China gets Xbox as Microsoft beats rivals to $10 billion market
It's game on in China, as Microsoft Corp.'s Xbox One becomes the first entertainment console to hit the market after the end of a 13-year ban.
Microsoft today began taking orders for its new game console from online retailer JD.com Inc. via Tencent Holdings Ltd.'s mobile-messaging applications. The pair of Chinese Internet companies hold exclusive rights to pre-sell the locally made Xbox One until July 30, JD.com said in a news release. The console is slated to ship nationwide in September.
Microsoft was the industry's first big player to start production in the country after the Chinese government last year allowed console sales in the new Shanghai free-trade zone and opened up an estimated $10 billion market. The first Xbox didn't even exist in 2000, when the Communist Party banned game systems over concern they would be bad for kids. It was released a year later.
"The potential market for Xbox in China is huge, there's a lot of prospects for growth," said Bill Fan, a Hong Kong-based analyst at China Securities Co. "Tencent could cooperate with Microsoft on games in the future, and Xbox can utilize Tencent and JD.com's distribution channels to generate more sales."
Tencent shares rose 3.2 percent to close at HK$128.90 in Hong Kong. Microsoft has gained about 19 percent this year, compared with a 7 percent rise for the S&P 500 Index. Microsoft shares rose 0.2 percent to $44.50 in New York yesterday.
Entry Points
The Xbox One pre-orders on JD.com require a deposit of 499 yuan (US$81), and will only be available to those who use the Chinese versions of Tencent's WeChat and QQ mobile-messaging apps.
JD.com spokesman Josh Gartner wouldn't disclose the number of Xbox Ones the company was selling nor the price.
"Launching Xbox One sales in China through JD.com's Weixin and Mobile QQ entry points underscores the strength of these platforms with young and sophisticated Chinese consumers," Du Shuang, vice president of JD.com, said in the news release, using the Chinese name for Tencent's WeChat.
JD.com will begin directly accepting pre-orders for the new Xbox through its website and its exhibition booth at the ChinaJoy Expo in Shanghai on July 31, the company said.
Trade Zone
Game consoles were included on the list of items to be liberalized before Shanghai's free-trade zone before its creation last September.
Around the same time, Microsoft formed a $79 million joint venture with BesTV New Media Co., a unit of Shanghai Media Group Inc., to begin making Xbox consoles in the free-trade zone for the Chinese market. BesTV invested $40.3 million for a 51 percent stake in the enterprise, while Microsoft put in $38.7 million, according a September filing.
The State Council, China's cabinet, has since temporarily lifted the ban nationwide and announced plans to draft new rules on their sale. The country's video-game industry will generate about $10 billion in sales next year, according to PricewaterhouseCoopers LLP.
Sony Corp. has similarly agreed to form two ventures with the Shanghai Oriental Pearl (Group) Co., to start making PlayStation consoles in China. Nintendo Co. plans to expand in emerging markets with new devices starting next year, the company's president, Satoru Iwata, said on May 8.
Microsoft has been chasing Sony for dominance in the U.S. video-game console market. It introduced a lower-priced version of its Xbox One costing $399 on June 9 to narrow a $100 price difference with the PS4.
Duncan Clark, the Beijing-based chairman of BDA China Ltd., which advises technology companies, said Tencent and JD.com were well-positioned to benefit from the lifting of the ban. "For Xbox, Tencent is the most established games distributor, and, for JD, it's logistics, shipping and quality control," Clark said. "So it makes a lot of sense."
To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447bloomberg.net To contact the editors responsible for this story: Michael Tighe at mtighe4bloomberg.net Brendan Scott, Chua Kong Ho