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Microsoft Looks to Chi

Microsoft Looks to China for an Xbox One Rescue


Wang Song, a 32-year-old video game developer in Beijing, has considered himself a hard-core gamer since elementary school. Flouting China’s 14-year ban on consoles (the games are too violent, the government said), he owns Sony’s (6758:JP) PlayStation 4 as well as the older PS3 and Xbox 360. On Sept. 29 he lined up at a Beijing department store for the Chinese debut of the Xbox One, the first foreign console to make its way into the country legally in this century. Yes, there were lines.

That’s good news for Microsoft (MSFT), which has badly needed a sales boost for its console since the Xbox One and PS4 began dueling last November. Sony trumpeted its 10 millionth PS4 sold in August; Microsoft has been quiet about Xbox One sales figures since they crossed the 5 million mark in March. (Struggling Nintendo (7974:JP) has shipped close to 7 million Wii Us, having had an extra year on the market.) Little surprise that Microsoft would take the lead on moving into China, a largely untapped market for living room video games. “We know there are millions of gamers there and lots of pent-up demand,” says Phil Spencer, the company’s Xbox head.

“We know there are millions of gamers there and lots of pent-up demand.”–Phil Spencer, head of Xbox, Microsoft

Although the Chinese government lifted its ban in January, the chance to sell came with restrictions. Every piece of gaming hardware sold in China has to be manufactured in the Shanghai Free Trade Zone, which means Microsoft, Sony, and Nintendo have to alter their supply chains or create whole new ones to compete there. Microsoft is working with government-controlled BesTV New Media to make and sell its gaming gear in China. Sony has formed joint ventures with Shanghai Oriental Pearl Group, another government-controlled conglomerate, but won’t say when it will bring the PS4 into China; Andrew House, president of Sony Computer Entertainment, says only that the move is “well on track.” Nintendo is even more vague: President Satoru Iwata said in May that he plans to expand with new devices in emerging markets next year. Spokesman Yasuhiro Minagawa says the Mario maker is “studying the Chinese market.”

The Chinese government remains concerned about simulated violence and must individually approve each game that companies want to sell. Many of the best-selling games will have a hard time satisfying censors who zero in on the smallest details and insist that blood be colored purple instead of red, says P.J. McNealy, chief executive officer of Digital World Research. “The rollout of any console will take a long and concerted effort,” he says. “Some developers may balk about some of the rules.”

Only 10 titles were available for the Xbox One at its Sept. 29 China launch, and the megahits—Halo, Titanfall, Destiny, Call of Duty—weren’t among them. The tamer alternatives include Powerstar Golf, Zoo Tycoon, and Naughty Kitties, originally a free-to-play iPhone game in which players position gun-toting cats on a spaceship to fight invading aliens. “It is very cute,” says Wesley Bao, CEO of Coconut Island Studio in Shanghai, which developed Naughty Kitties. “The game play is very easy. You just arrange your cats on a spaceship.”

Microsoft spokeswoman Steffi Cao says her company has submitted an additional 70 games to the government for approval, including ones in the Halo and Killer Instinct series. Microsoft’s Spencer says he’s happy with the early photos of long lines for Xbox Ones, adding, “We are taking a long-term approach in China.” In a country with robust PC and mobile game sales, it’s unclear whether Microsoft will be able to sustain consumer interest until its heavy hitters are available through official channels. But game developer Wang, at least, also takes a longer view. Although he shelled out 4,399 yuan ($700) for his Xbox One (they start at $400 stateside), he doesn’t expect to use it much for now. He’s not interested in Naughty Kitties, he says: “I’m waiting for Halo and Titanfall.”

The bottom line: Microsoft, quiet about its Xbox sales as Sony’s PS4 sales topped 10 million, rushed to be first into China.

Bass is a reporter for Bloomberg News in Seattle.
Lococo is a reporter for Bloomberg News in Beijing.
Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.
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