Article originally posted in Daniel Camilo's LinkedIn
Although the Xbox One, PS4 and Switch have all been officially launched in China with their own localized versions of the hardware, the Chinese market remains a considerable challenge for the big console makers, Microsoft, Sony and Nintendo.
Officially-launched consoles (read this, and this for a better understanding of the console market in China) sell poorly and are vastly outperformed by imports when it comes to Chinese consumers preferences. Restricted access to games and online services (region locking) permeate these consoles to different degrees, but always enough to make them a bad choice, considering the “neutral” imported versions are actually even easier to buy.
The situation just became gloomier recently as Sony announced the suspension of services for the PlayStation Store in China. For how long? Indefinitely. What does that mean in practice? Don’t expect it to go back online any time soon, if ever.
Lost Trust? What Are The Consequences?
The most immediate reaction came from Chinese consumers who either own a “Chinese” PS4 and/or follow current events about the industry. Trust on maintaining a continuous and sustainable system of supply and demand for Chinese-licensed consoles has deepened to new lows, after a relatively optimistic period following the end of the “console ban” in China back in 2015. If gamers were already feeling cautious about licensed Chinese consoles, they are now left with no good reason to even bother considering those. That is the situation for well informed consumers. For more casual ones, it’s just an absolute mess and confusion, with people who bought those machines immediately feeling burned once they start using them and realize how restricted they are.
The situation is pretty similar for both the officially-launched PS4 and Xbox One in China. While Xbox’s online services have not been suspended, the games and services available through Xbox Live are beyond anemic, to say the least.
What Can Console Makers Do?
Nothing, pretty much. And that is the problem. In a situation like this, Sony can only watch from the sidelines as its brand is regulated by others, to whatever consequences it may lead to. That is part of the deal of launching in China, and they know it.
By observing what is happening, both Microsoft and Sony (and Nintendo for whatever console comes next for them) must be wondering why exactly should they even bother to release their consoles in China. The investment and time spent making required deals with local partners for distribution and licensing is huge (a Chinese partner is a must, by law), while the gains are residual at best, if any. By now, they know that imported consoles continue to proliferate in the country, and so does their respective software. So why bother? No point really, I would say, if in an executive position. Branding, some may say? Don’t worry, Chinese consumers know perfectly well what a PlayStation or Xbox are, and Super Mario is as iconic here as everywhere else.
Considering the current situation, there is simply no clear good reason as to why Microsoft, Sony or Nintendo should (once again) go through all the hurdles to launch their next generation of consoles in China. And they probably won’t, unless something changes. Again.
But let’s be clear about what would have to change for console makers to have a standard launch in China that could actually be comparable to most other markets, and make it worth it for both console makers and Chinese consumers: games (or at least a much larger portion of them) need to be made available to market on par with other regions; online services need to work; consoles can’t be region locked. All these measures clearly clash with the imperatives of Chinese regulations and expectations for their market, and are therefore highly unlikely to be made possible, in the foreseeable future.
A Glimmer of Hope?
While China is known for strategizing and planning for long terms, it’s clear that regulators don’t always act with that mindset in mind. Simply put, regulators are people too, and it’s safe to assume a lot of those dealing with these issues are not particularly familiar/knowledgeable about the gaming industry and its History. And in that may remain the hope of a positive change. In the same way they “gave in” so quickly and assertively after realizing what was happening (Chinese consumers accessing unregulated content), they might just reverse everything again once all the media buzz surrounding the new generation of consoles starts to bubble up and demand for the new consoles becomes more evident. It is not unlikely that the people who enforced the suspension of PSN don’t even realize the PS5 is coming so soon, and what that means for the gaming and consoles market in particular, and the associated weight of expectations...