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China could light the fuse for a video game console boom if a 12-year ban on consoles is lifted. But, will it open the door to China’s market, or could it lead to a massive new competitor coming out of the gate?
Over the past decade, China has proven to be an increasingly valuable market, particularly for luxury goods and technology. For Apple (NASDAQ:AAPL), China is the third largest market after the Americas and Europe, as a whole, and it accounts for $6.38 billion in the period that ended December 19. The numbers in China are rising all over the place.
For video game console makers like Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE), and Nintendo, China hasn’t been much of a market in the last 12 years. That’s because more than a decade ago, seven Chinese ministries issued a ban on manufacturing, selling, and importing game consoles.
But now, an anonymous source from the Ministry of Culture says ministries are discussing “the possibility of opening up the game console market.” In order to lift the ban, all seven ministries would need to agree, so some uncertainty still remains over whether the ban will actually be lifted.
Implications for the gaming market
Apple lends a clear picture of China’s potential, and what the Chinese market, where demand is high for Western products, can do for a company. Investors in Japan are clearly cognizant of the implications of the ban being lifted, with Sony shares jumping 9.1 percent in Toyko — 4.3 percent in New York — and Nintendo stock jumping 3.4 percent in Osaka following the news.
The big-3 console makers — Microsoft, Sony, and Nintendo — have a lot to gain if they can start selling in the massive Chinese market, but game developers have just as much to gain. Activision Blizzard (NASDAQ:ATVI) already has a lot going for it, with some of the most popular video games around — including the massive Call of Duty and World of Warcraft franchises. Being able to market its biggest games to China would be comparable to Apple’s ability to market its latest iPhones there.
Game and console makers could see a huge initial spike in sales as Chinese consumers satisfy a 12-year craving, but the mobile gaming could conversely take a hit. In recent years, consoles have had to compete with the accessibility of mobile games from developers like Zynga (NASDAQ:ZNGA), and in China, where mobile games have not been banned for the last decade, they served as an alternative for those people who would have otherwise enjoyed console gaming. If the ban is lifted, there could be a big shift away from mobile gaming in China (the opposite of what is occurring in Western markets), which would hurt the sales of developers like Zynga, and further damage profits of app stores that take a cut of app purchases — Apple’s App Store, for instance.
The big-3 console makers may see China as a new and glorious market that hasn’t been open for 12 years, but the stream could flow two ways. If the ban is lifted, China could also begin producing gaming consoles, and with the way China’s PC companies and smartphone companies have been enjoying growing success — with two Chinese smartphone brands reaching the global top-5 in the last quarter — a Chinese gaming console could also quickly become a big player in the game market.
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