10 million units through to consumers so far. Sony has yet to reveal a specific release date for its Playstation 4 in China, but did announce its own partnership with China's Shanghai Oriental Pearl Group in May.

That's also not to mention the challenges posed by rampant software piracy in the region, inevitable content restrictions that could hamstring sales, and the fact grey-market machines have long been available for purchase at many Chinese shops.

What's more, Microsoft has already stated the Xbox One will retail without the Kinect sensor for 3699 yuan, or roughly $600. To its credit, Microsoft did remind investors of China's 17% value-added tax on imported goods, and attempted to take some of the sting away by noting it will offer cheaper games ranging from 99 yuan ($16) to 249 yuan ($40.46) per title. But in the end, the Xbox One's starting price may still prove too high for the average Chinese consumer to bear.

Is this Xbox One's moment to shine?
Price notwithstanding, however, you can bet these are also challenges with which Microsoft and BesTV are all too aware. And Microsoft appears to be learning from its other Xbox One mistakes, as evidenced by its recent decisions to not only refocus its message on gaming as the console's central theme, but also drop the Kinect -- which hardcore gamers don't particularly appreciate -- as a required accessory, thereby allowing it to reduce the U.S. price to match Sony's Playstation 4 at "just" $399. And though the PS4 is still outselling Microsoft's cheaper Xbox One, the latter move did at least result in Xbox One unit sales doubling sequentially from May to June

Whether Microsoft can translate that success to quickly move 5 million consoles in China remains to be seen. But in the end, I'm convinced the Xbox One is as well positioned as anyone could hope, and stands a great chance of capitalizing on a fresh start in the country of more than 1 billion people.

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