After years of rumors, late last week we saw the most solid evidence yet that China might actually be lifting its ban on game consoles. Needless to say, this has led to speculation that Microsoft and Sony are about to make a killing selling their consoles to a new market of 1.4 billion people. They aren’t, though. Here’s why:
1. China already has game consoles. There is no huge market of Chinese gamers waiting to buy consoles; those who want them have them already because they are widely available as gray market imports.
2. Legit games are too expensive. The official game consoles themselves are likely to be cheaper than gray market consoles. But gray market consoles cost more because they’re hacked to play pirated games. So in the long run, playing with official consoles will cost gamers way more because they’ll have to buy legit copies of games instead of the $1 pirated discs that are currently available. So while a gray market console might cost you an $250 compared to the legit console costing $200, a gray market console with ten games would cost $260, whereas that could run you as much as $800 if you’re buying legit copies of ten new games. And unfortunately for Sony and Microsoft:
3. Piracy probably isn’t going anywhere. That means that Sony, Nintendo, and Microsoft will have to try to compete with pirates selling their games at a tiny fraction of the actual cost. And when given the choice between a $60 game or a $50 hack and infinite $1 games, which do you think most gamers are going to pick? Sony’s Playstation 3 may have a slight advantage on this front as it’s more difficult to hack than most consoles thanks to its unusual hardware, but the PS4 is based on PC architecture and will likely be hacked much more quickly, so it’s probably in the same boat as Microsoft.
4. Consoles themselves don’t make money. OK, you say, so nobody’s going to be making much money off of console games, but Sony and Microsoft can still make money selling the consoles themselves, right? Wrong. Game consoles aren’t particularly profitable, and Sony’s next-gen offering (the Playstation 4) will actually be sold at a loss. To make console gaming work as a business, consumers need to be buying games. But in China, they probably won’t be (because of reasons #2 and #3).
5. China’s favorite game genres don’t work on consoles. Chinese gamers love MOBA games, RTSs and MMORPGs. None of those genres work particularly well on consoles because they’re most easily controlled with a mouse and keyboard rather than a controller.
6. The console sales model doesn’t work in China. Lots of Chinese game companies have learned this the hard way: charging for games up-front simply doesn’t work in China. The country’s most successful and profitable games almost all take the “freemium” approach, selling in-game items and other extras to offset the cost of giving consumers their game for free. But console games don’t really work like that. Next-gen consoles will be more focused on digital games, which may help to spread the freemium model, but they’ll also need to support Chinese e-payment systems like Alipay before they have any prayer of attracting large numbers of Chinese gamers.