Still No Call of Duty for China Gamers Getting Xbox One

Bloomberg News

Chinese consumers will get their first shot at legally buying game consoles today after a 14-year ban, as begins offering its Xbox One in 4,000 stores. The trouble is none of its most popular titles are available because of government restrictions.

Microsoft was the industry's first big player to start production in China, beating Nintendo Co. (7974) and Sony Corp. (6758) Yet the Xbox maker will contend with a generation that learned to play games on smartphones and tablets rather than consoles, and the hurdle of having available only 10 titles out of the hundreds released for it. Regulators are wary of violent content, and among the absent games are Destiny and Call of Duty: Advanced Warfare Day Zero Edition.

How the Xbox fares in China, where the exodus of casual players away from pure game machines is more pronounced, may show whether the world's most-populous nation can help reverse the console makers' fortunes. Video-game sales in the country are estimated to hit 111 billion yuan ($18 billion) this year.

'They will have to follow that up with good content,' said Brian Blau, an analyst at researcher Gartner Inc., referring to Microsoft's game library in China. 'Getting out of the gate first will be remembered. That's a feather in their cap.

Naughty Kitties

China prohibited consoles in 2000 -- the year before the first Xbox was sold -- to shelter youth from the violence and perceived corrupting influence of video games. That created a generation of gamers accustomed to playing online that's now increasingly shifting to apps on mobile devices. Many hardcore gamers also play consoles easily available on the black market in China.

China reversed the ban in January while stipulating that the Ministry of Culture and other government bodies would need to be closely involved in regulating content for the devices.

Titles available to Chinese gamers are essentially free of graphic violence and include Forza Motorsport 5, Kinect Sports Rivals and Zoo Tycoon.

Halo: The Master Chief Collection, along with Destiny and the latest Call of Duty installment, are among the console's 10 top-selling titles in the U.S. listed on Amazon.com yet are unavailable in China.

One exclusive to the China market is Naughty Kitties from local developer Coconut Island.

Souvenir Purchase

Wang Song, a 32-year-old game developer, was on hand with about 150 others for the console's release at a Suning department store in Beijing. Wang said he's been playing video games since elementary school and has black-market versions of the Xbox 360 and Sony's PS3 and PS4.

For now, his Xbox One purchase is more of a ''souvenir.'

'I'm not interested in any of the 10 games provided on the Xbox now,' Wang said of the titles released in China. 'I'm waiting for Halo and Titanfall.'

Microsoft and partner BesTV New Media Co. have a pipeline of more than 70 titles they are working to bring into the market, including games like Halo and Killer Instinct, said Microsoft spokeswoman Steffi Cao.

The device will sell in China for 4,299 yuan ($700) with the motion-sensing Kinect controller, compared with the $499.99 price that the same combination sells for in the U.S.

Unique Pricing

Pricing is 'unique to each market based on market conditions, tax, tariff and exchange rates,' Microsoft's Cao said. While the hardware costs more, software will be less expensive in China, Cao said.

'The hardware price will not be the issue,' said Lisa Cosmas Hanson, managing partner at Niko Partners. 'It is the games; the availability of great AAA games.'

It may be difficult to sell violent games with a lot of shooting in China, said Hideki Yasuda, a Tokyo-based analyst at Ace Research Institute.

'In China, the government regulates games,' Yasuda said. 'The game companies are preparing to enter China while watching the government.'

For foreign console makers, the lure is obvious. Video game sales will jump 39 percent to about 111 billion yuan this year, estimates Nick Ning, an analyst at 86Research Ltd. based in Shanghai.

Illegal Market

Still, he forecasts only 5 percent of the market will go to consoles.

'Firstly, smartphone games have developed and now can do a lot,' Ning said. 'Secondly, censorship in China is very strict. Even if people buy the console, the content they want to play needs to also get through censorship.'

Console makers trying to sell their machines in China are up against a generation of gamers used to playing free online (although they pay for virtual items). They will have to persuade players who use smartphones or tablets to pay hundreds of dollars for hardware that needs to be hooked up to a monitor or a television.

And they will have to contend with intellectual piracy.

While consoles were banned in the world's most populous nation, that didn't stop an illegal market from covering the needs of gamers who wanted them, Ning said. The consoles sold on China's black market don't face government content restrictions, and therefore allow more access to what hardcore gamers want, he said.

Oriental Pearl

Beating competitors into China was a needed win for Microsoft, which has trailed Sony's PS4 in U.S. sales for eight straight months. PS4 sales, which Sony last month said exceeded 10 million units, are about double the 5 million Xbox One units sold, Bloomberg Intelligence analyst Jitendra Waral wrote on Aug. 13, citing vgchartz.com data.

'Launching first in China speaks volumes about opening up a market that had been closed off for over a decade,' said Yoshio Osaki, senior vice president at International Development Group.

Earlier this year, Sony agreed to form two ventures with Shanghai Oriental Pearl Group Co. (600832) to make and sell consoles.

The company's move into China remains 'well on track,' Andrew House, president of Sony Computer Entertainment Inc., said in an interview at the Tokyo Game Show this month. Sony is working through issues of censorship and how to structure its network services in the country, he said.

Censorship Challenges

Nintendo plans to expand in emerging markets with new devices next year and the company is studying regulations regarding entry into China, President Satoru Iwata said in May.

'We are studying the Chinese market,' Yasuhiro Minagawa, a spokesman for Nintendo said by phone, declining to elaborate.

Having local content will be a challenge for anyone trying to sell a console in China, so Nintendo and Sony will soon be facing the same hurdles as Microsoft to get content into the market.

Censorship provides challenges, even down to the smallest details, as blood must be purple, not red, which can pose problems with content creators, said P.J. McNealy, chief executive officer of Digital World Research.

'The rollout of any console will take a long and concerted effort,' McNealy said. 'Some developers may actually balk about some of the rules imposed on their game development choices. It certainly isn't helpful.'

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net; Grace Huang in Tokyo at xhuang66@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Frank Longid