Analyst: Microsoft, Nintendo Preparing to Make Moves in China

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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

Microsoft (NASDAQ:MSFT) announced that it will launch the Xbox One in China this September. Last year, China relaxed its rules on consoles after having previously banned them in 2000 over concerns about the potentially harmful effects of violent video games on youths. Consoles are now allowed in China as long as they are manufactured in the recently created Shanghai Free-Trade Zone and approval from the authorities has been granted.

We think Microsoft’s strategy is interesting, insofar as they are leading with their most expensive console. The market for games is huge in China, and the country has a large middle class. However, the price point for the Xbox One ($500, and we believe likely to be more expensive in China) may limit initial penetration. Over time, we think that the company can sell as many as 10 million consoles, making the Chinese market one of the largest for the Xbox One.

The key to the Xbox One’s success in China will be Microsoft’s content strategy. The company partnered with BesTV, a subsidiary of Shanghai Media Group, and its strategy is to deliver not only game content, but over-the-top television content. We expect to see Microsoft roll out its OTT strategy in China at around the same time it rolls out the strategy in North America; this suggests to us that there will be additional announcements (and partnerships) for a U.S. rollout later this year.

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