2 Hurdles Microsoft's Xbox One Faces in China

Launching the Xbox in China is the first step. The next is to cater the device to the right audience.

Chris Neiger
Chris Neiger
Apr 30, 2014 at 2:45PM
Technology and Telecom

The Xbox One will go on sale in China starting in September. Source: Microsoft.

Microsoft (NASDAQ:MSFT) dropped some pretty exciting news this week when it announced it would begin selling the Xbox One in China in September. The Xbox One will be the first foreign console of its kind available in the country since a 14-year ban on the devices was lifted back in January.

Despite the massive upside of releasing a high-end console in a country thriving with gamers, Microsoft will have to navigate rules about family friendly content and overcome an unproven console market.

All in the family
China's previous ban on consoles was partially aimed at protecting the country's youth from violent games. While discussions on violent video games persist in America, we clearly have a different cultural perspective on the issue. Some of the most successful games have been violent.

A recent GamesRadar article showed that of the 20 best-selling games of the last generation, six featured a large amount of violence. That doesn't mean only violent games sell, but they're a big part of a console's success.

To align with the Chinese government's preference for family friendly gaming, Microsoft will benefit from its current relationship with BesTV, a home entertainment and Internet protocol television based in China. The two companies said in September 2013 that they would work together, but only this week launched a joint venture, E-Home Entertainment Development.

In an online statement Microsoft said, "As part of the partnership, E-Home Entertainment is investing in an innovation program that will enable creators and developers to build, publish and sell their games on Xbox One in China and in other markets where Xbox is available."

Part of that partnership will likely involve ensuring the Xbox offers lots of family friendly entertainment that will pass the Chinese government standards. BesTV describes itself as "a global leader in China's growing 'family entertainment' industry," and Microsoft will need that influence to make the Xbox One successful in China.

Console demand
There's no question that Chinese consumers like gaming. Microsoft said Chinese gamers spent $13 billion in 2013 -- a 38% year-over-year increase. But much of that spending is for mobile and PC gaming, not consoles. While China isn't unfamiliar with console boxes, the vast majority of them are Chinese-made devices for a niche audience.

The company is also touting the nearly half a billion people who play some sort of video games in China. But again, most of those playing games right now are using PCs and mobile devices, and those that are on consoles are using very different systems than the Xbox One.

Wedbush analyst Michael Pachter said in a VentureBeat article this week that Microsoft could sell about 10 million units in China over the life of the device. To hit that number Microsoft will have to get the family friendly angle right and convince a country that's built its gaming on domestic consoles, PCs, and mobile that the Xbox One is the next step in its gaming pursuits.

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Final Foolish thoughts
Microsoft has been quiet so far on pricing for the Xbox One in China. With the device priced out of many American budgets, it's likely the same will be true for Chinese consumers. Microsoft can clearly create some incentives or special deals to woo consumers in China, but dropping the price low enough to create large initial sales isn't an option. The console is simply too new for that. 

Microsoft will likely take a more conservative approach to its Xbox One sales in China, considering it's the first legal foreign console of its kind in the country since 2000. Microsoft's partnership with BesTV will clearly help in making the console a success, but investors shouldn't expect the launch to drive up Xbox revenue significantly for the company over the short term.