As the only console manufacturer to launch after the ban lifted, Microsoft is the de facto bellwether for the industry. Both Nintendo and Sony are surely watching Microsoft's push into the region to help determine if and how they should launch their own standard consoles. However, it raises the inevitable question: just what qualifies as success in China? The country has been a blind spot in the gaming industry for so long, it’s difficult to assess a successful launch, much less its sustained growth.
For example, Microsoft is reported to have sold 100,000 Xbox One units in its first week on the market, and the company aims to sell more than one million within its first year. This appears to easily beat its Japanese launch, which sold only 23,000 units in Japan during launch week and historically struggled during the Xbox 360 era. Despite the boast, analysts are split on just how good that number is.
"I think the 100,000 Xbox One units sold and the growing purchasing power of the Chinese middle class suggests that the market is conducive to--and interested in--dedicated video game consoles," EEDAR's Matthew Diener said. "It’s safe to say that Sony, Microsoft, and Nintendo are well aware of the huge opportunities that exist in China’s predicted $18 billion gaming market.”
Gartner analyst Brian Blau is more hesitant to call the initial figure a success. "100,000 is not great," he said. "If it doesn’t go up from there, it’s terrible. If that’s the starting point and they’re slowly gaining momentum, it’s probably slow but okay."
"Factoring our tariffs, $30MM-$40MM in revenue is significant," said Jesse Divnich of Tilting Point. "Sure, 100,000 units is not the greatest number, but I don't think anyone expected figures higher than that."
Demographics muddy the results. China is one of the largest countries in the world, with an estimated 1.36 billion citizens. That's more than ten times Japan’s latest census data of 128 million. With ten times the audience, and absolutely no console competition, it only makes sense that Microsoft would see a larger number in China than Japan. That doesn’t necessarily mean it is more successful.
China’s heavier sales could also have an element of demographics. Japan has seen a sharp increase in its average age, while China is more evenly distributed. The age range between 20-40 is particularly skewed, as it’s one of the least populated demographics in Japan, and one of the most populated in China. The impact of that difference shouldn’t be understated in a medium primarily aimed at younger players.
However, young players might be hesitant to buy in China for purely financial reasons. As originally reported, a Hong Kong brokerage firm expressed doubts about a viable console market in Japan, after it found that most Chinese gamers earn less than 4,000 yuan ($634 USD) per month. Now that Xbox One has actually launched and been given a price drop, it stands at approximately $500 without Kinect, and $600 with Kinect. Sony will launch its PlayStation 4 at approximately $470. In both cases, a console purchase would account for most if not all of a full month's salary for the majority of the target audience.
“The system is clearly meant for the type of Chinese consumer who has a job at a big company, a salary, to afford a device like this,” said Blau. “That’s not the case for most Chinese consumers, so it’s going to have limited sales in the beginning.”
"There exist a market for home consoles in China, but it is not particularly big. Chinese consumers have a strong preference towards mobile and PC games that utilize the free-to-play business model," Divnich said. "The concept of spending $600 for a dedicated console and then spending an additional $30 for a game is foreign and certainly out of the price range for the majority of Chinese consumers.
"HD consoles will carve out a niche for themselves in China. Getting distribution and access in China for the consoles is definitely a worthwhile and profitable venture, but it will always be a small market compared to PC and mobile for the foreseeable future."
Microsoft does have the advantage, at least so far, of being the only option. Sony's plans to launch in the region came quickly, but Microsoft was the first out of the gate. The first-mover advantage can have a big impact in any region, and China has had a history of it continuing to have ripple effects for years to come.
“In the past, however, the first company into China enjoyed a sizable advantage over its competitors," Diener said. "The obvious example here is Kentucky Fried Chicken, which became the first foreign fast food company in China back in 1987. It’s grown at an unmatched pace thanks to the fact that it became synonymous with the concept of fast food to many Chinese consumers, and it was recently recognized by a BBC-commissioned study as the most powerful Western brand in China--well ahead of McDonald’s, which came in at #7.”
Analysts have also raised concerns about factors that aren't as influential in the United States or Japan. The first has helped shape the face of Chinese video games since the ban took place, and has had the ripple effect of influencing markets here as well.
“This prevalence of piracy, incidentally, is part of what drove the client-based F2P web game scene in China a decade or so ago," Diener said. "Developers realized that a traditional boxed game would be pirated within 24 hours of being released, and that their sales would plummet as a result. The F2P web game’s business model sidesteps this problem neatly, and keeps players’ money coming in to developers.
"Still, China’s been at the web game market for some time now and there’s a big push from developers--like Linekong – to transition away from web games to focus their development purely on F2P mobile titles. This isn’t a strong point in favor of consoles at face value, but what you can extrapolate from here is that Chinese gaming tastes are changing, and customers are looking for different experiences from the traditional Chinese-developed web game.”
Diener noted that consoles in China will also have to deal head-on with censorship, and that some games have already been held back because of it.
"As a result of this censorship, you’re seeing a lot of potential system sellers--Destiny, Titanfall, and Call of Duty: Advanced Warfare--absent from the Xbox One’s launch list in China due to their violent content. If console developers and publishers are banking on a release in the PRC, they’re going to have pay close attention to decisions made early in a game’s development and definitely plan with an eye toward China’s history of censorship.”
That may be why the launch line-up was severely slimmed from its original plans. While insiders claimed the launch was set to have 20 games in total, only 10 of them made launch day. Microsoft says it has more than 70 "in the pipeline" for approval, but some more violent ones may not make the cut.
